Sweeping changes recommended as Fair Pay Agreement agenda takes shape

Thursday 31 January 2019

Authors: Liz Coats and Charlotte Joy

​A detailed report released today has provided insight into the Government's planned introduction of Fair Pay Agreements.​

The Fair Pay Agreement Working Group Report (the Report)1, which has been delivered to Workplace Relations and Safety Minister Iain Lees-Galloway, provides a framework for further analysis and consultation. It is a first step towards the eventual legislation promised by the Government at the outset of its term.

Given the Report's recommendations, employers should carefully consider the potential impact that Fair Pay Agreements (FPAs) could have for their business and industry. However, more detail will be needed before this can be fully understood.

Key points for employers

Set out below is a summary of some key points of interest for employers arising from the Fair Pay Agreement Working Group's (the Working Group) recommendations.

1. Initiation of FPA bargaining by workers or unions only: The Working Group has recommended that bargaining for an FPA can only be initiated by workers and their union representatives, and not employers.

2. Thresholds for bargaining: The Report suggests that bargaining could be initiated only when either of two thresholds is satisfied:

a) "representativeness": when the workers in the sector or occupation (whether union members or not) that want to initiate bargaining can meet a minimum threshold of 1,000 or 10% of workers (whichever is lower) in the nominated sector or occupation; or

b) "public interest": if the representativeness threshold is not met, where there are harmful labour market conditions in the nominated sector or occupation.

In some industries, the "representativeness" threshold of 1,000 workers could result in a very small proportion of workers in certain occupations (which employ tens of thousands of workers) being able to initiate bargaining for the occupation as a whole.

Importantly, it appears that once the threshold for an FPA has been meet employers would be denied the opportunity to oppose the introduction of an FPA. These thresholds are therefore likely to be one of the most controversial aspects of the Working Group's recommendations.

3. Coverage of FPA applies to all workers (not just employees): The Report states that FPAs should cover all workers – not just employees – to avoid pervers​e incentives to use other methods of contractors. This would follow the definition of 'worker' in the Health and Safety at Work Act which is similarly wide.

4. Coverage of FPA to be agreed: The Working Group recommends that coverage of the FPA be proposed by the workers or union initiating the bargaining, but that coverage must be agreed in bargaining. Potential coverage issues that the parties would need to agree are likely to be wide-ranging and complex, including defining the industry/sector/occupation that the FPA relates to, the level of worker to be covered, and the geographic scope of the agreement.

5. Minimum clauses for FPAs include a wide variety of matters, including redundancy: The Report recommends that the FPA legislation prescribes certain minimum terms that would need to be included in all FPAs, including terms relating to: wages and how wage increases will be determined; working hours, overtime and flexibility; redundancy; and training. The proposed required terms therefore go beyond existing minimum requirements for collective agreements and individual employment agreements under the Employment Relations Act 2000 (ERA).

6. Possibility of enterprise level collective agreements: The Report suggests that employers and unions could agree to an enterprise level collective agreement in addition to the FPA, which would provide for terms that equal or exceed the terms in the relevant FPA. In other words, the FPA would set the "minimum terms" for that particular sector or occupation, and employers and unions could only agree to different terms (for a particular enterprise) if those terms exceeded the FPA minimum. This creates the potential for dual levels of bargaining (FPA bargaining and enterprise bargaining), increasing costs and creating uncertainty for employers.

7. Representation: The parties would be required to nominate a representative organisation to bargain on their behalf (in other words, the individual employers affected by a proposed FPA could not be involved in the bargaining).

8. No industrial action: In relation to dispute resolution, the Report confirms the Government's position that there would be no industrial action allowed during bargaining and that mediation would be the first port of call for most disputes arising during bargaining.

How much will it all cost?

The Report recognises that the costs of negotiating a FPA have not been considered in detail. Current collective bargaining costs typically "lie where they fall", and meetings are generally conducted at the employer's premises.

However, it is anticipated that costs for negotiating FPAs would be greater due to travel and wider scope for disagreement between multiple parties (resulting in greater litigation and costs). The Report suggests that Government financial support may be required (such as a levy or a bargaining fee), to support the parties representing employers and workers in the bargaining process.

Where to next?

The Report is just one step towards FPA legislation and there is still a long way to go before we know exactly what FPAs will look like and how they will be agreed.

The next step is for the Government to undertake further analysis and consultation, including detailed consideration of the Report and its recommendations. It is not clear how long this "consultation" phase may take, but we expect that a Bill would be introduced once consultation is completed.

Bell Gully will continue to keep you updated on developments. Please contact your usual Bell Gully advisor or any of the contacts listed if you would like any advice or assistance in relation to the Report or any other matter addressed in this update.

1 https://www.mbie.govt.nz/assets/695e21c9c3/working-group-report.pdf


This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Liz Coats

    Partner Auckland
  • Tim Clarke

    Partner Auckland
  • Rachael Brown

    Partner Wellington
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  • Employment and workplace safety