Fair Pay Agreements – Information for Employers

Fair Pay Agreements ("FPAs") has brought in a new bargaining system in terms of industrial relations in New Zealand, which came into force on 1 December 2022 via the Fair Pay Agreements Act 2022.

FPA’s will bring in sector, or industry wide collective employment agreements. FPAs will sit above individual employment agreements and collective employments agreements by creating a minimum floor of entitlements for employees in a specified occupation or industry – FPAs will apply regardless of whether employees are unionised or not.

Concerns expressed by the business community and political opposition

Much to the dismay of many businesses and employers throughout New Zealand, the Labour Government has proceeded with its election objective of establishing a new system for FPA’s in order to further lift wages and other conditions of employment for employees throughout New Zealand.

The new FPA system is ultimately going to be an additional cost that businesses will have to shoulder, and it will affect their bottom line. Further, FPA’s have arrived at a time when many businesses are struggling with other major issues such as recovering from the economic turmoil caused by multiple lockdowns, rapidly rising inflation, massive difficulties finding talent to meet labour demands, high fuel prices, etc.

The opposition to Government has committed to repealing the FPA system in the event it is elected later this year.

What is an FPA?

FPA’s will require unions and employer associations to bargain for minimum terms of employment that would apply to all employees covered under a FPA in a particular industry or sector. This will apply regardless of whether there is already an existing collective employment agreement in place with specific employers.

If at least 25% of the tasks in an employee's role is covered by an FPA then they will fall wholly to be covered by the FPA (or more favourable terms).

FPA's will be valid for 3 - 5 years in duration once in place, and if an employer fails to comply fines up to $40,000 can apply.

What’s the process for applying for an FPA?

The key step in establishing an FPA is via a union initiating the process by applying to the Chief Executive of the Ministry of Business, Innovation and Employment (‘the C.E of MBIE’) for approval to negotiate a Fair Pay Agreement for a specific occupation or industry. Applications can be lodged from 1 December 2022.

To initiate bargaining for an FPA, a union must meet one of the following tests in their application:

• the representation test – at least 1,000 employees or 10% of all employees in proposed coverage support initiating bargaining for the proposed FPA; or
• the public interest test – the relevant employees receive low pay for their work; and
  • have little bargaining power in their employment; or
  • have a lack of pay progression in their employment (for example, pay rates only increase to comply with minimum wage requirements); or
  • are not adequately paid taking into account matters such as long/unsocial hours or contractual uncertainty (e.g. short term seasonal work).

If an FPA application is approved, employee and employer bargaining sides may form, and the bargaining process begins. Once the bargaining sides agree, covered employees and employers can vote on whether they support the employment terms proposed and, if there is a majority (from both bargaining sides), the FPA will become operative and bind the parties as terms of employment.

Employers and employees will be covered by an FPA regardless of whether or not they have participated in the bargaining.

FPA’s will set minimum employment terms, and are required to include minimum terms of employment including:

• Defining work covered by an FPA;
• Provide for standard hours of work;
• Set minimum pay rates, including overtime & penalty rates;
• Provide for training and development initiatives;
• Provide for employee leave entitlements.

Notification requirements

Once the C.E of MBIE approves a union's application for a FPA, then there are also specific obligations regarding notification requirements on the parties to notify affected parties that bargaining has been initiated. A union with a successful application must identify and then notify all relevant employees and employers. There are also obligations on employers to provide the contact details of relevant employees to unions for the purpose of notifications concerning bargaining.

After the notice has been issued and notified to an employer by either MBIE or the initiating union, an employer has to:

Within 15 working days, identify its employees who are covered by the proposed FPA; and

Within 15 working days, notify any unions with covered members (who are employed by the employer) of the proposed FPA; and

Within 30 working days, provide to those employees a written formal statement (either as supplied by the union, or in accordance with the requirements of the FPAA) which addresses the provision of the employees’ contact details to the initiating union. The employer must allow 20 working days for any employees to advise that they do not want their contact details to be provided to the union. After the opt out period has passed, the employer then has 10 working days to provide the contact details of all other employees to the union.

Within 3 months, arrange for the formation of the employer bargaining side.

Who can bargain for a FPA?

Eligible unions and employer associations can bargain on behalf of employees covered by a proposed FPA, and also extend to including representing employees and employers who are not members of their respective organisations.

Finalising a FPA

A proposed FPA must be submitted to the Employment Relations Authority who will approve whether it complies with the Fair Pay Agreement Act, along with a number of other requirements.

An FPA must be ratified by employees and employers covered by the agreement, which requires a simple majority of more than 50%. If the parties cannot agree on ratification of a FPA, then the term will be fixed by the Employment Relations Authority.

Additional information

Further information regarding FPA’s, including current FPA applications and notices for approvals to initiate bargaining can be found here.