Posted by Tony Sung on March 21 2023 in News

The Fair Pay Agreements Bill introduced in March 2022 received its Royal Assent on 1 November 2022.

Fair Pay Agreements Bill receives Royal Assent

This Bill, which came into force on 1 December 2022, was introduced to provide a framework for collective bargaining for fair pay agreements across entire industries or occupations, rather than just between unions and particular employers. It is likely that the changes made by the Fair Pay Agreements Act 2002 will lead to significant consequences for businesses in New Zealand.

This article will summarise how the Fair Pay Agreement system will work.

For a union to initiate Fair Pay Agreement bargaining (the bargaining), the initiating union must apply for approval from the Chief Executive of the Ministry of Business, Innovation, and Employment.

There can be occupation-based Fair Pay Agreements or industry-based Fair Pay Agreements. The initiating union must describe in its application the type of work or the industry that is to be covered by the proposed Fair Pay Agreement.

The initiating union also needs to meet either the representation test or public interest test. The representation test is satisfied if at least 1,000 employees or 10% of all employees (whichever is the lowest) who would be within the coverage of the proposed Fair Pay Agreement, support the application to initiate bargaining for the proposed Fair Pay Agreement.

The public interest test is satisfied if a prescribed portion of employees who would be within the coverage of the proposed Fair Pay Agreement receive low pay for their work and meet at least one of the three criteria:

  1. have little bargaining power in their employment,
  2. have a lack of pay progression in their employment, or
  3. are inadequately paid.

The bargaining sides for each party need to be formed within three months of the Chief Executive’s public notification of his or her decision to approve the initiating union’s application.

In the case of the employee bargaining side, it is straightforward. The employee bargaining side will consist of the initiating union together with any other union approved by the Chief Executive

In the case of the employer bargaining side, it is more complicated. The employer bargaining side comprises an employer association that applies to be the employer bargaining party together with any other employer association approved by the Chief Executive. If the Chief Executive approves the employer association’s application, the employer association may represent covered employers’ collective interests, despite some covered employers not being members of the employer association.

If no eligible employer association applies to be an employer bargaining party, the employer default bargaining party may elect to be an employer bargaining party for a proposed Fair Pay Agreement. The employer default bargaining party is defined under the Act as an organisation that represents employers and is the most representative organisation of employers in New Zealand. As the largest employer’s lobby group, Business NZ, has refused to be the employer default bargaining party, it is unclear which organisation will be undertaking this role.

If the employer default bargaining party does not elect to be an employer bargaining party for a proposed agreement that was initiated by the employee bargaining side, a bargaining party on the employee bargaining side may ask the Employment Relations Authority to fix the terms of the proposed Fair Pay Agreement without any bargaining.

Once both bargaining sides are formed, bargaining commences. Each Fair Pay Agreement must contain the following mandatory contents:

  • the dates on which the agreements come into force,
  • the coverage of the agreement, the standard work hours,
  • a minimum base wage rate,
  • an overtime rate,
  • a penalty rate,
  • the arrangements for training and development, and
  • the leave entitlements.

When the bargaining sides for a proposed agreement agree that bargaining for the proposed agreement is complete, the agreement will be submitted to the Employment Relations Authority for a compliance assessment. The approved proposed agreement will then need to be ratified by a vote of the covered employees and a vote of the covered employers. In the case of employees, each covered employee who is entitled to vote is entitled to one vote. In the case of employers, each covered employer who has 21 or more employees is entitled to one vote for each of its employees. An employer who has fewer than 21 employees is entitled to one vote for each of its employees plus up to six bonus votes.

Ratified Fair Pay Agreement will apply to all employees covered by the Fair Pay Agreement regardless of whether they are union members or not. If the bargaining sides can’t reach an agreement, or if the ratification vote has failed twice, the bargaining side can apply to the Employment Relations Authority to fix the terms of the proposed Fair Pay Agreement without the need for further ratification vote.

There are other notable features of the Fair Pay Agreement Act 2022. First, in addition to the good faith obligations between bargaining parties on different bargaining sides, there are good faith obligations on the same bargaining side.  There is also a significant penalty (up to $40,000) for breach of good faith.

Secondly, if there is conflict between a Fair Pay Agreement and a covered employee’s individual employment agreement, the more favourable term would prevail. This means the employee can cherry-pick the most favourable terms from the Fair Pay Agreement and individual employment agreement.

Thirdly, there is a stringent obligation on employers to pass on information to employees from the employee bargaining side throughout the bargaining process.

Fourthly, employers must allow their employees to attend two paid meetings (up to two hours each) in relation to the proposed Fair Pay Agreement meetings arranged by the employee bargaining side

Lastly, it is worth noting that, although the Act 2022 does not apply to contractors, there is a rebuttable presumption that the employer engaged the person under a contract for services for the purpose of preventing the person being, in relation to a fair pay agreement, a covered employee.

If you would like more information regarding the above, or have any questions, please contact us.

Kalev Crossland | Partner| Kalev.Crossland@shieffangland.co.nz

Tony Sung | Associate | Tony.Sung@shieffangland.co.nz 

This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.