Fair Pay Agreements – What employers need to know

Fair Pay Agreements (FPA) have become a polarising issue as the road to this year’s general election unwinds.

This week BusinessNZ released an election wish list that recommends scrapping what the document colloquially refers to as “Forced Pay Agreements”.

William Fussey, Associate at Anderson Lloyd, believes the FPA Act is one of the most significant changes to New Zealand’s employment law in recent years and could mark a sea-change in how employees’ terms and conditions of employment are determined.

“Currently, over 80% of New Zealand employees are employed under individual employment agreements, with the remainder employed under collective employment agreements that have been collectively bargained for by the unions they are members of,” said Fussey.

“Fair Pay Agreements, however, can be imposed across whole industries regardless of whether employees are union members and regardless of whether the employers have been involved in the bargaining process.”

Initiation of Fair Pay Agreements

According to Employment New Zealand, bargaining for a new Fair Pay Agreement can only be initiated by eligible unions who apply to the Ministry of Business, Innovation and Employment (MBIE) and get approval to initiate bargaining.

The application must also meet one of the initiation tests and provide clear information about the proposed coverage for the Fair Pay Agreement.

MBIE is required to publicly notify when an application has been approved, and the initiating union must use its best endeavours to identify each employer it considers likely to have employees covered by an FPA.

“Although the initiating union is required to specify coverage with sufficient clarity so that employers can determine whether they are covered, we anticipate there may be legal challenges around whether particular employers are covered,” Fussey said.

Within 15 working days of being notified of bargaining from an initiating union, the employer must use its best endeavours to:

• identify its employees who are covered by the proposed FPA and notify any unions with covered members of the FPA; and
• within 30 working days provide those employees with a written formal statement provided by the initiating union, and inform them of various information, including that it will be providing their contact details to the initiating union unless they advise within 20 working days that they do not want their contact details to be passed on.

Bargaining and Fair Pay Agreements

Once bargaining is initiated, only an employer association can apply to be part of the negotiation with the union, such as the Employers and Manufacturers Association.

The association appoints a lead advocate to act as primary spokesperson and provides an outline of the process the bargaining side will follow to make decisions.

“An employer can’t simply join an employer bargaining side to be part of the negotiation,” said Fussey.

“If an employer is part of or represented by an employer association, it may want to talk to the employer association about the merits of being involved in the employer bargaining side.”

But another option would be for employers to form new employer associations so that they can be more directly involved in the bargaining.

However, “it is important for organisations to know that once bargaining has been initiated, their sector/industry has only three months to form an employer bargaining side,” he said.

Employer obligations during bargaining include:

• providing regular updates about the bargaining to covered employees
• give all covered employees the opportunity to provide feedback on the bargaining
• consider all feedback from covered employees during bargaining
• advise all covered employees of any ratification vote
• consider whether all interest groups of covered employees are recognised and given the opportunity to provide feedback.

Once bargaining is underway, Fussey envisages the actual process of bargaining to be similar to that of a collective agreement bargaining process — but there are additional issues to be aware of.

“A key difference is really about the nature of the parties given that bargaining is between employer associations and unions in relation to covered employees who may not be union members, and which will impose conditions on employers who have not been involved in the bargaining process,” Fussey said.

Another key difference is that under the FPA legislation, the Employment Relations Authority is not only required to approve an FPA, but it can fix terms in a broad range of situations, such as when bargaining breaks down or one of the bargaining sides has applied for it to do so, he said.

“However, under traditional collective bargaining the Employment Relations Authority can only fix terms when there has been a serious breach of good faith in the bargaining.”