Fair Pay Agreements Bill: New legislation promises complete overhaul of employment relations landscape

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In what could entail the largest shift in employment law since the Employment Contracts Act reforms, the Fair Pay Agreements Bill was introduced to Parliament on 29 March 2022, passing its first reading on 5 April 2022.

The Government has signalled it intends for the Bill to complete the Parliamentary process and be passed into law by the end of the year.

The proposed fair pay agreements system

The Fair Pay Agreements system provides for sectoral bargaining, with employer / employee parties negotiating the minimum terms and conditions of employment (such as wages and leave entitlements) for an industry as a whole.

Unions have signalled that they will target Fair Pay Agreements for industries which are viewed as having systemic issues in working conditions and pay, such as forestry, supermarkets, cleaners and security guards.

The system would function similarly to the awards systems which New Zealand operated under prior to 1991. Similar systems can also be found in countries like Australia and in much of Europe. While the Fair Pay Agreements would set a ‘floor’, individual employees are free to negotiate better conditions, and employers are free to offer better conditions to compete for workers. One of the aims of the legislation is to prevent the ‘race to the bottom’ and stop good employers from being undercut in the market when they offer better conditions.

The Bill introduced to Parliament has not deviated significantly from the proposals outlined in Fair Pay Agreements Cabinet Paper- read our detailed summary of the proposals here.

In sum, for a union to initiate Fair Pay Agreement bargaining, they would need to meet a representation test of either:

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

Any union seeking to initiate bargaining in line with the above process would need to receive approval from the Chief Executive of MBIE. In sectors which have low levels of organisation or have particularly vulnerable employees, bargaining can also be initiated by a ‘public interest’ trigger (also to be approved by the Chief Executive of MBIE). In deciding whether to approve an application to initiate bargaining, the Chief Executive is able to invite public submissions on the issue.

Once bargaining is initiated, parties would negotiate on the terms and conditions which will be fixed under the Fair Pay Agreement for that industry. Negotiation points which parties are required to reach agreement on include the coverage and term of the agreement, normal hours of work, minimum base wage rates, overtime, penalty rates and superannuation, as well as governance arrangements and an agreed process for varying the terms of the agreement. Parties would also be required to discuss (but not required to agree on) other matters including health and safety requirements, leave entitlements, flexible working and job support / training.

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. If a proposed Fair Pay Agreement fails to be ratified twice, the parties can then turn to the Employment Relations Authority, which would have the power to set the terms of the Fair Pay Agreement.

New details

The core of the above framework has remained largely unchanged in the new Bill. The Bill has however provided further detail of how the proposed system would operate in practice.

Default parties: The Bill provides that if bargaining is initiated and one side is unrepresented, default parties will step into the bargaining. These default parties will be specified in separate regulations, which must specify an employer default bargaining party that is “the most representative organisation of employers in New Zealand”. Once specified, that organisation will be legally required to act as the employer bargaining party in circumstances where a default party is needed. This is significant, given BusinessNZ have announced they are refusing to participate in the scheme as the Government’s nominated ‘default-representative’ where a suitable employer representative cannot be identified.
Inter-party side agreements: Once bargaining is initiated, each bargaining side must agree an inter-party side agreement and appoint a bargaining side lead advocate. The inter-party agreement must include the process that the bargaining side will follow to make decisions during negotiations.

Looking forwards

There are a number of practical questions which remain, such as how all affected parties will be notified about the initiation of bargaining and of progress / outcomes. Other questions include how votes on ratification will work in practice, and how parties are to co-ordinate bargaining across a broad range of groups with competing interests.

No doubt these questions will be delved into as the Bill passes through the Select Committee process and the remaining readings in Parliament.

If you would like further information, advice, or assistance in preparing submissions on the Bill during its Select Committee stage, please contact a member of our specialist 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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