The Government has introduced new legislation to provide a framework for the negotiation of sector-based and occupation-based “agreements” – which would provide for minimum employment terms to be set across all employers and employees in certain industries or occupations.  This Bill represents the biggest proposed change to our employment relations system since 2000.


Summary of the FPA process

We will outline below how the “Fair Pay Agreement” (“FPA”) process would operate if the FPA Bill is passed in its present state.  We note that the FPA Bill comprises of 244 sections, so the following is necessarily a brief summary of some key points.


Initiation of FPA bargaining

A union can initiate bargaining for a FPA if it meets either of the following tests:

a. the Representation test:

  • at least 1,000 covered employees support initiating bargaining for the FPA; or
  • 10% of all covered employees support initiating bargaining for the proposed FPA;

b.the Public Interest test – the employees within the coverage of the proposed FPA:

  • receive low pay for their work; or
  • have little bargaining power in their employment; or
  • have a lack of pay progression in their employment; or
  • are not adequately paid, taking into account factors such as working long or unsocial hours or contractual uncertainty (such as short term seasonal work or working on an irregular or intermittent basis).


Proposed coverage

When a union applies to MBIE to initiate bargaining for a FPA, the union has to specify the coverage of the proposed FPA.  The coverage must be described according to:

  • the occupation of the employees whom the proposed FPA would cover; or
  • the occupations, including the work or the type of work, of the employees whom the proposed FPA would cover, AND the industry in which the covered employees are employed.

When MBIE receives an application to initiate bargaining, it must be satisfied that that the relevant test has been met by the union’s application.


Notification of the initiation

If the test is satisfied, MBIE must issue a public notice.  It is then the responsibility of the initiating union to notify all relevant employers that are likely to be covered by the proposed coverage and all relevant unions that are likely to have members who are covered.  When an employer receives such notice, they are responsible to notify each of their employees who would be covered by the proposed coverage (and their union, if any).


Bargaining sides

After an application to initiate bargaining for a FPA has been approved by MBIE, each “side” needs to be represented by at least one “bargaining party”.

This obligation requires the employer bargaining party to do the following (at least):

  • provide regular updates about the bargaining to all covered employers;
  • give all covered employers the opportunity to provide feedback to the employer bargaining side in relation to the bargaining;
  • consider during bargaining all feedback received from covered employers;
  • advise all covered employers of any ratification vote;
  • consider whether all interest groups of covered employers are recognised and given the opportunity to provide feedback to the employer bargaining side; and
  • if the proposed FPA covers private sector employer that regularly receives government funding to deliver public services, provide regular updates about the bargaining to the government department responsible for that funding (if employer bargaining party is aware the funding).

Likewise, an employee bargaining party must endeavour to represent the collective interests of all covered employees, whether they are a member of the union or not.  Both employee and employer bargaining parties have to ensure effective representation of Māori employees and employers.

When the composition of each “bargaining side” has been approved by MBIE, each side must enter into an “inter-party side agreement” and appoint a “bargaining side lead advocate” to represent the bargaining side in bargaining, chair the bargaining parties on the bargaining side, and be the primary spokesperson for the bargaining side.


Mandatory content for each FPA

Fair pay agreements must include:

  • start date and expiry date (the agreement must be in force for between three and five years)
  • coverage of FPA (with sufficient clarity to determine which class(es) of employees are covered)
  • normal hours of work required of each class of employees covered by the FPA
  • details of wages to be paid to each class of employees covered by the FPA (base rates, any overtime rate and any penalty rate) and any adjustments
  • process for variation if a bargaining side requests for a proposed variation

In addition, when bargaining for a proposed FPA, the parties must at least discuss the following (but they do not have to reach agreement on such terms):

  • health and safety requirements
  • arrangements relating to training and development
  • arrangements relating to flexible working
  • leave entitlements
  • arrangements relating to any redundancy


Dispute resolution

The parties are able to access mediation and facilitation assistance.  The parties may also apply to the Authority to recommend and/or fix one or more terms of a FPA in particular circumstances.  Generally, the Authority must direct the parties to mediation before making any recommendation or determination in relation to bargaining for a FPA.

Under the FPA Bill, strikes and lockouts are unlawful in respect to bargaining for a FPA.


Concluding a FPA

Before a FPA is finalised:

  • The Authority must complete a compliance assessment and decide whether to approve a proposed FPA;
  • Proposed FPA must be ratified by employees and employers who would be covered by the FPA – after information has been provided to them about the proposed FPA – the threshold for ratification is reached if more than half of the employees/employers who have voted, vote in favour of ratification;
  • MBIE needs to verify that a proposed FPA has been ratified and assess whether there is any coverage overlap between a proposed FPA and any existing FPA.
  • MBIE has to issue notice to bring FPA into force.


Our commentary

The difference between a collective agreement and a “Fair Pay Agreement”

The current Employment Relations Act 2000 sets out the framework for collective bargaining.  The present system provides for “enterprise bargaining” – which is a process of negotiation between one or more employers with one or more unions (which represent the employees who have chosen to join the union).  The hallmark of a collective agreement is that each party to the agreement has the right to consider, negotiate and ultimately decide whether to be bound by those terms and conditions in the agreement.  That will not be the case for “fair pay agreements”.

Under the FPA Bill, employers and employees within the occupation or industry specified in a FPA can become bound by the terms and conditions that have been negotiated by unions and employer associations that do not represent them.

Further, unions will not be precluded from initiating collective bargaining with an employer, in order to negotiate for more favourable terms and conditions, even if there is already a “fair pay agreement” in force within the sector or occupation.


If a FPA is not an “agreement”, what is it?

Under our current system, all employers and employees are bound by the laws that are enacted by Parliament.  Employers and employees are able to negotiate for terms and conditions in their employment agreement, so long as they do not breach the laws set by Parliament.  As such, the law essentially acts as the minimum floor for terms and conditions of employment – the parties may go above and beyond – but they may not go below.  This system is accessible and provides clarity and flexibility for employers and employees.

Although there is an employer ratification process before a FPA is finalised, a FPA can be ratified if more than half of the employers who have voted, vote in favour of ratification.  A FPA bargaining process can produce outcomes that are binding on parties that have not negotiated, agreed to or ratified those outcomes.  As such, bargaining for a FPA will produce outcomes that look similar to laws and regulations.  However, these provisions will not be subject to the existing Parliamentary processes.


A bargaining process may not lead to suitable outcomes

When parties negotiate for an agreement – they are acting in their own interests.  A bargaining process is intended to allow the parties to negotiate for the matters that are important to themselves.  A bargaining process may not lead to suitable outcomes where it applies to an entire workforce, or for an entire sector or occupation.

In a modern business environment, each provider must strive to innovate, differentiate themselves and develop competitive advantages.  Each business will have different plans and priorities.  While some businesses have common interests with their competitors – others will have very different strategies, and they may seek to have different terms and conditions with their own workforce.

The FPA Bill tends to view the labour market as comprising of three major stakeholders – employers, employees and the Government – each stakeholder is presumed to hold relatively similar or common interests.  The FPA Bill sets up a system whereby all employees within the sector or occupation are represented during bargaining by one or more union(s).  Likewise, when bargaining has been initiated, all employers are expected to be represented by one or more employer association(s).  The proposed system assumes that employees and employers are adequately represented by the mechanism provided by the FPA Bill.  This may not accurately reflect the modern labour market.


Moving away from law-making to negotiated “agreements”

Our current system already has the ability to pass laws which apply to particular industries or occupations.  For example, transport operators are required to monitor and observe regulations which apply to their drivers.  Employers and employees that operate in “essential services” are subject to particular rules if they wish to take any industrial action.  Further, employees that provide certain services (such as cleaning and food catering) have statutory rights to transfer their employment to the subsequent service provider when the business (or part of it) is contracted out or sold.  These provisions and requirements were the outcome of careful consideration, market research, policy analysis and public submissions before they became part of our laws.

In NZ we have a neutral public sector, which we rely upon to consider and develop public policy.  We also have elected members of Parliament who are accountable to their constituents during each election cycle.  Our law-making process exists for good reasons and has evolved over many years.  The question is, why should we move away from the existing law-making systems in favour of a bargaining-based solution, whereby employer associations and unions are expected to reach “agreements” on behalf of all employers and employees within an industry or occupation?


Public consultation on the Bill closing

The Fair Pay Agreements Bill was introduced on 29 March 2022, and it passed the first reading on 5 April 2022.  The Bill has been referred to the Select Committee, and it is open for public submissions.  Submissions are due by 19 May 2022, and the Select Committee is due to report back to Parliament in October 2022.