Select Committee reports back on fair pay agreements – full steam ahead

6 October 2022

The government introduced the Fair Pay Agreements Bill (the Bill) at the end of March 2022. The Bill is intended to provide a framework for collective bargaining for fair pay agreements (FPAs) across entire industries or occupations. 

After receiving and considering public submissions on the Bill, the Education and Workforce Committee (the Committee) has now (on 5 October 2022) reported back to Parliament.1

Key takeaways for employers

For employers, the key takeaways from the Committee’s report are as follows:

  • Although submissions from employers and business organisations overwhelmingly opposed the Bill,2 the Committee has recommended relatively few changes. The proposed FPA framework therefore remains largely as originally described in the first reading of the Bill.
  • We understand that the government intends to enact the FPA legislation by the end of 2022 (or early 2023 at the latest).
  • This legislation potentially has a wide ranging impact for all New Zealand employers – whether you currently have union members within your workforce or not, your employees may be covered by a proposed FPA.
  • There is still significant uncertainty as to how the FPA legislation will work in practice; we consider that there are many aspects of the proposed framework that are impractical, complex, and highly likely to result in litigation.

It appears to be “full steam ahead”, and employers need to start getting their heads around the potential implications of FPAs for their business.

Bell Gully is presenting a webinar, with Employment Relations Policy Manager Paul Mackay from BusinessNZ, at 12-1pm on Wednesday 26 October 2022. This webinar will address the potential practical implications of FPAs for employers, and some recommended steps that employers can take in anticipation of this significant change to the current employment law landscape. Please contact our events team here if you would like to attend this webinar, and for further information.

The basics: the intended FPA framework

The purpose of an FPA will be to provide for minimum binding terms and conditions for employers and employees in a particular sector or occupation. These terms and conditions will be set through a system of industry or sector wide collective bargaining, between unions (as employee bargaining parties) and employer bargaining parties. 

There are many perplexing aspects of the FPA framework, which in our view raise significant issues of commercial practicability and workability.

Some of the key issues include:

  • Determining coverage: FPAs can potentially cover an industry (e.g. all butchers in supermarkets) or occupation (e.g. all butchers), with the possibility of regional differentiation and exceptions for employers under significant financial hardship. It remains to be seen how it will be determined whether or not roles fall within such coverage.
  • Formation of bargaining sides: unions represent employees in FPA bargaining, and employers that are potentially covered by an FPA are required to select an “employer bargaining party” (or parties). However, an employer cannot, in its own right, seek to be an employer bargaining party – rather, employers need to form “eligible employer associations” with other employers who are potentially covered by an FPA. These associations must be an incorporated society, and must satisfy various other eligibility requirements.  It is not clear how employers will form such societies, and indeed, whether they will want to do so at all, given (a) the onerous responsibilities imposed on employer bargaining parties, and (b) the fact that such an association will rely on cooperation between employers that may compete with each other within the same industry or sector. 
  • The Authority as “backstop”: under the current drafting of the Bill, the Council of Trade Unions (CTU) and BusinessNZ have a discretion as to whether or not they will be the “default” employee or employer bargaining parties. If no union steps forward to take the role of an employee bargaining party in FPA bargaining, the CTU is likely to step forward to be the “default” employee bargaining party. However, BusinessNZ has made it clear that it will not accept any role as the “default employer bargaining party” where no employer bargaining party steps forward to represent employers in any FPA bargaining. The “backstop” is for the Employment Relations Authority to set the terms of the FPA in the absence of any bargaining party on one side.  This essentially provides the Authority with sweeping powers to set the minimum terms and conditions for an entire industry or occupation in New Zealand; a system akin to the award system in Australia, and one which creates significant uncertainty for employers and employees alike.
  • Significant expenses will be incurred: some funding has been set aside for bargaining parties, on the assumption that there will be no more than four FPAs bargained in any year. The amount of funding proposed (NZ$50,000 per bargaining side) is likely to be wholly inadequate given the large numbers of employees and employers potentially covered by an FPA.  Further, there is nothing in the Bill to prevent more than four FPAs being bargained in any year.
What has changed as a result of the Committee’s report?

In short, the Committee has recommended relatively few changes to the Bill.  Some of the main recommendations of note are as follows:

  • Where no bargaining party is approved: the Committee has recommended that if no bargaining party is approved to represent the non-initiating side, the initiating side could apply to the Employment Relations Authority to set the terms of the FPA.
  • Clarifying coverage: the Committee has recommended that the coverage of a proposed FPA be defined “with sufficient clarity so that all employees and employers are able to determine whether they are within the coverage of the proposed FPA” and “in accordance with regulations”. It is not at all clear what “sufficient clarity” means (and we imagine it could be interpreted in numerous ways) or what the regulations will provide.
  • Excluding high paid work from “public interest” test: under the Bill, to initiate bargaining, unions would have to meet either the “representation” test or the “public interest” test. The Committee noted that, as introduced, the Bill would allow a highly paid industry or occupation to initiate an FPA pursuant to the “public interest” test. The Committee has instead recommended that the “public interest” test require employees within the proposed coverage of the proposed FPA to be low paid (and to meet one of the other three criteria in the public interest test).
  • Notification requirements for unions: under the Bill, the initiating union would be required to identify and notify all other unions whose members it believes are likely to be covered by the FPA and employers who it believes are likely to be covered by the FPA. The Committee has noted that this is likely to be a difficult and onerous task. Accordingly, the Committee has recommended that the initiating union “must use its best endeavours” to identify and notify other employers and unions.
  • Expanded minimum terms: the Committee has proposed expanding the minimum terms and conditions for an FPA to include arrangements relating to “training and development” and leave entitlements. Under the original drafting of the Bill, these terms would have been mandatory to discuss but did not have to be included in the FPA.
  • “Clarifying” overlapping coverage: the Committee has also proposed amending the Bill to make it “clear” what happens when an FPA only covers a portion of an employee’s work or when more than one FPA applies to an employee’s work. The Committee’s proposal is:
    • where at least 25% of an employee’s work is covered by an FPA, that employee is covered by the FPA; and
    • if two or more FPAs meet the 25% threshold, the FPA that covers the largest portion of the employee’s work should apply.

In our view, these changes are in the nature of “tinkering around the edges” and do not amount to any significant change to the overarching framework for, or intent behind, this significant new regime.  If anything, these changes highlight the complexity of the entire regime and the genuine risk of litigation and dispute at numerous junctures in the process.

In short, while employers and employer organisations made substantial submissions opposing the FPA framework, it appears that their concerns have largely fallen on deaf ears.

Where to next?

We understand that the government intends to push the Bill through the rest of the parliamentary process as quickly as possible, with a view to legislation being passed and enacted either before the end of 2022 or in early 2023 at the latest.

This means that it is possible that unions will initiate bargaining for an FPA, or many different FPAs, early in the new year. We recommend that employers start to grapple with the proposed legislation as soon as possible; it is lengthy and complex, and requires careful consideration. This is particularly the case for employers in highly unionised industries, with low paid employees.

With 2023 being an election year, and the opposition making it clear that they do not support FPAs in any shape or form, it is anyone’s guess whether any new legislation will survive to the end of next year. Either way, employment law looks set to be another hot campaign issue in 2023.

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 adviser.

1 See the Committee’s Report here.2 These submissions can be reviewed here.

Disclaimer: 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.