What to expect from the Fair Pay Agreements Bill

There are concerns small businesses will be hit hard if the Fair Pay Agreements Bill becomes law, and it has already passed its first reading parliament, Dentons Kensington Swan reports

The Fair Pay Agreements Bill introduces the Fair Pay Agreement system, a mechanism that allows for bargaining between employers and employees to set binding minimum terms and conditions across an industry or occupation.

Looking across at the Award system in Australia (which is similar to the system proposed under the Bill), it is clear that these Agreements and the new ‘minimum standards’ that they introduce will have a significant impact on many industries.

While the Government has called the introduction of the Fair Pay Agreements system a “major step towards a fairer system for New Zealand workers,” others are concerned about large employers ‘gaming’ the system by setting standards for pay and conditions under the Agreements which are too high for smaller businesses to remain viable.

The Fair Pay Agreements Bill is only at a very early stage. There will be public submissions through the select committee process and we would encourage employers to make submissions on it.

If the Bill becomes law, we can see a number of grey areas which may lead to disputes. For example:

• We cannot see many employers wanting to agree to industry-wide terms or having the confidence that one representative will properly put forward their position during bargaining.
• The issues around coverage and appropriate representation will also likely result in litigation.
• We also have concerns around smaller employers not being able to meet the minimum standards agreed to between the larger employers and the unions during bargaining. While there is a weighted voting system, this does not go far enough to mitigate this risk in our view.

The process under the Bill

Fair Pay Agreements won’t immediately be in place for all industries. The Bill sets out a complex process for the creation of a Fair Pay Agreement (‘FPA’), which includes:

1. Unions initiate the process by applying to the Ministry for Business, Innovation and Employment (‘MBIE’), who must be satisfied that the application meets either:
   1. 1. A representation threshold of support of either 10% or 1,000 workers proposed to be covered by the FPA, or
      2. A public interest test – this is where they can show that the employees are low paid, have little bargaining power or poor pay progression.

   This means that the union must figure out who it is proposing is covered and why before it initiates bargaining. MBIE can also call for public submissions on whether the two tests are met.

2. If the union is successful, then it must notify all employers and employees who are proposed to be covered by the Agreement. It is easy to foresee some practical difficulties with this step.
3. Representatives are appointed – for employees, that will be the unions. For employers, it is likely to be an industry body or suitably qualified representative.
4. Bargaining commences –
   1. The coverage of an FPA must be determined by the bargaining parties. Coverage can be based on occupation or on industry, though the latter will only apply if workers will be better off overall. The Employment Relations Authority will be able to make determinations in relation to any overlaps of coverage between FPAs.
   2. The bargaining sides must ensure wider interests, including Māori interests, are represented, and must use all efforts to represent all those covered by the FPA, including non-members.
   3. There is some room for flexibility within an FPA. Regional differences can be set, and other differential terms are allowed if they comply with the Human Rights Act and minimum employment entitlements. Preferential payment can be set for union members, but only up to a maximum value of their union membership fees.
5. Agreements are ratified by employers and employees through a simple majority, and brought into force by MBIE. However, they must be vetted by the Employment Relations Authority first to ensure that the terms are lawful.
6. The FPA will apply to everyone within its coverage, and rights can be enforced through the usual employment dispute resolution processes or (for certain terms) by the Labour Inspectorate.