Fair Pay Agreements Act 2022 – the biggest change to employment law in 20 years

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The Fair Pay Agreements Act 2022 (FPA Act) has been passed, and will come into effect quickly, on 1 December 2022. The new Act is the biggest change to employment law since the Employment Relations Act 2000.

What is a fair pay agreement?

A fair pay agreement is an agreement that applies to all workers across entire industries or occupations. It will provide minimum terms and conditions of employment for an industry as a whole, regardless of specific employers.

There are various matters that a fair pay agreement must cover.  These are:

  • when the agreement will come into force and when it expires;
  • the coverage of the agreement;
  • normal hours of work;
  • details of wages, including minimum base wage rates, overtime, and penalty rates;
  • arrangements for training and development;
  • leave entitlements;
  • governance arrangements; and
    an agreed process for varying the terms of the agreement

Parties will also be required to discuss (but not required to agree on) other matters including:

  • the objectives of the proposed agreement;
  • health and safety requirements;
  • arrangements relating to flexible working; and
  • arrangements relating to any redundancy.

The fair pay agreement must apply for a minimum of three years and a maximum of five years.

A fair pay agreement may cover, and provide different entitlements for, different classes of employees, such as those who would be covered by a starting-out wage or a training wage. The agreement can also have different classes depending on the type of role, or the location of the employee.

Who could be covered by a fair pay agreement?

The FPA Act enables any eligible union to initiate bargaining for a fair pay agreement if it meets either a representation test or a public interest test.

The representation test is met if at least 1,000 employees or 10% of the employees who would be within the coverage of the proposed fair pay agreement support the application to initiate bargaining for the proposed fair pay agreement.

The public interest test is met if employees who would be within the coverage of the proposed fair pay agreement:

receive low pay for their work; and
meet one or more of the following criteria:

  • they have little bargaining power in their employment;
  • they have a lack of pay progression in their employment (for example, pay rates only increase to comply with minimum wage requirements);
  • they are not adequately paid, taking into account factors such as working long or unsocial hours (for example, working weekends, night shifts, or split shifts), and contractual uncertainty, including performing short-term seasonal work or working on an intermittent or irregular basis.

All employers of covered employees will be included in the fair pay agreement. For negotiation, the employers will be represented by an organisation; they will not be choosing one employer in an industry to negotiate on behalf of all employers in that industry. 

How is the fair pay agreement reached?

The FPA Act creates a framework for bargaining for fair pay agreements by:

  • setting out a general duty of good faith, and good faith obligations that apply to bargaining parties (within the same bargaining side and between bargaining sides);
  • prescribing processes for initiating bargaining, carrying out bargaining, and finalising a fair pay agreement;
  • providing processes to resolve disputes that may arise during bargaining for a fair pay agreement; and
  • establishing regulation-making powers to give full effect to fair pay agreements bargained under the Bill.

Once an agreement is reached between the employee and employer bargaining sides, it must be submitted to the Employment Relations Authority and checked for compliance. The Authority may refuse to approve the fair pay agreement if it is not satisfied that the requirements of the FPA Act, employment standards, and any other employment law requirements are not met. There is no appeal from a refusal, although the parties may undertake additional bargaining and resubmit an agreement for approval.

Once a fair pay agreement is approved by the Authority as compliant, it must be ratified by covered employees and employers. If a fair pay agreement is ratified, then it will be validated by the Ministry of Business, Innovation and Employment and come into effect.

If a fair pay agreement cannot be ratified after two attempts (for example if employees or employers twice vote against the proposed agreement), the Employment Relations Authority will be empowered to fix the terms of the agreement,

When a fair pay agreement has been finalised, it applies to all employers within its coverage, regardless of whether they participated in the bargaining process. Likewise, all employees within coverage would receive the new minimum employment terms regardless of whether they are union members.  Employees and employers will still be able to negotiate their own agreements outside of the fair pay agreement, but only if the terms do not fall below those set out in the fair pay agreement.

Who will be doing the bargaining?

The bargaining for fair pay agreements will be conducted by unions on behalf of employees, and employer associations on behalf of employers. In certain circumstances, including for example if there is no employer association available to represent employers, the bargaining may be conducted by what the FPA Act describes as “default bargaining parties”.

These default bargaining parties will be confirmed in regulations that are still be issued by MBIE, but are highly likely to be the Council of Trade Unions (for employees) and Business New Zealand (for employers). However, Business New Zealand has on multiple occasions made clear that it does not intend to take part in fair pay agreement bargaining.  As a result, there is potential for there to be no employer associations who are able, or willing, to represent certain employer groups in negotiating fair pay agreements.

The FPA Act does anticipate this issue and includes what is known as a “backstop policy”. In short, if there is no party that is willing to represent one side in the bargaining, the other party (most likely to be a union) will be able to apply to the Employment Relations Authority to set the terms of the fair pay agreement. This means that it is possible that fair pay agreements could be imposed on certain industries without any negotiation or employer input.

Is there anything else I should know?

With an election in 2023, the FPA Act may not be around for long.

The National Party opposed the FPA Act, and have said that they will repeal it, if elected next year. They argue that the legislation is not about fair pay; it is about the Government imposing mandatory union deals on Kiwi workplaces.

The ACT party was also opposed to the FPA Act, saying that it:

“believes that an employment contract is between an employee and an employer.  While we believe that unions play an important role as bargaining agents if wanted by the employee, this bill overrides basic freedom of association by allowing the union to represent a worker even when the worker does not wish that to happen, and to set conditions that may be against the wishes of the employee.”

In the meanwhile, employers should start thinking about whether there is an association who may be able to represent them if FPA bargaining is initiated in respect of their employees, and which other employers may need to be involved. While the bargaining process is likely to be lengthy if both sides are represented (and in our view unlikely to be concluded before the 2023 election), employer groups who lack representation do face the very real possibility of terms being imposed on them by the Employment Relations Authority within a relatively short space of time.

Special thanks to Senior Associate Alastair Espie and Hayley Dale for preparing this article. If you have any questions about fair pay agreements, or employment agreements generally, please contact a member of our Employment Law team.

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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