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Fair Pay Agreements - The Select Committee Report is in

Home Insights Fair Pay Agreements - The Select Committee Report is in

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Contributed by: Kylie Dunn, Emma Peterson and Rose Powell

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Published on: October 07, 2022


The Select Committee has now reported back to Parliament on the Fair Pay Agreements Bill, which was introduced in March 2022. We have updated our earlier article on the Bill to reflect the changes made and to include everything you need to know about the Bill in one place. Overall, despite the significant volume of feedback provided by interested parties, the Select Committee has recommended that the Bill be passed with relatively few changes. As a result, the Bill will likely soon become law with many questions as to how it will work in practice remaining.

The Bill proposes a framework for collective bargaining for Fair Pay Agreements that would set minimum employment terms across specific industries or occupations. It would supplement (but not replace) collective bargaining between unions and employers and bargaining for individual terms and conditions. As set out below, in many respects (and subject to how frequently it is used) it would take New Zealand back to a system of national awards not seen on these shores since the 1980s.

We have set out below how the Fair Pay Agreement process would work in light of the key recommendations made by the Select Committee.

How would the Fair Pay Agreement process work?

In brief, the Fair Pay Agreement bargaining process looks a lot like traditional collective bargaining:

  • A union initiates the bargaining process for a particular group of employees (defined by occupation or industry)

  • Unions and employers appoint representatives

  • Bargaining occurs. The parties are able to use mediation (through MBIE's Mediation Service) and facilitation (through the Employment Relations Authority) to assist with any difficulties.

  • The Employment Relations Authority can set terms and conditions if no agreement can be reached or in the absence of a bargaining party representative (ie if there is none appointed/agreed to represent the employer side).

  • The final agreement reached is subject to a ratification process (addressed in more detail below, and more extensive than for traditional collective bargaining).

We have included some more detail regarding each step below.

Initiation of a Fair Pay Agreement

A union can initiate bargaining for a Fair Pay Agreement if it meets either of the following tests:

  • the representation test – at least 1,000 or 10% of all covered employees support initiating bargaining for the proposed FPA; or

  • the public interest test – the relevant employees receive low pay for their work and meet one or more of the following criteria:

    • have little bargaining power in their employment

    • have a lack of pay progression in their employment (for example, pay rates only increase to comply with minimum wage requirements) or are not adequately paid taking into account matters such as long/unsocial hours or contractual uncertainty (eg short term seasonal work).

In establishing if the relevant employees meet one of the tests above, the union needs to identify who was covered by the initiation, including whether it was to be occupation or industry based. The Bill gives an example of an occupation-based agreement as one which would cover all commercial cleaners, whereas an industry-based agreement would cover (for example) all butchers and bakers in the supermarket and grocery industry.

A union commences the process by an application to the Chief Executive of the Ministry for Business, Innovation and Employment (MBIE), who must be satisfied that the relevant test has been met. MBIE may call for public submissions in deciding whether one of the tests are met. If the test is satisfied, MBIE must issue a public notification within five days.

A union with a successful application must use its best endeavours to identify and then notify all relevant employees and employers. Depending on how coverage has been defined, this could be difficult to do comprehensively. There are also obligations on employers to provide the contact details of relevant employees to unions for the purpose of notification around bargaining.

All employees and employers falling within the industry of occupation are then covered by the bargaining.

Bargaining for a Fair Pay Agreement

Once an application is approved, each side needs at least one "bargaining party". It is contemplated that this will be the union who initiated the process, and then other unions and employer associations who apply to MBIE. There are default public sector employers who will be involved where a process covers public sector employees. In its original form, the Bill contemplated default private sector employer bargaining parties. The Select Committee has recommended that the Bill be amended so that the default bargaining party is voluntary, rather than mandatory. If no bargaining party is approved to represent the non-initiating side, the initiating side can apply within three months to the Employment Relations Authority for a determination setting the terms of the Fair Pay Agreement. This means that in the absence of an approved bargaining party, the Employment Relations Authority could be responsible for setting minimum terms of employment for entire sectors or occupations. If such an application is not made, then bargaining would be discontinued. This could be a significant change. The non-initiating side will commonly be the employer side. Business New Zealand has publicly said it does not intend to be involved. It is therefore not clear who would logically represent employers. 

Each employer bargaining party appointed by MBIE is required to endeavour to represent the collective interests of all covered employers, not just those employers who are members of the employer association. Likewise, an employee bargaining party must endeavour to represent the collective interests of all covered employees, whether or not an employee is a member of the union. Both employee and employer bargaining parties are required to ensure effective representation of Māori employees and employers.

The Bill extends the duty of good faith to cover relationships on both sides of the bargaining process. This means that parties on the same bargaining must deal with each other in good faith. We anticipate practical difficulties could arise in these situations – particularly given that many employer parties will be competitors and could have different interests in the bargaining process.

The Bill contains various provisions regarding meetings, union access to the workplace and meetings of employees covered by the process. These arrangements roughly mirror rights and obligations in traditional collective bargaining.

The Bill also contains a number of provisions setting out what is to happen regarding bargaining parties, consolidation or processes and changes to scope during bargaining.

What must be included in a Fair Pay Agreement?

Fair Pay Agreements must include:

  • start date and expiry date (the agreement must be in force for between three and five years)

  • coverage

  • normal hours of work

  • wages (base rates, superannuation; any overtime; any penalty rates) and any adjustments

  • process for variation

The Select Committee has recommended that in addition to the above, arrangements relating to training and development and leave entitlements would also have to be included in Fair Pay Agreements.

Provisions regarding pay and leave (even if above statutory minima) are considered minimum entitlements for enforcement purposes. This means a Labour Inspector could enforce a Fair Pay Agreement.

In addition, the parties must discuss the following (but need not include it in the agreement):

  • the objectives of the Fair Pay Agreement

  • health and safety requirements

  • flexible working

  • arrangements relating to any redundancy

Disputes and finalising a Fair Pay Agreement

As above, parties would be able to access mediation and facilitation assistance. The parties could also apply to the Authority to fix the terms of a Fair Pay Agreement in particular circumstances. The Select Committee has recommended that this include the situation where one bargaining side breaches the duty of good faith, and the breach was either deliberate, serious, and sustained; or involved behaviour that undermined the bargaining process.

Strike and lockouts would not be a lawful action in relation to bargaining for Fair Pay Agreements.
In terms of ratification, in order to be finalised a Fair Pay Agreement would need to be:

  • Approved by the Authority (it must do a compliance assessment)

  • Ratified by employees and employers who would be covered by the agreement

  • Verified by MBIE

  • Brought into force by MBIE through regulations or orders

Once finalised, all employers within coverage will be bound by it, regardless of whether they participated in the bargaining process. Likewise, all employees within coverage would receive the new minimum employment terms.

Other recommendations made by the Select Committee

A further recommendation made by the Select Committee relates to the situation that applies where a Fair Pay Agreement only covers a portion of an employee's work, or when multiple Fair Pay Agreements apply to an employee's work. The Select Committee has recommended including a new clause which provides that:

  • where at least 25% of an employee's work is covered by a Fair Pay Agreement, that employee is covered by the Fair Pay Agreement

  • if two or more Fair Pay Agreements meet the 25% threshold, the Fair Pay Agreement that covers the largest portion of the employee's work should apply

In the case of a dispute about coverage, employees or employers could apply to the Employment Relations Authority for a determination.

What's next?

As above, the Bill is not yet law but may well be passed into law in the next few months. The National Party has expressed strong opposition to the Bill and the Select Committee report notes that it would repeal the Bill if elected next year. It seems therefore that the ongoing debate over Fair Pay Agreements is far from over.

Overall, the Bill adopts many of the traditional collective bargaining processes that will be familiar to employers with unionised workforces. However, the added (big) complicated factor is how this will work when the bargaining is intended to cover an entire industry or occupation, and whether it is really workable to find representatives to bargain for a potentially disparate group of employers.

Please get in touch with a member of the team if you would like to discuss in more detail.

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