Fair pay agreements: back to the future?

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A potentially transformative shift in New Zealand’s employment relations landscape

The Government has announced the proposed framework for a new fair pay agreement system in New Zealand. In sum, employers and employees would be required to agree on a ‘floor’ for terms and conditions of employment in an industry. Australia and much of Western Europe employ similar systems, as did New Zealand before the Employment Contracts Act 1991.

What is a fair pay agreement?

While still only a proposal, fair pay agreements would set minimum terms and conditions of employment (like wages, overtime rates and leave entitlements) for an industry as a whole.

The agreements would be reached through sectoral bargaining, where businesses and unions collectively negotiate labour conditions for all employees across an entire sector or industry.

Once agreed, the terms of the fair pay agreements would apply to all workers in the sector, whether they are members of the union or not.

Fair pay agreements would not replace existing individual employment agreements or prevent the negotiation of location / company-specific collective agreements. Rather, employees will receive the better of the two deals.

Who would do the negotiating?

An example which the Council of Trade Unions has cited is supermarkets. Rather than having various unions negotiate with each location (of, for example, New World), a union would negotiate an agreement which covers all supermarket workers, at all supermarkets, across the country.

Where bargaining is initiated, employers are compelled to negotiate (together) to conclude an industry fair pay agreement.

The proposal gives BusinessNZ the task of finding a suitable industry body to negotiate on behalf of the industry employers. Where it cannot find a suitable industry body, BusinessNZ would step into negotiations itself as the employer representative.

How would the new system work?

For a union to initiate fair pay agreement bargaining, they would need the approval of either:

  • 10% of the workers in the proposed coverage area (defined by union); or
  • 1000 employees.

In sectors which have low levels of organisation or have particularly vulnerable employees, bargaining can also be initiated by a ‘public interest’ trigger.

The focus of the fair pay bargaining framework is (similar to the pay equity framework) to get the parties to negotiate and agree on terms and conditions. Where they cannot do so, there are multiple opportunities for mediation and litigation as negotiations proceed. This includes the Employment Relations Authority, who would be given the jurisdiction to set the terms of the fair pay agreement if the parties reach a stalemate.

Where agreement is reached, the proposed fair pay agreement would need the approval of a simple majority of both employee and employer voters within the industry to be ratified.

While some commentators have raised concerns that this proposal would result in an upswing in strikes and industrial action, it is proposed that it will be unlawful for unions or workers to strike in support of fair pay bargaining.

In its current form, the proposal does not cover contractors, although the Government has signalled that the final version of the law is likely to include them. Gig economy employers, such as Uber, have been under increasing pressure over the terms and conditions of their workers, and have been subject to a number of challenges in the Employment Court recently.

Beyond improving wages and conditions for employees, an intention of the proposal is to prevent a “race to the bottom”, with employers undercutting each other by keeping a low ceiling on wages and employment conditions in order to remain competitive. The Government has said that the proposal aims to level the playing field so that good employers are not undercut and disadvantaged. It remains to be seen whether this will eventuate.

This proposed system will likely present logistical challenges, as grouping all of an industry’s employers together as one bargaining group may mean there will be some difficulty in negotiations, as they are likely to have disparate and competing interests.

We will keep you updated regarding further developments in this area. For more information or specialist advice, please contact a member of our employment 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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