Fair Pay Agreements – fair enough?

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FPAs, designed to lift workers’ pay and improve terms of employment on a sector by sector basis, are on the way.

“Fair Pay Agreements”, known as FPAs, are a new system for collective bargaining in New Zealand, and they are on the way. With legislation likely to be introduced at the end of this year, FPAs are designed to lift workers’ pay and improve terms of employment on a sector by sector basis.

The Government is introducing FPAs for a couple of reasons. Its concerned that New Zealand’s lack of collective bargaining (we have the sixth lowest rate of collective bargaining in the OECD) may enable a race to the bottom, where businesses undercut their competitors by cutting workers’ wages or shifting risks onto workers.

FPAs are also a bid to tackle uneven wage growth in New Zealand. While unemployment is low in Aotearoa, wage growth has for many years remained static for New Zealand’s lower and middle earners, with only new entrants and established senior employees receiving a sustained increase in income.

FPAs aim to increase rates of collective bargaining and enhance wages for the lower tier earners, which will in turn address productivity and assist the government in its stated purpose of “closing the gap”.

How FPAs will work

FPA’s will facilitate coordinated bargaining between groups of employers and workers in the same occupation or sector. This will give some uniformity to pay structures and make it easier to tackle problems which are common to the particular industry.

Once implemented, an FPA will be a legally binding agreement between a group of employees and a group of employers that sets out minimum pay and conditions across an entire sector. There have been submissions, discussions and debate regarding how FPAs should accommodate regional variations in the cost of living and other factors. Some unions and employers opposed regional variations, arguing they would undermine the purpose of the FPA as it would remove the level playing field and would be difficult to implement. On the flipside, is it “fair” that an employee from Auckland and an employee from Kaitaia get paid the same when their reasonable cost of living will differ so much? The government is yet to resolve the regional variation issue.

The bargaining process for an FPA can kick off in several ways. A union can start one if they have the agreement of either 10% of the work force or 1,000 employees. Alternatively they could meet a “Public Interest” test that is yet to be defined in legislation. Potentially, this means that if there is public interest in commencing an FPA, then the union would be able to do so without the backing of the affected workforce.

Once the process is underway, bargaining would occur between unions and the sector’s employers. However, employers will generally be represented by overarching bodies like Business NZ or some other representative employer group. The government will facilitate the bargaining process by paying each party the sum of $50,000.

If agreement can’t be reached between employers and employees the Employment Relations Authority can be asked to set the terms of the FPA.

When will FPAs be introduced?

The Government has indicated that legislation will be introduced in November 2021, before going through a six month legislative process. As always, the devil will be in the detail and how the scheme is rolled out.

If the FPA regime is passed into law, there is likely to be four or five bargaining rounds each year. This means some industries or sectors will not have FPAs introduced for quite some time.

Introducing FPAs has been hotly debated between employers, employees, unions, employer organisations – and political parties. The National Party has even likened FPAs to the old days of “National Awards”, stating that it would repeal the Act if it came into power.

The employment landscape in New Zealand changes constantly. The likely introduction of FPAs will continue that evolution.

How can we help?

WRMK Lawyers has Northland’s largest team of employment law specialists. If you need some help or guidance, please give one of us a call or contact your usual WRMK lawyer for advice. You can view our Employment Law team here.

WRMK Lawyers takes all reasonable care to make sure that the information in this article is up-to-date and accurate at today’s date. It is necessarily general information and not intended as legal advice to be relied upon.

Our thanks to David Grindle for writing this article, which was first published in the Northern Advocate on 30 June 2021.

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