Fair Pay Agreements Act 2022

Fair Pay Agreements Act 2022 – a big change coming to NZ employers

The Government passed the Fair Pay Agreements Act on 26 October which means that applications to initiate bargaining can be made from 1 December 2022. It’s estimated that the process from bargaining to a finalised Fair Pay Agreement (an FPA) could take around a year.

What is a fair pay agreement?

A fair pay agreement or FPA is an agreement that applies to all workers across entire industries or occupations. It will provide minimum terms and conditions of employment for an industry as a whole, regardless of specific employers.

There are various matters that a fair pay agreement must cover. These are:

  • when the agreement will come into force and when it expires;
  • the coverage of the agreement;
  • normal hours of work;
  • details of wages, including minimum base wage rates, overtime, and penalty rates;
  • arrangements for training and development;
  • leave entitlements;
  • governance arrangements; and
  • an agreed process for varying the terms of the agreement

Parties will also be required to discuss (but not required to agree on) other matters including:

  • the objectives of the proposed agreement;
  • health and safety requirements;
  • arrangements relating to flexible working; and
  • arrangements relating to any redundancy.

The fair pay agreement must apply for a minimum of three years and a maximum of five years.

Who will this cover?

The FPA Act enables any eligible union to initiate bargaining for a FPA if it meets either a representation test or a public interest test.

The representation test is met if at least 1,000 employees or 10% of the employees who would be within the coverage of the proposed FPA support the application to initiate bargaining for the proposed FPA.

The public interest test is met if employees who would be within the coverage of the proposed FPA receive low pay for their work and meet one or more of the following criteria:

  • they have little bargaining power in their employment;
  • they have a lack of pay progression in their employment (for example, pay rates only increase to comply with minimum wage requirements);
  • they are not adequately paid, taking into account factors such as working long or unsocial hours (for example, working weekends, night shifts, or split shifts), and contractual uncertainty, including performing short-term seasonal work or working on an intermittent or irregular basis.

All employers of covered employees will be included in the FPA. For negotiation, the employers will be represented by an organisation; they will not be choosing one employer in an industry to negotiate on behalf of all employers in that industry.

An FPA may cover, and provide different entitlements for, different classes of employees, such as those who would be covered by a starting-out wage or a training wage. The agreement can also have different classes depending on the type of role, or the location of the employee.

In the future, if the legislation remains in place, a FPA could cover anyone who is an employee, and there is a possibility that the majority of New Zealand workers could eventually be covered by one. However, while there is no prohibition on any particular occupations creating a FPA, the legislation is geared toward low paid industries.

What are the various viewpoints about FPAs?

The government sees the system as a necessary correction to 30 years without sector-based bargaining, which it believes has had a negative impact on productivity and helped to increase inequality across the country by way of a shrinking share of the country’s earnings trickling down to workers. This legislation completes a key Labour Government 2020 election commitment.

Union officials have said it will be especially significant for low waged workers but also good for the industries that employ them as a whole, as it will make them more attractive workplaces for recruiting staff and retaining them.

Some employee groups and business associations have roundly criticised FPAs and both National and Act have made it their priority to repeal the legislation if they make it into government in the 2023 elections.

If a business is covered by an FPA, what will it involve?

  • An employer must provide employees with information about the FPA including how to contact and join the union if asked by the union
  • Provide contact details of the covered employees to the union unless employees’ object
  • The employer bargaining side must use its best endeavours to represent all employers and to act in good faith. Best endeavours are not defined but will almost certainly include a requirement to inform all affected employers, especially Māori employers

What should an employer do now?

Employers should start thinking about whether there is an association who may be able to represent them if FPA bargaining is initiated in respect of their employees, and which other employers may need to be involved. Employer groups who lack representation do face the very real possibility of terms being imposed on them by the Employment Relations Authority within a relatively short space of time, even though it is expected that it will take about a year for a FPA to be in place after bargaining commences.

The full details of the Fair Pay Agreements Act 2022 can be found on the New Zealand Legislation website and further information on the Employment New Zealand website.

If you have any questions about fair pay agreements, or employment agreements generally, please contact a member of the ConsultingHQ team.

Contact us to find out how we can help your business.

Contact us to find out how we can help your business.