Fair Pay Agreements, coming soon to a workplace near you

On 7 May 2021, the Government announced the much anticipated Fair Pay Agreement (FPA) system, being one of its pre-election promises.

The objective of the FPA system is said to improve labour market outcomes, specifically productivity, by enabling employers and employees to collectively bargain for minimum employment terms that will be binding on an industry or occupation.

There are four relevant stages to the Proposed FPA System.

Initiating FPA bargaining

Coverage:

  • FPAs can be based on an occupation or industry. 
  • Contractors are not currently included, but the Government plans to incorporate contractors at a later date.
  • Penalties will be applied to employers who try to avoid FPA coverage by misclassifying employees as contractors.

Mandate:

  • A Union (with at least one member within coverage) can initiate an FPA, by way of a representation test, which would require support of either:
    • At least 10% of the covered workforce (i.e. the occupation or industry), or at least 1,000 employees in the covered workforce (whichever is lower); or
    • A public interest test, which would require evidence that an industry or occupation faces certain labour market issues, for example low wages, such that an FPA would be in the public interest.

The FPA bargaining process

Bargaining parties: Unions will represent employees. Employers will choose representatives who meet specified requirements (yet to be announced).

Scope of Agreements:

  • All FPAs must agree on the following mandatory terms: base wage rates; how wage rates will be adjusted during the term of an FPA; whether employer superannuation contributions are included in base wage rates; ordinary hours; overtime; penalty rates; coverage; duration of the FPA; and governance arrangements, such as what (if any) ongoing responsibilities bargaining parties have.
  • Parties must discuss the following terms, but they are not mandatory to agree on: redundancy; leave requirements; objectives of the FPA; skills and training; health and safety; and flexible working arrangements.
  • Other employment terms can be included if the bargaining sides agree.

Flexibility:

  • There can be exemptions from FPAs for businesses if they are in significant financial hardship.
  • An FPA can also set regional differences and other differential terms if they comply with the Human Rights Act 1993 and minimum employment entitlements.
  • An FPA can set a preferential payment for union members, up to a maximum value of union membership fees.

Support for FPA bargaining

Active support: Bargaining sides will be supported by training and a Government provided bargaining support person. The Government will also contribute up to $50,000 per bargaining side, for an estimated 4 to 5 FPA bargaining processes a year, with additional funds if the side has low rates of membership of a union or industry group.

Changes to the workplace: Employers must allow all employees to attend two 2-hour paid meetings during FPA bargaining (in addition to the two 2-hour paid union meetings that Union employees are already entitled to each year). Unions can also visit workplaces on FPA business without needing the employer’s consent.

Dispute resolution: Mediation and the Employment Relations Authority (ERA) will be available if the parties cannot reach resolution between themselves.

Finalising an FPA

Vetting: Employees and employers within coverage will then vote on an FPA. However, before it goes to a ratification vote, the ERA will vet an agreed FPA to ensure its terms are lawful.

Ratification: If the proposed FPA passes ERA vetting, to become ratified it will then need support from a simple majority of both employee and employer voters. If a first ratification vote fails, parties go back to bargaining. If a second vote fails, the FPA then goes to the ERA for determination.

Enactment and enforcement: Once an FPA has been ratified, MBIE will make secondary legislation to bring that FPA into force, so it will apply to all employees/employers within coverage. Employees can enforce their rights through the standard employment dispute resolution system. In addition, the Labour Inspectorate can enforce certain terms of the FPA.

We consider that there will be some delay before the first FPA becomes effective, with legislation not due to be enacted until sometime next year.

If you have any questions with regards to FPA agreements please do not hesitate to get in touch with the Lane Neave Employment Law team.

Click here for other Employment Law articles.

Meet the team that makes
things simple.

Andrew Shaw
Fiona McMillan
Alex Beal