Employers and employees alike will be keen to understand the proposed framework for fair pay agreements (FPAs), and will now have an opportunity to review the Bill and can provide submissions as part of the parliamentary process. The Government’s intention is for the FPA legislation to be in place by the end of 2022.
Key points for employers
As our previous article discussed, the purpose of an FPA is to provide for the minimum binding standards for both employers and employees in a particular sector or occupation through collective bargaining.
The Bill in its current form outlines the framework for the proposed FPA system. The key points for employers to be aware of are as follows.
Initiation of bargaining for FPAs
The Bill includes a process by which eligible unions can seek to initiate bargaining through an application process, through the chief executive of the Ministry of Business, Innovation and Employment (MBIE).
An eligible union can initiate bargaining for an FPA if the chief executive:
- is satisfied that the union’s application for that FPA meets:
- the representation test threshold requirements, of either 1,000 employees or 10% of the employees in proposed coverage support the initiation of bargaining for the proposed FPA; or
- a public interest test, based on certain criteria that are applied to the employees who would be covered by the proposed FPA (such as low pay for their work, little bargaining power, or lack of pay progression); and
- notifies the union that its application to initiate bargaining for the proposed FPA has been approved.
If the coverage substantially expands over the course of bargaining, then the relevant representation or public interest test will need to be re-tested.
A union cannot initiate bargaining if the proposed FPA and an existing FPA have the exact same coverage.
The union that initiates bargaining for the FPA defines the work that the FPA is to cover, but this coverage can change during the bargaining process.
The coverage of a proposed FPA must be described as either industry-based (an ‘industry FPA’) or occupation-based (an ‘occupational FPA’). Where there is an overlap in coverage between two FPAs, the Employment Relations Authority (Authority) must determine which FPA provides better terms overall for the employees covered by both agreements.
All employers and employees within the proposed coverage are covered by an FPA. However, an FPA can differentiate between employees located in different regions. An employer business can also be exempt where it is in significant financial hardship.
Currently, the framework in the Bill does not cover contractors, but the Government has indicated that work will begin shortly on proposals to incorporate contractors into FPAs in the future. Penalties will apply to employers who seek to avoid the coverage of FPAs by engaging workers as contractors when they are, in reality and as a matter of law, employees.
Unions will represent employees, and employers will select their ‘employer bargaining party’ (or parties). This may include eligible employer associations, a specified employer bargaining party (in relation to certain public service personnel), and other default employer bargaining parties that may be specified in regulations.
Parties are required to bargain in good faith.
Bargaining parties are required to use best endeavours to represent the collective interests of all those in coverage, including non-members. There are specific provisions that require bargaining parties to ensure effective representation of Māori interests and views.
There are certain terms that must be included in an FPA (referred to as ‘mandatory content’), such as when the FPA comes into force and expires, its coverage, the normal hours of work, minimum base wage rates, overtime, penalty rates and any superannuation entitlements. An FPA must apply for no less than three years, but no more than five years.
Bargaining parties are also required to discuss certain other terms, such as whether to include health and safety requirements or leave entitlements in the FPA, but these are not mandatory terms to include in the final FPA.
Who pays for bargaining?
Training and a Government provided bargaining support person will be offered to each side in bargaining. On the assumption of no more than four FPAs in bargaining per year, the government will also contribute up to $50,000 per bargaining side, with additional funds provided in some cases.
The New Zealand Council of Trade Unions and Business New Zealand will each receive $250,000 per year to support their coordination roles in the FPA system.
Where disputes arise over coverage, parties can access mediation or seek a determination in the Authority. Where parties reach a stalemate, the Authority can set the FPA’s final terms.
The Authority’s power to fix the terms of FPAs is likely to be one of the most contentious powers under the Bill, and various considerations and limitations will apply to the Authority where it considers such an application. In addition, when fixing terms, the Authority must consist of a panel of three members (as opposed to the default of a single member that runs other Authority investigation processes).
The Bill includes a penalty regime for non-compliance or breach of the legislation. The Labour Inspectorate will have powers to enforce certain terms of finalised FPAs.
Finalising an FPA
For a FPA to be finalised, it must be:
- assessed and approved by the Authority (through a “vetting” process to ensure compliance with the FPA requirements);
- ratified through a voting process by the covered employees and covered employers, which is verified by MBIE; and then
- brought into force by the Chief Executive of MBIE through secondary legislation.
Ratification will require a majority of employees and employers to respectively vote in favour of the proposed FPA. Employers will have one vote per employee in coverage, with slightly higher vote weighting for employers with less than 20 employees in coverage. Parties can return to bargaining if the first ratification vote fails, but the FPA must go to the Authority for determination if a second vote fails.
A finalised FPA will apply to all employers within its coverage, regardless of whether that employer participated in the bargaining or ratification process.
The Bill must now go through the full parliamentary process before being finalised and passed into law. The public will have an opportunity to have their say on the Bill during the Select Committee process.
The Bell Gully employment team will be hosting seminars with clients on 17 May 2022 in Auckland and Wellington, which will include full discussion on Fair Pay Agreements. Please contact us here if you are interested in attending.
If you have any questions about the Bill or concerns about how this may affect your business, or would like support in preparing submissions to Select Committee, please get in touch with your usual Bell Gully advisor or a member of the Bell Gully Employment Team.