Fair Pay Agreements: many important questions remain unanswered

14 May 2021

​​​​​​​The Government has announced that it will be delivering on its proposal to implement Fair Pay Agreements (FPA) in New Zealand.

The announcement recognised that FPAs will represent “a large shift for the employment regulatory landscape in New Zealand". However, a large number of important questions have been​ left unanswered.

An FPA will be an agreement that sets out minimum binding standards for both employees and employers in a particular sector or occupation. FPAs will set minimum wage rates, ordinary hours, overtime, and penalty rates within specific industries or occupations. In addition, it will be mandatory for parties in bargaining for an FPA to discuss (but not agree) various other matters, including redundancy, leave requirements, and flexible working. Legislation will be drafted and introduced in late 2021, with a view to the legislation being passed in 2022.

Key points for employers

The Government provided some broad details regarding what we should expect the proposed FPA legislative framework to include. At a high level, these details include:

  • Any union (but not an employer) would be able to initiate an FPA within a specific industry if it meets either:​​​
    • ​the representation te​st: such that a minimum threshold of 1,000 or 10% (whichever is lower) of workers in the nominated sector or occupation is met, or
    • the public interest test: where there is evidence to show that there is either low pay, low bargaining power, lack of pay progression or long hours and contractual uncertainty that is inadequately compensated such that an FPA would be deemed to be in the public interest.
  • Only unions will be able to initiate bargaining for an FPA, which will include deciding the FPA's scope and coverage.
  • Whether or not an employer participates in the FPA bargaining process, they would be bound by the finalised FPA. All employees within the industry would also receive the benefits of the new minimum employment terms contained in that FPA.
  • Initially, the FPAs would only apply to employees. However, there is an intention to expand this to apply to contractors in future.​
  • After initiation of bargaining for an FPA, any disputes over coverage of the FPA may be determined in the Employment Relations Authority (Authority) and, if the parties reach a stalemate, the Authority can determine the terms of the FPA (with a very limited right of appeal).

Unanswered que​​stions

From our perspective, the Government's announcement still leaves a large number of important questions unanswered. These questions include:

(a) whether it is appropriate for the representation test to include a threshold of 1,000 employees within a nominated sector or occupation (as in many cases, that numeric threshold of 1,000 will be significantly less than 10% of the employees working in that nominated sector or occupation),​

(b) how a sector or occupation will be defined for the purpose of an FPA, so that its coverage is clear. To avoid disputes about coverage, it seems to us that the sector or occupation will need to be defined in some detail, to avoid disputes about which employees fall inside or outside the scope of any FPA being bargained for. For example, an occupation of 'sales assistant' could describe a very broad group of employers operating across different industries,

(c) how an “employer representative" for FPA bargaining will be decided and whether some specific employers can be involved directly in FPA bargaining if they employ or engage over a certain number of employees or workers in a particular sector or occupation (rather than only being able to be represented by industry bodies),

(d) how the statutory duty of good faith (which will apply during FPA bargaining) is intended to operate in practice between bargaining parties on the same bargaining side. For example, competitors in the market will be “on the same bargaining side" as employers who may become party to the FPA. It is difficult to reconcile how the duty of good faith would apply in the context of this type of relationship between parties.

(e) whether there will be any protections in place for an employer wanting to protect commercially sensitive information from being shared with another employer on the same bargaining side,

(f) how many of the proposed FPA mandatory and permissible terms will fit within the concept of a contractor or casual employment relationship (if the FPA system extends to contractors in future). For example, some of the proposed terms are specific to a permanent employment relationship (such as redundancy compensation and superannuation contributions),

(g) how the logistics regarding additional record keeping and notification obligations would be undertaken (given the potentially broad coverage of FPAs),

(h) how the balance of the costs of bargaining would be shared? Although the Government has promised to contribute some money towards the costs of bargaining, it is likely that this funding will not go far enough. The Government's proposal is that the balance of costs will “lie where they fall". However, there will be some costs that are not easily attributed to any one party. In such circumstances, it is not clear how the balance of the costs of bargaining would be shared, to prevent certain parties bearing cost that is out or proportion to the actual application of the FPA, and

(i) how the Authority will set terms of an FPA when parties have reached a stalemate, particularly given that there will be no right of either party to appeal the Authority's determination in this regard, and given the vast impact of any determination by the Authority that could essentially set terms of employment across an entire sector.

What​ next?

It remains to be seen how a number of fundamental unanswered concerns regarding implementation of FPAs will be fully addressed (if at all) in the anticipated draft legislation.

At present, the Government's announcements can be described as high-level descriptions of policy intent. The Minister expects that further policy decisions will be required during the drafting process. In light of the complexities the FPA regime introduces, it will be important that any draft legislation provides clarity regarding this intended new area of law.

We will continue to provide updates regarding any further FPA developments. If you have any questions about the matters raised in this article, please get in touch with the contacts listed or your usual Bell Gully advisor.​

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.