Fair Pay Agreements: An update on the new law

  • Legal update

    03 November 2022

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After rigorous and lengthy debate, the Fair Pay Agreements Bill (the Bill) has passed its third reading and will come into effect on 1 December 2022. The Bill establishes a framework for bargaining between employers and employees across entire occupations or industries for Fair Pay Agreements (FPA) that would set minimum employment standards across these occupations or industries. This is the most radical change to our labour laws in decades, generating both high praise as well as the harsh criticism. Regardless of how employers may feel about FPAs, it is now law and employers will need to understand how it is intended to operate.

This article provides a brief overview of the FPA process and key points employers should bear in mind as we start to navigate this new process.

An overview of the FPA process
Initiation of FPA Bargaining

To initiate bargaining for an FPA, a union must apply to the Chief Executive of the Ministry for Business, Innovation and Employment (CE of MBIE). Bargaining can be initiated if one of the following tests are met:

  • the representation test – at least 1,000 employees or 10% of all employees in proposed coverage support initiating bargaining for the proposed FPA; or
  • the public interest test – the relevant employees receive low pay for their work; and
    • have little bargaining power in their employment; or
    • have a lack of pay progression in their employment (for example, pay rates only increase to comply with minimum wage requirements); or
    • are not adequately paid taking into account matters such as long/unsocial hours or contractual uncertainty (e.g. short term seasonal work).
Coverage and key terms of an FPA

The initiating union must specify the coverage of the proposed FPA in their application to initiate bargaining. Coverage must be described according to either:

  • the occupation of employees (occupation-based agreement), e.g. all commercial cleaners; or
  • the occupation and industry of employees (an industry-based agreement), e.g. all bakers and butchers in the supermarket industry.

A key point to bear in mind is that employees and employers can be covered by an FPA, regardless of whether or not they have participated in bargaining.

An FPA must include the following terms: the standard hours to be worked, the wages payable, arrangements for training and development, leave entitlements, the governance arrangements that will apply to the bargaining sides when the agreement is in force, the process for each bargaining side to engage with the other bargaining side, and the expiry date of the agreement.

Each agreement must apply for a period of no less than three years, but no more than five years.


Employers, unions, business representatives, and government will each have a role in notification to reach as many affected parties as possible. The Bill places specific notification requirements on initiating unions, and employers, once bargaining has been initiated. In assessing an application, the CE of MBIE may call for public submissions in deciding whether the tests are met, as well as request further evidence and information from the initiating union if required.

If the test is satisfied, the CE of MBIE must issue a public notification within five days. A union with a successful application must identify and then notify all relevant employees and employers. There are also obligations on employers to provide the contact details of relevant employees to unions for the purpose of notification around bargaining.

The bargaining process

The FPA bargaining process is expected to be similar to the traditional collective bargaining process, but with more parties involved. Some important points to note are:

Employers are who bargaining parties must apply for approval from the CE of MBIE to be part of the employer bargaining side. Employers must choose representatives who meet specified requirements.
Obligations of good faith apply to all parties in bargaining for and implementing an FPA.
Strike and lockouts related to FPA bargaining are not lawful unless on health and safety grounds.
Training and a government provided bargaining support person will be offered to each side in bargaining. On the assumption of no more than four FPAs in bargaining per year, the government will also contribute up to $50,000 per bargaining side (i.e. the union side and the employer side), with additional funds provided in some cases.
Parties can use mediation though MBIE’s mediation services and facilitation through the Employment Relations Authority (the Authority) to assist with bargaining.

Finalising an FPA

The proposed agreement must be submitted to the Authority who will approve whether the FPA complies with the requirements of the Fair Pay Agreements Act, employment standards, and any other relevant employment law requirements. The Authority will also assess whether there is a coverage overlap between the proposed agreement and any FPA, and determine which agreement provides the better terms overall.

If a term in an FPA overlaps with an existing term in an individual employment agreement or collective agreement, the more favourable term to a covered employee will be applied.

The FPA must be ratified by employees and employers covered by the agreement. Ratification requires a simple majority (50% +1) of employees and employers to vote in favour of the proposed FPA. Parties can return to bargaining if the proposed ratification vote fails. However, if a second ratification vote fails then the terms of an FPA will be fixed by the Authority.

Enforcement will occur through a penalty regime consistent with other employment legislation.

Effect of the FPA Bill
What date does the Bill take effect?

The FPA system set out in the Bill will take effect from 1 December 2022. More detailed guidance for employers, employees and bargaining parties is expected to be available from this date.[1]

What do we anticipate?

While it is difficult to ascertain the full impact that the FPA system will have, we expect that the first FPAs are likely to be established in those occupations which are already considered the most vulnerable under schedule 1A of the Employment Relations Act 2000. We understand that the first sectors off the rank will be cleaners, security guards, check out operators, bus drivers and hospitality workers.

What should employers do?

Employers should take stock of their existing workforce, including whether you have any roles that may fall within the targeted sectors who are likely to have FPAs negotiated first. It will also be critical to understand:

  • the FPA framework itself and what bargaining will look like for your sector;
  • which other key employers will be around any negotiating table and how confidential information will be managed;
  • who will be on your FPA bargaining team;
  • what are the variables in pay in the sector and what may be the benchmark for pay rates in any FPA;
  • are there any other terms that are likely to be caught by an FPA that will need to be negotiated; and
  • whether your budgets will need to be amended to reflect a new benchmark on pay and leave entitlements as well as the investment in the bargaining process from a resourcing lens.

We encourage all employers to reflect on what impact these changes will have, whether now or in the future.  If you have any questions concerning FPAs and the application of the Bill, please get in touch with one of our experts.


[1] Historic day for everyday workers as Fair Pay Agreements Bill passes third reading | Beehive.govt.nz

This article was co-authored by Serafina Milbank, an intern in our Employment team.