Fair Pay Agreements

ARE FAIR PAY AGREEMENTS FAIR?

The Fair Pay Agreements Act 2022 is the biggest change to employment law in 20 years. Find out what it could mean for your business in our Q&A with Duncan Cotterill.

Q1: What is a fair pay agreement (FPA)? A: A fair pay agreement (FPA) is an agreement that applies to all workers across entire industries or occupations. It provides minimum terms and conditions of employment for an industry as a whole, regardless of specific employers. An FPA must cover various matters, including: commencement and expiry dates; who is covered; normal hours of work; details of wages, including minimum base wage rates, overtime, and penalty rates; training and development; and leave entitlements. Parties to the agreement (business owners and their employees, for example) 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; and arrangements relating to flexible working and any redundancy. The FPA must apply for a minimum of three years and a maximum of five years.

Q2: What’s the aim of the Fair Pay Agreements Act? How does it differ from having minimum wage/training wage requirements in my business? A: The aim of the Act is to “improve labour market outcomes in New Zealand.” This is through enabling employers and employees to enter into industry-wide or occupation wide collective bargaining, with the aim of establishing minimum employment terms for the occupation or industry in question.

It’s likely then that the minimum wage and training requirements will overlap with minimum employment terms in a FPA.

Q3: Would there be an overarching fair pay agreement for the plumbing, gasfitting and drainlaying industry? Or would it be for the construction industry as a whole? A: The million dollar question! As currently drafted, the Act enables a FPA to cover entire sectors and industries, so there is potential for an overarching agreement. To be involved in the bargaining, a plumbing employer would have to be able to explain how they can represent the interests of plumbing employers, or plumbing employees.

The bargaining itself will be conducted by unions on behalf of employees, and employer associations on behalf of employers. In

certain circumstances, including for example if there is no association available to represent employers, the bargaining may be conducted by what the FPA Act describes as “default bargaining parties”.

The FPA Act also includes what is known as a “backstop policy”, where, if there is no party willing to represent one side in the bargaining, the other party (most likely a union) will be able to apply to the ERA to set the terms of the FPA. This means that it is possible that FPAs could be imposed on certain industries without any negotiation or employer input.

Q4: When the Act comes into effect on 1 December, does this set the FPA framework in motion and, if so, how long do industries have to create an FPA? A: Yes it does, but keep in mind that industries or unions are not required to have an FPA. 1 December will simply mean that a party can initiate bargaining for an FPA—see Q7 for who is eligible to do this.

The FPA Act creates a framework for bargaining by: setting out a general duty of good faith; creating processes for initiating, bargaining, and finalising an FPA; providing processes to resolve disputes that may arise; and establishing regulation-making powers to give full effect to FPAs. Once an intention to bargain has been indicated, the CEO of MBIE must assess the application for the bargaining to be officially initiated. After that, there are notification requirements to interested parties, such as other plumbing employers, and ratification and voting processes.

In short, if either party delays things, the FPA will be referred to the Employment Relations Authority (ERA) to fix the terms of the FPA/check for compliance. Once an FPA is approved by the ERA, it must be ratified by covered employees and employers.

Q5: Plumbers don’t have a union, so who might develop an FPA for our industry? A: Refer to Q3 – this has been one of the biggest criticisms of the Act so far. When the bill was introduced, the Government was keen for BusinessNZ to play a role representing employers and they declined to do so, leaving no obvious alternative (although they now have one month to decide whether they want to be a bargaining party).

Remember, there is no requirement to have an FPA. It is more that plumbing employers will need to participate if an interested party initiates the FPA process. Q6: Could Master Plumbers be involved in bargaining for and representing employers? A: Organisations such as BusinessNZ and Master Plumbers, Gasfitters and Drainlayers NZ Inc made submissions on the Bill prior to it becoming law. They were concerned that they would not have the expertise and/or resources required to negotiate and bargain for FPAs.

This is in part because representing parties will have several obligations imposed on them, including notification and communication obligations, and each party must also ensure that Māori employers and employees are represented effectively.

The Authority can make a determination if a dispute is not otherwise resolved.

Q7: Will my business be asked if I support an FPA for our industry? A: Whether or not you are a member of any employer organisation, an FPA will likely still apply to you, and you may not be asked whether you support it. This is because the FPA Act enables any eligible union to initiate bargaining for an 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.

The public interest test is met if employees who would be within the coverage of the proposed FPA: receive low pay; and meet one or more of the following criteria: • they have little bargaining power; • they have a lack of pay progression (for example, pay rates only increase to meet minimum wage requirements); • they are not adequately paid, considering 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.

Q8: How can I or my employees get involved in giving feedback on any draft FPA for this industry? A: There are some onerous notification obligations imposed on the unions by the Act. For example, a union that has had an application to initiate bargaining approved must notify other relevant unions and employers of that approval. So all things going to plan, you would get involved by this early notification.

The Act also provides that employees are entitled to attend two FPA meetings in relation to a proposed agreement: one meeting in relation to a proposed variation and two meetings in relation to a proposed renewal or proposed replacement of an FPA.

In terms of your involvement as an employer, this would require you to be classified as a representing party (ie, able to represent the plumbing employers covered by the FPA).

Q9: Would I have to use an FPA for my industry instead of my business’s own employment agreements? A: Think of the FPA as a ‘minimum standard’ employment agreement for employees in the PDG industry. If you are offering your employees terms that are better than those in the FPA, you will likely not need to exchange your employment agreement for the FPA.

When an FPA has been finalised, it applies to all employers within its coverage, whether or not they participated in the bargaining process.

Likewise, all employees within coverage would receive the new minimum employment terms, whether or not they are union members.

Employees and employers will still be able to negotiate their own agreements outside of the FPA, but only if the terms do not fall below those set out in the FPA.

Q10: Would I have to use an FPA for all my staff, from execs and managers to qualified tradespeople and apprentices? A: The FPA will state who is covered by it, so you will know which positions you need to use it for.

An FPA may cover, and provide different entitlements for, different classes of employees, such as apprentices (the legislation specifically refers to 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.

Any different classes in the FPA would be determined at the bargaining stage.

About the author: Kirsty Wallace is a Senior Associate at Duncan Cotterill in Wellington, specialising in employment law. Contact Kirsty on 022 6177 100; kirsty.wallace@duncancotterill.com; duncancotterill.com