The Fair Pay Agreements Act passed into law on 27 October 2022, and the bargaining framework for Fair Pay Agreements (“FPAs”) will come into effect from 1 December 2022.
FPAs are likely to have a massive impact for both employers and employees, as they will set new minimum terms of employment across entire industries and occupations.
What are some of the key points to know about FPAs?
1- FPAs will set minimum terms across industries and occupations. By law, FPAs must include certain terms, including the normal hours of work for covered employees, base wage rates, and base leave entitlements. It is likely that the base terms in the FPA will be greater than the current legal minimums.
2- FPA bargaining can happen where:
- at least 1,000 employees or 10% of employees within the occupation/industry want an FPA, or
- there is a ‘public interest’ in an FPA for that industry/occupation – for example, if the employees earn low wages or work unsocial hours
The first point above sets a very low threshold, and it could see a number of employers and employees being dragged into an FPA when they have no interest in it. For example, in 2018 there were roughly 130,000 employees in the hospitality industry. The 1,000 hospitality employees needed to start an FPA process for the entire industry would only amount to 0.7% of the total number of employees in that industry! Having less than 1% of employees dragging the other 99% into an FPA sounds unfair, but from 1 December 2022, it will be possible.
3- Despite the name, FPAs will bind all employers and employees in the occupation/industry, whether or not they want to be bound by the FPA or they participated in bargaining for the FPA. It will be illegal to contract out of an FPA, even if an employer and an employee both want to.
4- The Employment Relations Authority (“Authority”) may decide the terms of an FPA. This includes where the parties cannot agree on the FPA, or if no employers participate in negotiating for an FPA. This would see the Authority Member, an unelected decision-maker, deciding the minimum terms of employment for an entire occupation/industry! And, given the low thresholds to start an FPA process, this could happen where the vast majority of employers and employees do not want an FPA at all.
5- The FPA process is likely to be complex and time-consuming for employers and employees. Given the employer side will need to represent potentially hundreds of employers of varying size and scale, it may be difficult for employers to reach an agreement amongst themselves, let alone with the employees. All of this could mean more costs for businesses in New Zealand, and maybe, higher prices for consumers as a result.
Continuing from the hospitality example above, a worst-case scenario could be that 99% of hospitality employees are dragged into the FPA process.
Then, if no agreement is reached, the Authority might step in and decide the new base terms of employment for all hospitality employees in New Zealand.
These new base terms would apply to all hospitality employers, from the large, multinational corporations with hundreds of locations, to the small mum-and-dad café with two employees on the corner of your street, despite the differing abilities to meet the terms under the FPA.
For better or worse, FPAs are here, and we will soon see the first industries/occupations beginning the process to implement an FPA. It is widely expected that hospitality, cleaning, and security guards will be the first industries to begin bargaining for an FPA.
Only time will tell if FPAs will achieve their goal of improving working conditions and productivity in New Zealand, or if they will instead be the final straw for many employers already under pressure.
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