Fair Payment Agreements Bill

The Fair Pay Agreements Bill (“the Bill”) has passed its first reading.  Submissions on the Bill are open until 19 May 2022.  If passed in its current form, it will see a radical revamp of New Zealand’s employment laws.

The Fair Pay Agreement (“FPA”) system will bring together employers and unions within specific sectors to bargain for minimum terms and conditions for all employees in that industry or occupation. 

The FPA bargaining process is similar to the collective bargaining process, whereby: 

  • a union initiates bargaining for a particular group of employees, defined by occupation or industry
  • unions and employers appoint representatives
  • bargaining takes place.  Any difficulties encountered can be overcome by using Mediation Services or by applying to the Employment Relations Authority (“Authority”), which can set the terms and conditions if no agreement can be reached
  • the final agreement reached is subject to a ratification process. 

Further detail is set out below.

What is the Proposed FPA System?

Initiation of an FPA

A union may initiate bargaining for an FPA through an application process to the Chief Executive of the Ministry for Business, Innovation and Employment (“MBIE”), if it meets one of the following tests: 

        a.Representation Test: either 10 per cent or 1,000 (whichever is lower) of the              employees within the proposed coverage, support the initiation of the FPA;              or 

        b.Public Interest Test: based on certain criteria that are applied to employees          who would be covered by the proposed FPA, such as low pay, low bargaining          power, lack of pay progression, or long or unsocial hours, or contractual                      uncertainty, that is not adequately compensated. 

The coverage must be defined by the initiator of bargaining as an: 

        a.Occupational FPA: where the initiator would be required to describe the                occupation, including a description of the work, that the FPA is proposed to            apply to; or 

        b.Industry FPA: where the initiator would be required to describe the                          industry that the FPA is proposed to apply to and each occupation, including          a description of the work, that the FPA is proposed to apply to.  The Bill                      provides an example of an industry FPA as a proposed FPA that would cover            butchers and bakers in the supermarket and grocery industry. 

If one of the tests is satisfied, MBIE must issue a public notification within five days.  The initiator must then identify and notify all relevant employees and employers.  Obviously, this could be difficult to do comprehensively, and leaves a risk that some employers will not be notified. 

There are obligations on employers to provide the contact details of relevant employees to unions for the purpose of notification around bargaining.

All employers and employees within the proposed coverage are covered by an FPA.  However, an employer business can be exempt where it is in significant financial hardship.

Contractors are not currently included in the proposed FPA system, but the Government plans to begin work to include them.

Bargaining

Each side needs at least one bargaining party.  It is anticipated that this will be the union who initiated the process, and then the other unions and employer associations who apply to MBIE.  Each employer bargaining party must endeavour to represent the collective interests of all covered employers, not just those employers who are members of the employer association. 

Each bargaining side must use their best endeavours to come to an agreement on the terms of the FPA in an orderly, timely and efficient manner.  There are also obligations to recognise Māori interests.

The Bill also provides for meetings and union access to the workplace.  These to a large degree reflect the rights and obligations of traditional collective bargaining.

What must be included in an FPA?

The FPA must include: 

  • coverage
  • normal hours of work
  • details regarding wages, including base wage rates, whether the base wage rate includes or excludes employer’s contribution for superannuation, overtime rates, penalty rates, how wage rates will be adjusted
  • duration of FPA
  • governance agreements. 

Further, the parties must discuss, but do not need to agree on, the following: 

  • the objectives of the proposed FPA, the proposed renewal or the proposed replacement
  • redundancy
  • leave entitlements
  • objectives of the FPA
  • training
  • health and safety
  • flexible working. 

Regional variations to account for costs of living can be built into the FPA by using specified regional definitions.

Dispute resolution and finalising an FPA

The Government is proposing to adopt the existing dispute resolution system that applies to collective bargaining, for FPA bargaining.  This involves: 

  • attending mediation through MBIE Mediation Services
  • the Authority determining disputes between parties.  The Authority may fix the terms of the FPA when the parties find themselves at a stalemate, and
  • the Employment Court, Court of Appeal and Supreme Court deciding appeals. 

Unless the terms of the FPA have been set by the Authority, in order to finalise the FPA, it would need to be: 

  • approved by the Authority
  • ratified by the employees and employers who would be covered by the agreement.  All employees within coverage will each receive one vote of equal value.  All employers will receive at least one vote per employee within coverage, with weighted votes for employers with 20 employees or less.  If a first ratification vote fails, parties go back to bargaining.  If a second vote fails, the FPA goes to the Authority for determination
  • voting is verified by MBIE, and then
  • the FPA is brought into force through secondary legislation. 

Once the FPA is finalised, all employers within coverage will be bound by it, regardless of whether they participated in the bargaining process.   Employees within coverage can enforce their rights through the standard employment dispute resolution system.  In addition, the Labour Inspector can enforce certain terms of the FPA.

How does an FPA impact upon an employee’s existing terms and conditions of employment under their individual employment agreement (“IEA”) or collective employment agreement (“CEA”)?

FPAs set industry-wide minimum terms and conditions of employment.  The result being that minimum terms in any IEA or CEA are lifted if they fall below the minimum terms of the FPA.  Otherwise, the FPA will sit alongside the IEA or CEA.

The effect of this is that employees will receive the best terms from both agreements.  This can have a significant impact on employers who, for example, have agreed to lower base rates with staff in exchange for a generous commission structure.  The setting of a minimum base rate in an FPA (if the terms are higher than the existing terms of employment in the IEA or CEA) will result in the employee receiving a higher base rate under the FPA in addition to the already agreed commission structure. 

Therefore, employers may need to consider the ongoing viability of any relevant commission structures. 

Any proposal to materially change the terms and conditions of an employees’ employment (i.e. a commission structure) requires the employer to consult with the employee in good faith, before the change is implemented. 

Further, consideration should be given to applicable redundancy provisions within the FPA, CEA and/or IEA, as an employee may be technically ‘redundant’ where the terms and conditions of their employment has materially changed.  This could potentially trigger an entitlement to redundancy compensation.

Summary

The Bill is expected to be passed into law at the end of 2022, which is subject to extensive public submission and consideration by Parliament.

Overall, the Bill adopts many of the traditional collective bargaining processes that will be familiar to employers with unionised workforces.

The Bill is currently with the Select Committee, which means people have until 19 May 2022 to submit their submissions on the Bill. 

If you have any questions regarding the Bill, or the impact the Bill may have on your business, or would like assistance drafting a submission, please feel free to contact us on 0800 339 002.

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