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Fair Pay Agreements – What are they and what could they mean for employers?

After teasing the prospect for the past few years, the Government finally released the Fair Pay Agreements Bill to Parliament. The purpose of this Bill is to set out the proposed framework for collective bargaining for industry-wide or occupation-wide minimum employment terms.

If passed, this Bill has the effect of signing up all employees or employers to an FPA if the employee(s) fall within the proposed industry-wide or occupation-wide coverageIt essentially sets a blanket coverage floor of pay and conditions across an industry or occupation, particularly, but not necessarily, in low-wage sectors with a stated intention to stop a ‘race to the bottom’.

Any eligible union can initiate FPA bargaining through an application process. To do so, they would need to describe an industry-wide or occupation-wide coverage and initiate bargaining for the FPA by:

  • Obtaining support from least 1,000 or 10% of employees in the proposed coverage; or
  • Satisfying a public interest test based on specified criteria i.e. low pay, little bargaining power, or lack of pay progression.

Business groups would need to bargain with a union representing those workers, or accept the ruling of the ERA if they refuse to negotiate or no deal is made.

The Bill outlines certain terms and topics that must be included in an FPA and also what topics the parties must discuss but do not need to include, such as health and safety and leave entitlements. An FPA must apply for no less than three years, but no more than five years.

Interestingly, it provides the option for parties to agree that different terms may apply to different employees or classes of employees. It also allows for some regional differences to be recognised (e.g. pay might be higher in Auckland where living costs are also high).

Currently, the FPA coverage excludes contractors. Penalties would be imposed if employees are misclassified as contractors and there will be more ability for Labour Inspectors to investigate into that area. This places more responsibility on employers to ensure the genuine employment status of their workers.

For employers, a worrying prospect of FPAs (back when it was an unknown) was whether they would have to be automatically signed up. The Bill itself allows for some leniency, which is that parties may agree that the FPA or certain terms of the FPA will be temporarily delayed for less than 12 months if:

  • the employer is in serious financial hardship, or
  • denying the delay would make employees worse off; and
  • approving the delay would allow the employer to arrange its business so that applying the FPA and/or certain terms will no longer result in a less favourable outcome.

Where disputes arise over coverage, the main form of dispute resolution, after attempting mediation, would be a determination from the Employment Relations Authority.

To finalise an FPA, it must be:

  • assessed and approved by the Authority
  • ratified through voting process by covered employees and employers; and
  • brought into force by MBIE through secondary legislation

A finalised FPA will apply to all employers within its coverage, regardless of whether they participated in the bargaining process or not.

What now?

Employers will now need to consider whether they fall under these specific industries or occupations. Employers will also need to think about who will be representing their interests and anticipate that agreeing on the bargaining process and terms of an FPA will be a challenge due to multiple other employers being involved. This likelihood may be even more problematic for employers who cannot attend the bargaining to have their say or for employers who have no union members, and yet the final FPA will be applied to them at ratification.

It also raises many questions like what will happen to the current Collective Agreements that employers have in place and what information will we see bargaining parties looking to rely on to strengthen their claims for industry-wide bargaining? Will we see more investment on research being performed in certain industries, on types of workers or trends in communities of New Zealand to understand pay trends, lifestyle habits and other factors that may influence bargaining? Currently we have the Living Wage as a standard that researchers have landed on and that union advocates have harnessed, will Employers jump in on this trend of providing information, or making information public, to help their position?

Where this can be problematic and overwhelming for employers is where they may need to deal with multiple FPAs within one workplace.

The Bill must now go through the full parliamentary process before being passed into law. Public will have an opportunity to comment on the Bill during the Select Committee process.

If you are interested in sending in submissions, you can do so here. Government is hoping to pass this Bill into law by the end of the year.


This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

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