Negotiation of employment conditions is usually done through individual or collective agreements that are unique to a single workplace. Employers have the ability to negotiate with their employees rather than being bound by a collective agreement that covers an entire industry. If enacted, the Fair Pay Agreements Bill (the Bill) will bring significant changes to employment relations as well as employers’ ability to control and negotiate employee conditions.

The Bill was announced at the end of March and is currently going through the Parliamentary process. In essence, the Bill allows for collective bargaining between employers and employees to set minimum terms and conditions which will apply across entire industries. Unions will play a central role as bargaining representatives for employees. According to the Government, Fair Pay Agreements (FPAs) will improve working conditions and outcomes for employees thus increasing productivity.

How does it work?

FPAs would set minimum standards that would apply to all employers and employees in certain industries or occupations. Unions apply to the Ministry for Business, Innovation and Employment (MBIE) and must meet one of two tests: the test for representation where either 1,000 or 10% of employees support the FPA or the public interest test where unions show that employees who have little bargaining power, low pay or poor pay progression would be covered by an FPA. The union must then notify all affected employers and employees and the bargaining process will commence. The parties must bargain in good faith and represent the collective interests of all those who will be covered.

An FPA must include commencement and expiry dates (between 3 to 5 years), coverage of the FPA, normal hours of work, wages (base rates, superannuation, overtime, penalty rates) and the process for variation. The bargaining parties also need to discuss the objectives of the FPA, health and safety requirements, flexible working and leave entitlements. The proposed system is very similar to Australia’s awards system.

The Pros & Cons

The Bill is not without controversy. Advocates of the Bill will argue that it will be beneficial for employees. Having minimum standards, it could be argued, ensures that employees are treated equally and brings a sense of security. Unions seem to be embracing the idea of FPAs as they will supposedly improve working and living conditions for vulnerable employees who are poorly paid. Currently, collective agreements are mostly between a single union and a single employer so coverage is limited to a defined group of employees. FPAs will cover entire industries.

On the other hand, there are strong arguments that the Bill is unfair because employers and employees will lose their autonomy and flexibility to negotiate their own agreements. The Bill essentially creates a ‘one size fits all’ system. An FPA system would compel collective bargaining and impose outcomes – a process that is potentially inconsistent with international law. According to Business NZ chief executive, Kirk Hope, nowhere else in the world compels employers and employees to engage with collective bargaining industry-wide.

The future of FPAs

Litigation may be inevitable if the Bill becomes law. Certainly, it is clear that there will be a number of contentious matters for parties to dispute. There will be questions about whether a union has satisfied the tests for the initiation of FPA bargaining, defining the coverage of an FPA, and the requirements of “good faith” bargaining. Ultimately, it is unknown how the system will work in practice and how ‘fair’ Fair Pay Agreements will really be.

The information contained in this article is necessarily of a generalised nature and is correct as at July 2022.  Specific advice should be sought in relation to any particular situation.

Article written by Grace Wilcox