News & Thinking

A significant reform to New Zealand’s labour laws: the Fair Pay Agreements Bill.

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Anne Wilson

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Anne Wilson

The Government has introduced the Fair Pay Agreements Bill to Parliament this week.  The purpose of the new law will be to provide a framework for collective bargaining for industry or occupation wide Fair Pay Agreements’ or ‘FPAs’ that will set minimum employment terms for that occupation or industry group.

The new law seeks to further the Labour Government’s policy of improving labour market outcomes in New Zealand particularly for jobs with inadequate working conditions, low wages and low labour productivity.

The key points of the Bill are:

  • Unions will be able to initiate bargaining for a FPA if it meets either:
    • the representation test (by representing at least 1000 employees or 10% of the employees in the proposed coverage); or
    • the public interest test (including criteria such as low pay, little bargaining power, lack of pay progression or inadequate pay taking into account long and unsocial hours or contractual uncertainty such as short term seasonal work).
  • There is no limit to the number of eligible unions that may join an employee bargaining side after it is formed.
  • Only eligible employer associations and specified public service employers can represent the collective interests of covered employers during bargaining for a FPA. Private sector individual employers or companies cannot be directly involved in the bargaining.
  • Employers and unions must comply with specific notification requirements and privacy conditions
  • Employer bargaining parties must ensure representation of Maori employers and employee bargaining parties must ensure representation of Maori employees.
  • The duty of good faith will apply to relationships between bargaining parties and to bargaining for a FPA. The duty of good faith will require the bargaining parties to use their best endeavours to agree the terms of the proposed FPA in an orderly, timely and efficient manner and to continue to bargain even if the party believes a deadlock has been reached.
  • FPAs must include terms covering normal hours of work, minimum base wage rates and whether they include employer contributions to superannuation, overtime and penalty rates and how rates will be adjusted.
  • Terms of the FPA can differentiate on the basis of territorial districts.
  • In addition the bargaining parties must discuss whether to include in the FPA terms covering health and safety requirements, training and development, flexible working, leave entitlements and arrangements relating to redundancy.
  • FPAs can include a union payment to be paid to union employees of not more than the total amount of the employee’s union membership fees for the period covered by the FPA.
  • Employees will be entitled to paid 2 FPA meetings of up to 2 hours if they within the coverage of the proposed FPA.
  • If the parties cannot reach an agreement during bargaining and all other reasonable alternatives have been exhausted or the FPA has failed to be ratified twice, a bargaining party may apply to the Authority to fix terms of the FPA through a determination.
  • FPAs must be approved by the Authority, ratified by the employers and employers who would be covered by the proposed FPA, verified by the CE of MBIE and will then be brought into force by the CE MBIE through secondary legislation.
  • An FPA must be ratified by a simple majority of covered employees and covered employers who vote (with employers being entitled to a certain number of votes based on how many employees they employ within the coverage of the FPA).
  • Penalties can be imposed of up to $40,000 for breaches of obligations.
  • Once a FPA is in place:
    • all employers within the coverage will be bound by it regardless of whether they participated in the bargaining process or voted in favour of ratifying the agreement;
    • to the extent that the FPA provides an employee with a more favourable term than is in their applicable employment agreement, the terms of the FPA will prevail and the corresponding term in the employee’s employment agreement will be deemed to have been varied;
    • a FPA term that relates to minimum base wage rates, how wage, overtime or penalty rates will be adjusted, increases to minimum leave entitlements overtime or penalty rates will receive the same protections as other legislative minimum employment entitlements;
    • employers will not be able to engage an employee as an independent contractor to prevent a person being covered by an FPA if the real nature of the relationship is an employment relationship.

If enacted, these changes will represent a significant reform to New Zealand’s labour laws and may have wide reaching implications for employers. We anticipate that unions will first target low wage industries including cleaning, security, retail and supermarket workers.  However, unions can initiate bargaining for FPAs in relation to any occupation or industry that the union represents provided it meets the representation test meaning we could see FPAs covering any occupation or industry that has union representation.

Employers have an opportunity to make submissions on the Bill and our employment law team can assist with this if needed.  In addition, employers should also be considering whether they will create an employer association that can be part of the employer bargaining side (either themselves or in conjunction with other employers in the same industry) to ensure that their interests can be more directly represented in bargaining for an FPA.