New employment law: Essentials of the Fair Pay Agreements Act

On 1 December 2022, the Fair Pay Agreements Act (the Act) will come into effect. Regardless of business concerns, employers need to understand how this significant and complex new law will operate and affect them. The Act establishes a framework for bargaining between employers and employees across an entire industry/sector or occupation, in order to set minimum terms and conditions of employment.  A lack of engagement in bargaining could leave employers in a position where these terms are set and apply to their business, without their involvement.

What is a Fair Pay Agreement? 

A Fair Pay Agreement (FPA) is an agreement that applies to all workers across an industry or occupation, providing sector wide minimum terms and conditions of employment. 

How does the process work? 

The Fair Pay Agreement process broadly involves: 

• A union initiating the bargaining process for a defined group of employees 
• Unions and employers appointing representatives to bargain on their behalf 
• Bargaining takes place 
• The Employment Relations Authority may set terms and conditions 
• Final agreement is reached subject to ratification. 

However, as with all processes, the devil is in the detail. 

What’s covered in a Fair Pay Agreement 

Certain employment terms must be included in an FPA: 

• The work covered by the FPA 
• Based on employee occupations (an occupation-based agreement); or 
• Based on the occupation and industry (an industry-based agreement). 
• When the agreement will come into force and expire 
• Normal hours of work 
• Wage details including minimum base rates, overtime and penalty rates 
• Training and development 
• Leave entitlements 
• Governance arrangements 
• An agreed process for variations 

Parties are required to discuss (but not necessarily agree) on other matters including: 

• Objectives of the proposed FPA 
• Health and safety requirements 
• Flexible working arrangements 
• Redundancy  

FPAs must be for a minimum of 3, maximum of 5 years. 

Who could be covered in a Fair Pay Agreement? 

Any eligible union may initiate bargaining for an FPA if it meets either a representation or public interest test: 

• The representation test requires 1,000 employees or 10% of the employees who would be covered by the proposed FPA to support the application to initiate bargaining. 
• The public interest test is met if employees who would be within the coverage of the proposed FPA:   
• Receive low pay for their work; and 
• Meet one or more of the following criteria: 
• Little bargaining power in employment;  
• A lack of pay progression in employment (e.g. pay only increases with changes to Minimum Pay obligations); 
• Inadequate pay, taking into account long or unsociable hours, or contractual uncertainty (e.g. seasonal or casual workers). 

The eligible union commences the bargaining process by applying to the Ministry of Business, Innovation and Employment (MBIE) for approval. 

Notification  

The Act places notification requirements on initiating unions and employers, once bargaining has been initiated. In assessing an application, the Chief Executive of MBIE may call for public submissions in deciding whether the tests are met, as well as request further evidence and information from the initiating union.   

If the test is satisfied, MBIE must issue a public notice within five days. A union with a successful application must identify and then notify all relevant employees and employers. There are also obligations on employers to provide contact details of employees to unions for the purpose of notification.   

Who will be representing parties in bargaining? 

Unions will represent employees in bargaining for FPAs and it is expected that employer associations will represent employers. This is problematic where no business association has indicated its willingness to take on that role, or that it is sufficiently resourced to do so. 

If there is no employer bargaining party, a default bargaining party may be available, but to date no regulations have been issued by MBIE. 

The solution to this issue, which was made well known to the Select Committee, has been the introduction of a ‘backstop policy’ in the Act. If there is no party willing to represent a side in the bargaining, the other side (i.e. most likely, the union), will be able to apply to the Authority to set the terms of the FPA. This means that FPAs could be imposed on an industry without negotiation nor employer involvement.   

How Fair Pay Agreements are bargained for and finalised  

Bargaining for FPAs is to take place within a framework of good faith obligations and processes. The process is expected to be similar to the traditional collective bargaining parties, but with more parties involved.  

There are significant penalties for breaching good faith bargaining obligations. 

Strikes and lockouts related to FPA bargaining are not lawful unless on health and safety grounds. 

Training and a government provided bargaining support person will be offered to each side in bargaining. On the assumption of no more than four FPAs being bargaining per year, the government will contribute up to $50,000 per bargaining side, with additional funds provided in some cases. 

Once agreement is reached, it is sent to the Employment Relations Authority. The Authority may refuse approval if the FPA does not satisfy the requirements of the Act, employment standards or other relevant employment law requirements. The Authority will also assess whether there is a coverage overlap between the proposed agreement and any other FPA, and if so determine which has better terms overall. Once approved, the FPA will be ratified by covered employees and employers (based on a simple majority vote), then validated by MBIE, and will finally come into effect. 

Enforcement of the FPA terms will be through a penalty regime. 

A finalised FPA will apply to all employers within its coverage, regardless of whether or not they have participated in bargaining. Employers covered by the FPA must then provide the minimum employer terms set out to the covered employees. If terms of an FPA overlap with existing terms of an individual or collective employment agreement, the more favourable term to a covered employee will apply. 

A note of caution 

FPAs could be introduced quickly, and union initiation of bargaining is likely to be swift come 1 December.   

Bargaining is anticipated to be quickly initiated on behalf of employees in sectors identified as vulnerable. For example: cleaners, security guards, supermarket check out operators, bus drivers and hospitality workers. However, there will be well organised other claims initiated early which are likely to take some businesses by surprise, at a busy time of year. 

The Fair Pay legislation is complex, with strictly prescribed procedure including tight timeframes. It has significant implications for business. If your business is named in an FPA claim, we recommend seeking prompt advice from experienced employment lawyers, who have experience in collective bargaining and prior pay equity claims. Business industry groups should be considering whether there is an association who may be able to represent them if bargaining is initiated. In anticipation of bargaining, employers need to consider important aspects to planning and managing bargaining, including: what key employers will be party to negotiations; how confidentiality will be managed; who will be on the employers’ bargaining team; what are the pay and conditions within the sector and likely benchmarks; how the costs and disruption of bargaining will be managed; how possible new FPA terms will be budgeted for. 

However, the National Party has opposed the Act and indicated it will repeal it, if elected in the 2023 General Election. Regardless, it would be difficult for an employer to roll back terms and conditions of employment to an employees disadvantage, and therefore the race will be on for unions to try to make sector wide change in as many areas as possible once the legislation comes into effect in December.   

At DTI Lawyers, we have an experienced, specialist team of employment lawyers, who are well placed to provide advice and representation on Fair Pay and other employment matters. They can be contacted on 07 282 0174 or email andrea@dtilawyers.co.nz