Fair Pay Agreements

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Employment Update: Fair Pay Agreements

Home Insights Employment Update: Fair Pay Agreements

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Contributed by: Kylie Dunn and Sally Dickison

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Published on: May 10, 2021

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Fair Pay Agreements 

Following recommendations made by the Fair Pay Agreement Working Group in February 2019, the Government has now officially announced the proposed design of New Zealand's Fair Pay Agreement system. The proposed design is substantively the same as that proposed by the Working Group in 2019. The essence of the proposal is a framework that would require employers and employees to agree to minimum standards across industries – a floor for terms and conditions of employment. This is akin to Australia's industrial awards system and pre-Employment Contracts Act 1980s New Zealand.
 
This proposal is just that – a proposal. There is a long road to go before it becomes law, with a Bill to be placed before Parliament "later this year". At that point, there will be an opportunity to provide submissions on the proposed new law. 

What is a fair pay agreement?

A fair pay agreement is an industry or occupation-wide agreement that would set minimum terms and conditions for all participants (employers and employees). It would cover base wage rates, overtime rates and penalty rates. Other terms (such as redundancy compensation and leave) can be included by agreement. An agreement may provide regional variations to account for the cost of living.
 
Collective agreements and individual employment agreements would still be available to provide additional and enhanced terms (ie the wage rates in the fair pay agreement would be a minimum).

What would the new system look like?

It is effectively collective bargaining for an entire industry – both employers and employees.
 
Bargaining could be initiated by a union if either:

  • it represents 10% or 1000 workers in coverage in that sector or occupation (with the sector or occupation defined by the union); or
  • a public interest trigger is met.

Unions will represent employees in the bargaining – whether or not those employees are union members. While it appears that there will be some 'opt out' mechanisms for employees who actively do not want to be represented by a union (or a particular union), all employees will be covered by the end agreement.
 
Where bargaining is initiated, employers are compelled to negotiate (together) to conclude an industry fair pay agreement. Both employees and employers covered by the proposed agreement would be able to participate in the ratification process. In the case of employers, there will be a small weighting towards small businesses to ensure that they have an appropriate say in the process. Strikes would be prohibited during negotiations.
 
Like the pay equity bargaining process, the fair pay agreement process is designed to get the parties to negotiate and agree to the terms and conditions directly. We anticipate that there will be real practical difficulties in doing so – given many employer parties who would be required to work together are competitors and many employer parties will have divergent interests in the bargaining process.
 
Also like the pay equity bargaining process, there are multiple opportunities for litigation as the fair pay agreement bargaining process proceeds – including the Employment Relations Authority having jurisdiction to determine whether the threshold for initiation is met (the representations or public interest tests above). A fair pay agreement must also be "vetted" by the Authority before it goes to a ratification vote. This may be an uncomfortable task for a body that traditionally (with some narrow exceptions) decides disputes between parties and does not set or approve terms and conditions of employment.
 
Once agreed,  fair pay agreements would cover all workers (both union and non-union) in an industry, regardless of union membership status and regardless of whether the individual parties had any opportunity to participate in the bargaining and whether they agreed with the outcome. As part of the agreement, unions can apply for union members to receive extra wages up to the value of their union fees. Fair pay agreements would not replace existing employment agreements (ie employees will get the best of whichever deal).
 
The proposed system does not cover independent contractors; however, it is expected that contractors will be included in a future amendment of the Act following the inevitable reform of the law regarding independent contractors' entitlements and protections.

Is this a good idea?

The purpose of the scheme is said to be to improve wages and conditions for employees, encourage businesses to invest in training, and  level the playing field so that 'good employers' don't get undercut or disadvantaged by a 'race to the bottom'. The proposal is also said to be aimed to increase productivity.
 
This is a lofty (and worthy) ambition, but it remains to be seen whether forcing disparate parties to bargain on the same side and then impose outcomes on non-participants is the right way to achieve this. Definitely a 'watch this space' issue.
 
We will keep you updated regarding further developments in this area. In the meantime, please feel free to contact our Employment Law Team to discuss this or any other matter.
 
 

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