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Need to Know: Fair Pay Agreement Bill

On 26 October, the Government passed a major reform of New Zealand’s labour laws. The “Fair Pay Agreements” bill will come into effect from 1st December, exposing many industries to compulsory national agreements.

Issue date

We break down everything you need to know about the new legislation. What are FPAs? Will they affect your sector? What happens if you don’t want to be part of an FPA? How much will it cost? And can you appeal? This is what you Need to Know.

Frequently asked topics

1. Fair Pay Agreement Bill and the people involved

What are Fair Pay Agreements (FPAs) ?

  • FPAs are compulsory collective employment agreements that cover everyone working in an entire industry (e.g., all restaurants) or occupation (e.g., all chefs).
  • An FPA will set pay and conditions including wages and overtime rates, hours of work, leave and training entitlements.
  • An FPA will be in force for a minimum of 3 years and a maximum of 5 years.
  • Wage rates will apply across all covered employers and employees (although they can vary between regions)

Who can initiate an FPA and how ?

Only a union can initiate an FPA. There are only two ways that an FPA can be initiated; either by a representation test or a public interest test:

  • Representation test: Requires approval of either 1000 employees or 10% of all employees in an industry or occupation (whichever is lower).
  • Public interest test: Requires that employees be “low paid” and meet one of the three other criteria. Little bargaining power, lack of pay progression or inadequate pay (considering factors such as contractual uncertainty or long or unsocial working hours).

Who will be allowed to bargain for an FPA?

  • Registered unions will represent all employees in the industry or occupation.
  • Employer organisation(s) will represent all employers in the industry or occupation.
  • We don’t yet know who the employer organisations will be, but we do know that there can be more than one organisation involved. Individual businesses will not be allowed to bargain in FPAs.

Bargaining sides appoint a lead advocate, effectively their spokesperson.

If no employer organisation is available or willing to negotiate, a “default employer organisation” will be offered the chance to bargain on behalf of employers. If that organisation declines, the ERA will fix the terms of the FPA without input from employers.

How will i know my business will be covered by an FPA ?

Once a union initiates an FPA, it must use its ‘best endeavours’ to notify the unions and employer(s) that will be covered by the FPA. We anticipate this to be challenging for unions, especially in broad-based sectors such as retail or hospitality.

An employee (and their employer) is covered by a proposed FPA if their type of work is within coverage and at least 25% of their actual work is in coverage. Employers who misclassify employees as contractors to avoid FPA coverage will be penalised.

My business does not have any union membership or any collective agreement. Do FPAs still apply to me ?

FPAs don’t just apply to union members, they apply to everyone in a particular occupation or industry. All employers and employees included in the specified coverage will be required to comply with the FPA.

2. When an FPA is initiated

What happens if our business does not want to be part of an FPA ?

Unfortunately, if your business is covered by an FPA, you cannot opt out.
However, an FPA can allow for temporary delays of up to 12 months (i.e., a delayed commencement date) for businesses if they are in significant financial hardship.

This delay is not guaranteed – the employer must make an application, and there are specific criteria that must be satisfied before the bargaining sides can approve that application. The Government has indicated that this is expected to be tightly controlled and approvals given only in extreme circumstances. This is to avoid precedents that allow too many employers to delay the impacts.

How can our organisation have a voice at the bargaining table ?

Most employers will not have a direct voice at the bargaining table. Rather, they will be represented by an “eligible employer association”, who would have to apply to join the employer bargaining side.

However, where the bargaining side agrees it is possible that industry or occupational expertise is best sourced from enterprises, company representatives may also be invited to participate. MBIE must approve any application to join the employer bargaining side.

If my business is covered by an FPA, what do I need to do?

Covered employers must:

  • Provide their employees with information about the proposed FPA, including the initiation of bargaining and how to contact the relevant union. The union that initiates the FPA process will give you the details to do this.
  • Provide details of covered employees to the initiating union unless employees object.
  • In bargaining, the employer bargaining side must use its best endeavours to represent all employers and to act in good faith, including in relation to non-members. ("Best endeavours" are not defined but will almost certainly include a requirement to find ways of keeping affected employers informed.)
  • Ensure effective representation of Māori employers.



3. Government support when an FPA is initiated

This sounds like a costly exercise to have to go through. Who will pay for it?

The process is very likely to be expensive, particularly with anticipated litigation (given the lack of clarity in the legislation).
Some funding (NZ$50,000 per bargaining side) has been set aside for bargaining parties on the assumption that there will be no more than four FPAs bargained in any year. It won’t be anywhere near enough, given the breadth of the agreements.

There is also nothing in the legislation to prevent more than four FPAs being bargained in any year. Essentially, employers will be left to bargain on their own.

What support is available for employers ?

MBIE must provide support services to bargaining sides and parties, unions and employers. Specialised services are being developed, and parties to bargaining may also use the existing mediation service.


4. When an FPA is put in place

My business has employees who perform different roles. What happens if an FPA only covers part of their role?

Where at least 25% of an employee’s work is covered by an FPA, that employee is covered by the FPA. If two or more FPAs meet the 25% threshold, the FPA that covers the largest portion of the employee’s work should apply. In businesses where employees change between different tasks or roles over the course of any given day or week, there is a real risk of inadvertent non-compliance with FPAs. This is because businesses may not easily recognise when an employee’s work has shifted such that they now fall within the coverage of an FPA (particularly if the employee fluidly shifts into, and out of, coverage as part of their normal role).

Will FPAs replace Independent or Collective Employment Agreements ?

FPAs will not replace IEAs and CEAs.

If the terms of an FPA are more favourable than the terms in an employment agreement, the FPA terms will apply. If an existing employee agreement is more favourable than the terms of an FPA, the existing agreement will apply.

This is likely to create significant administrative difficulties for covered employers who will be required to assess every covered employee’s current arrangement against an applicable FPA to determine which agreement applies.

There may also be situations when it is not entirely clear whether a term in the FPA is “more favourable” than the equivalent term in an IEA or CEA. Changes to an employee’s duties will also have an impact, as this will require a reassessment of the contractual terms applying to an employee, as well as whether there are changes in the coverage of an FPA.

Could FPA bargaining lead to strike action ?

Strikes are not permitted for FPAs (except for health and safety reasons) but there is no restriction for second tier bargaining under the Employment Relations Authority (ERA). Unions can use collective bargaining to “top up" FPA settlements.

This is one of our most pressing concerns with the legislation, as this same second tier bargaining could lead to increased industrial action.

Once agreed, how is an FPA finalised ?

For an FPA to be finalised, it must:
- Be assessed and approved by the ERA through a “vetting” process to ensure compliance with the FPA requirements.
- Be ratified through a voting process by the covered employees and covered employers, which is verified by MBIE.
- Be brought into force by the Chief Executive of MBIE through secondary legislation.

What does the ratification process involve ?

Ratification will require most employees and employers to vote in favour of the proposed FPA. Employers will have one vote per employee in coverage, with slightly higher vote weighting for employers with less than 21 employees in coverage (e.g., two votes if only one employee).

Parties can return to bargaining if the first ratification vote fails, but the FPA must go to the ERA for determination if a second vote fails, effectively making the voting process meaningless.

A finalised FPA will apply to all employers within its coverage, regardless of whether that employer participated in the bargaining or ratification process or not.


5. After an FPA has been put in place

Can I appeal the outcome of an Employment Relations Authority (ERA) decision on an FPA ?

Challenges to ERA decisions may be made to the Court on questions of law regarding if applications or determinations meet criteria.

The ERA may also remove a matter to the Employment Court, but the Court cannot fix the terms of an FPA. The Court must appoint counsel to assist when a party was not present in bargaining. Appeals to the appellate courts are possible with the permission of the Court, but only on questions of law.

What penalties can be applied if we don’t abide by the FPA requirements?

Businesses that breach the requirements of the Fair Pay Agreements Act can be penalised. Penalties can stretch to a maximum of $20,000 for individuals and up to $40,000 for businesses. Offences include:

  • Breach of good faith
  • Employing contractors to avoid FPA coverage
  • Failure to provide employee details to union
  • Failure to permit an employee to attend FPA meeting
  • Failure to permit union rep to enter the workplace
  • Intentional or reckless failure to maintain contact details
6. What's Next

What sectors are expected to be first in line ?

The Unite Union has announced its intention to initiate an FPA for the Hospitality sector as soon as the Bill passes. They are already collecting 1,000 signatures from around New Zealand. Bus drivers, retail workers (especially grocery workers) and security guards have all indicated an intention to seek an FPA.

Our involvement:

  • In December 2021, as part of the wider BusinessNZ Network, we refused to be part of the FPA scheme as the default bargaining organisation, as we believe the agreements are fundamentally flawed. We have consistently urged the government to rethink the policy.
  • Launched and promoted a nationwide campaign, ‘Your Work, Your Way’ against FPAs, including an open letter to the Government about why the BusinessNZ network and its members are opposed to the legislation.
  • Presented an alternative, voluntary approach to FPAs.
  • Provided extensive submissions and insights throughout the public consultation process and advocated for the concerns of the business community.
  • Repeatedly called on the Government publicly to work with the business community on an alternative to genuinely improve conditions for working Kiwis and meet the needs of the workplace of the future.
  • Lodged a formal complaint with the ILO, which was heard in June 2022.

What we're doing next

We are committed to supporting our members to navigate the scheme as it currently stands. This includes possible litigation to test the process and requirements of the legislation. We encourage you to reach out as problems with the legislation inevitably emerge.

We will continue to actively engage with the Government over emerging issues as specific FPAs are developed. We have also succeeded in getting the ILO to re-examine the FPA Bill for compliance with international law in time for hearings in June 2023.

You can also find more information about FPAs on the MBIE website here.

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