On 29 March 2022, the 'Fair Pay Agreements (FPA) Bill' (Bill), was introduced into Parliament. The Bill is now closed for submissions and is expected to pass into law by the end of this year.

If enacted, the Bill will mark a significant shift in the way employees' terms of employment are negotiated. Many commentators see the Bill as a regression back to the days of heavily unionised workforce's with little room for employers to negotiate terms on an individual level, while other commentators are celebrating the government taking action to stop a "race to the bottom" within certain industries.


Goals of the Bill

The system aims to encourage unions (on behalf of employees) to bargain with employers to ensure all employees in a specific industry or occupation receive minimum standards. It also aims to increase employees' bargaining power to help ensure employers raise these minimum standards.

The Bill will essentially reduce competition between businesses which has been blamed for causing a "race to the bottom" in some industries by driving down wages and working conditions to offer clients more competitive rates. The government instead wishes to create an environment where employers compete based on products and services as opposed to wage costs and working conditions.

In the long-term the government believes FPAs will increase productivity in the workplace which will help boost the country's economy. It also hopes to improve employee's living standards and establish better dialogue between employers and workers.


The System 

The first part of the process is initiating the bargaining for the FPA. The union must decide what work they want to be covered, given there is the choice for the agreement to be either be occupation-based or industry-based and meet the representation test - that is either 1,000 employees or 10% of the employees to be covered, whichever is the lower.

This information is lodged as an application to the Ministry of Business Innovation and Employment (MBIE). If the union meets the representation threshold and has accurately defined the work or industry they cover, employers, unions, business representatives and the government are then notified by MBIE.

The next step is the bargaining process. Employees will be represented by unions, whilst employers will appoint representatives. The Bill states a FPA must include base wage rates, ordinary hours, overtime and penalty rates. Other terms such as redundancy, leave entitlements, and health and safety have to be discussed but do not need to be agreed on during the bargaining process.

The terms of a FPA will last for three to five years. The Bill also offers the bargaining sides a support person to guide them through the process. The government also promises to give each bargaining side $50,000 towards their costs. Where a union has low membership rates, the government will provide additional support.

Where issues arise between the bargaining parties, mediation and the Employment Relations Authority are available to help make recommendations.

Once the parties have reached agreement, the FPA is submitted to the Employment Relations Authority for approval. Once approved, the proposed agreement needs a simple majority from both the employees and the employer. When the agreement is finalised, MBIE will bring the agreement into force by turning it into secondary legislation. Once complete, the FPA will apply to all workers within the coverage industry or work type.


Our Thoughts 

Perhaps the most controversial aspect of the Bill is the ability for the Employment Relations Authority to set minimum standards if the parties cannot reach agreement. This is seen by many business leaders as a step backwards to the era of mandatory awards and a "one size fits all" approach to workers' rights.

Another surprising aspect of the Bill is that there is no remuneration threshold or category of work that these Fair Pay Agreements can relate to.  So long as a union can pass the representation and public interest tests, there could be Fair Pay Agreements for any trade or profession.  We therefore could be entering an era where apprentice plumbers or graduate lawyers are employed on standardised terms under Fair Pay Agreements.  

Businesses may fairly ask whether there is any good news for them in the Bill which is designed to increase the power and relevance of unions. Our view is larger employers may benefit from the scheme as they have the resources to be heavily involved in the bargaining process and therefore potentially a larger influence compared to their smaller competitors. Many large businesses may therefore use FPAs as an opportunity to set minimum employment standards which squeeze out their smaller competitors, thereby avoiding a "race to the bottom" for employers but reducing the options for end users.

While some changes to the Bill can be expected before it is enacted to law, the government has signalled that it will be enacted by the end of 2022.

Watch this space and come talk to our Employment Law Team if you wish to understand how a FPA may apply to your workplace.