A massive change for industrial relations in New Zealand passed in Parliament this week. Most of The Fair Pay Agreements Act 2022 will commence on 1 December 2022,with some aspects coming in to force on 1 June 2023.
Background
The Fair Pay Agreement (“FPA”) regime is based on a design from a working group led by former Prime Minister Jim Bolger.
The FPA regime is also very loosely based on Australia’s modern awards system. However, bargaining is front and centre in the FPA system, but is not in the Australian modern awards system.
It involves a change from employment agreements between individual employers and employees setting our the main terms of employment, to a system of compulsory national collective bargaining and awards. The bargaining will be undertaken between unions and organisations representing employers (and, when that doesn’t work, set by the Employment Relations Authority).
The Act was championed by Workplace Relations Minister Michael Wood, who argues that worker pay and conditions haven’t kept pace in recent decades. Labour claims that the FPA regime will lead to better pay and conditions, especially for low-wage sectors. They also claim that it will be good for business, in that it will stop responsible business being undercut on labour costs by “cowboys”.
Submissions to the Select Committee that considered the Fair Pay Agreement Bill tended to be quite polarised.
Overwhelmingly, unions and people writing as a consequence of being union members supported the Bill. They argued that it would reduce unfairness and exploitation in the workforce, and lead to improvements in wages and conditions that they believe employers can afford.
Overwhelmingly, employers and organisations whose members are businesses/employers opposed the Bill. Their arguments included that:
· The Bill took a “one size fits all” approach to employment terms and conditions, which would be hard for many small businesses to comply with.
· The Bill would lead to unaffordable wage increases, which would increase inflation and unemployment.
· The process set out in the Bill was much too complicated, slow, expensive and unwieldy, would prevent businesses from being flexible, adaptable, and would detract from productivity.
How it works
It will potentially apply to all employees and employers. Workplaces are not exempt because they are not unionised, or because the employer does not belong to an employers’ organisation. It will apply to employees, whether they are union members or not (although some high paid senior employees will not need to be covered).
Each fair pay agreement must include:
· The date when the agreement starts.
· Who is covered.
· The minimum base wage rates.
· Standard hours during which the base wage rate applies
· Overtime rates(and when it applies).
· Penalty rates(and when it applies).
· The arrangements for training and development.
· Leave entitlements.
· When the agreement expires.
Other things that a FPA may cover, but that must at least be discussed, include:
· Health and safety requirements.
· Arrangements for flexible work.
· Arrangements relating to any redundancy.
FPAs will also cover differences between types of workers who are covered (e.g. different qualifications or occupations). In some cases, they can also allow for regional differences (e.g. pay rates might be higher or lower in different parts of the country).
FPAs will last 3 to 5 years. Employers who breach an FPA could be fined, or even prohibited from employing people.
FPAs will not necessarily be the last word, in setting terms of employment. Sometimes, they will just provide minimum terms, and workplaces will need to negotiate deals with their workers that build on what is already in the applicable FPA (second tier bargaining). Likewise, FPAs will not revoke existing individual or collective employment agreement.
There is a lot uncertainty around the finer detail and practicalities of how the FPA regime will actually work in practice. The FPA process is complicated, so it can be easier to break it into three stages, which are – initiation bargaining, bargaining and finalising. Unions, employer organisation, MBIE and the Employment Relations Authority (“the ERA”) will all have a major role in the process.
The process is as follows:
The bargaining process will be initiated by unions.
MBIE get to decide whether to approve the unions application to bargain, and it may call for public submissions. Criteria include whether the union has the support of 10% of the employees who would be covered, or the support of 1,000 employees, or public interest criteria are met.
If the union’s application is approved, there will be a process for notifying workers and other unions, and for passing on employee details to unions.
There will also be a process for other unions and employer organisations to apply to be bargaining parties.
If bargaining parties can’t be found, the process will be referred to the Employment Relations Authority.
If bargaining parties are found and approved, MBIE publishes a notice announcing the process is underway.
Once the process is underway, unions get greater access to workplaces, and the parties can request information from each other.
The parties will get down to bargaining and try and reach an agreement (covering off at least the things that must be in a FPA). Dispute resolution assistance from MBIE is available.
If the parties can’t reach an agreement, the ERA sets the terms.
If the bargaining parties come up with an agreement, they submit it to the ERA for vetting. If the ERA does not approve, they send it back to the bargaining parties, for them to resolve whatever it was that caused the ERA not to approve.
If the ERA does approve the proposed agreement, the bargaining parties send it to employees and employers, for them to vote to ratify. There are two chances to approve by ratification vote. If they vote “no” both times, the ERA sets the terms.
If the verification vote is “yes,”, then the parties submit the agreement for a final check with MBIE (focusing on checking for overlap with other FPAs). MBIE deals with overlap issues, and passes a legal instrument called a “notice” that gives the FPA binding legal force.
It is unclear how long the whole process will take, but it could take months, or over a year.
If you would like any further information on Fair Pay Agreements, or other employment matters, please contact Consultant Tim Blake.
