Fair Pay Agreements – much more than about pay

More detail about the Labour-led Government’s election promise to introduce “fair pay agreements” to New Zealand is now out.   There are more questions than answers at this stage but here’s what you need to know so far.

What are Fair Pay Agreements?

It is intended that Fair Pay Agreements (FPA) will lift wages and productivity in New Zealand by setting industry wide pay and work conditions through a system of collective bargaining.

This was referenced during last year’s election campaign. On 5 June 2018 the Minister for Workplace Relations and Safety, Hon Iain Lees-Galloway, announced that a working group, chaired by (former National Prime Minister) Rt. Hon Jim Bolger, has been set up to make recommendations on the design of such a collective bargaining system.

Once the framework for this system is in place, it will be up to workers, employers and unions to negotiate towards FPAs specific to their industry or sector. A distinguishing feature from the current system is that during the proposed negotiation framework for FPAs industrial pressure in the form of strikes and lockouts will not be available.   However, the most notable point from the announcement is that FPA terms (including pay rates) would ultimately be able to be imposed on workers and employers in an industry by an arbitrator (or similar mechanism).

What’s the problem the Government is seeking to address?

We already have a number of legislative minimum employment standards that apply to all employees. These include minimum wage rates, annual, sick and bereavement leave, entitlements for working on a public holiday, extra pay for being available to work or compensation when shifts are cancelled, protection for employees when businesses are restructured and minimum rest and meal break provisions.

However, the media statement from the Minister of 5 June conveys that more is needed:

“The aim of FPAs is to prevent a race to the bottom, where some employers are undercut by others who reduce costs through low wages and poor conditions of employment.”

Will Fair Pay Agreements only apply to employees?

Put simply, this is currently up for debate.  In accordance with the Terms of Reference one of the areas that the Working Group must address is whether the FPA system will apply to all employees of an industry or sector regardless of their union membership status.  Another question is whether the system will apply to a broader group of workers, such as contractors.  If it is a broader group of workers (which could include non union employees and/or contractors) then the scope of this new collective bargaining system and the implications for businesses could be considerable.

Collective bargaining and collective agreements in New Zealand have been a part of the employment law landscape for a long time.  However, these only apply to employers and employees (not contractors).  In contrast, under FPAs, it seems that the government has a desire to expand the new FPA collective bargaining model to all ‘workers’ in an industry (which is also a term also used in the new health and safety legislation to include contractors) regardless of union membership status or contractor/employment status.

What should businesses do?

The Working Group is due to report back with recommendations by the end of this year.

For now, employers will need to continue to work under the current legislation and bargaining framework.  However, once established, an FPA could set new levels of minimum pay and conditions applicable to a whole industry regardless of the document which governs the worker’s engagement. If this was to occur, it is likely that separate multi-employer/multi-union collective agreements, individual employment agreements and contracts for services would still exist but the terms and conditions contained in those agreements could not be less than those contained in an applicable FPA.  What is not clear is how any inconsistencies between FPAs and the terms of those other agreements might be addressed or resolved.

Given the sparsity of detail about how exactly this new FPA bargaining model will work businesses should be thinking about the questions they need answers to now.  The chief executives of Business NZ and Hospitality NZ are on the working group so this is an opportune time for businesses to engage with them or their local chambers of commerce on this, including to raise any issues of concern and make suggestions.

Please contact a member of our team if you would like further information or other assistance with this.

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