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Fair Pay Agreements: All about the Agreements

Fair Pay Agreements: All about the Agreements

Fair Pay Agreements: All about the Agreements

Tuesday 29 November, 2022

Our new Fair Pay Agreement series comes in two parts. This article covers the detail and application of Fair Pay Agreements. The second covers the bargaining process for employers and can be viewed here

The Fair Pay Agreements Act, the biggest employment law change in decades, takes effect on 1 December, 2022. Fair Pay Agreements (FPAs) have the potential to fundamentally change New Zealand’s employment landscape by setting minimum terms and conditions for all employees in a particular industry or occupation.

What’s the purpose behind such a huge change for New Zealand?

The Government is hoping that FPAs will result in higher wages and better conditions for employees in New Zealand, particularly in occupations that historically have had low wages. The FPA process gives employees strength in numbers and greater bargaining power to negotiate better work conditions with employers. Employers cannot opt out of the FPA process, so at the end of the process, there will be a FPA in place.

Who will be covered by an FPA?

A FPA will either be based on occupation or industry. An occupation based FPA will cover all employees in that occupation. For example, a proposed FPA that covers all commercial cleaners is an occupation based FPA. An industry-based will cover all employees carrying out a particular occupation within an industry. For example, a proposed FPA that covers butchers and bakers in the supermarket and grocery industry is an industry based FPA.

The FPA will apply to any employee if 25% or more of work they do is covered by the FPA. It will apply to all employers who employ someone in the specified industry or occupation, regardless of the number of employees, the employer’s core business or location.

Industry-based FPAs will be narrower than occupation-based FPAs, because an occupation-based FPA applies to everyone who carries out that occupation, but an industry-based FPA only applies to employees who carry out that occupation in a particular industry.

What will be included in an FPA?

FPAs must include:

  • Start and expiry dates (the FPA must be in force for at least three years and no longer than five years)
  •  The scope of the FPA, with sufficient clarity to determine the work or type of work that is covered by the agreement
  •  Normal hours of work

Wage details, being:

  • A minimum base wage rate and whether this includes or excludes the employer’s superannuation (e.g. KiwiSaver) contribution
  • An overtime rate, and when it applies
  • A penalty rate, and when it applies
  • Arrangements for training and development
  • Leave and holiday entitlements
  • The governance arrangements that will apply to the bargaining sides while the FPA is in force
  • The process to be followed if either bargaining side requests a variation.

In addition, the parties must discuss the following (but need not include it in the FPA):

  •  The objectives of the proposed FPA
  • Health and safety requirements
  • Flexible working arrangements
  • Arrangements relating to any redundancy (e.g., whether redundancy compensation is payable)

Who has the power to start the FPA process?

Only unions have the power to initiate the FPA process on behalf of employees; employers cannot initiate the FPA process. Unions needs approval from MBIE before they can start negotiating with employers. A union can obtain approval by meeting one of the following tests:

  1. The representation test: Bargaining may be initiated if 10% or 1,000 employees (whichever is fewer) in that sector support bargaining for the proposed FPA
  2.  The public interest test: The employees concerned must receive low pay for their work and meet one or more of the following criteria:
    • They have little bargaining power
    • Have a lack of pay progression in their employment (for example, pay rates only increase to comply with minimum wage requirements)
    • They aren’t adequately paid, considering job conditions, such as, working long or unsocial hours (for example, working weekends, night shifts, or split shifts) or have contractual uncertainty (for example, short-term seasonal work or irregular casual work

Unions are more likely to use the representation test as it’s more straightforward to meet. It also means that quite a small number of workers in each industry or occupation can initiate an FPA. If unions want to use the public interest test, MBIE may call for public submissions in deciding whether the test is met, and it can even go to a hearing. The representation test will be easier and cheaper, so will likely be the first option for unions.

When is FPA bargaining likely to start?

Unions have already started calling on their members to sign up to initiate FPAs. Occupations with high union representation, such as cleaners, bus drivers, and supermarket workers are likely to be quick off the mark, and we may even see bargaining being initiated before the end of 2022. Occupations that historically haven’t been unionised will be slower to get going, but momentum is likely to pick up once unions and employees have seen how the first FPAs turn out. Eventually a large proportion of NZ employers and employees could end up covered by an FPA.

That potential for wide coverage is why all New Zealand employers need to know what FPAs are and how they work. Employment Partner, Daniel Erickson, has released a two-part podcast (part two available from Thursday, 1 December) to help New Zealand employers find out what they need to know about FPAs, and Tompkins Wake will be running a workshop in February giving employers practical guidance on how to navigate the FPA process.

If you have concerns about how FPAs might affect you or your business, you can contact our experts, listed below.

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