The Fair Pay Agreements Act (Act) comes into force today, 1 December, and will create a new, and complex system for industry-wide bargaining on terms and conditions of employment.
After some confusion and debate about the application of the Act, the Government has released additional guidance in the form of the Fair Pay Agreements Regulations (Regulations). Broadly speaking, the Regulations do three things:
- provide more information regarding the requirements to meet the public interest initiation test;
- require that when specifying the coverage of a proposed agreement an ANZSCO code or an ANZSIC code (codes to classify occupations and industries) is used; and
- specify the default bargaining party for employees and employers.
Public interest initiation test
There are two alternative tests outlined in the Act to initiate bargaining and at least one of these tests must be met. The first test is a ‘representation test’ (at least 1,000 employees or 10% of all employees who would be covered by a fair pay agreement, support the application to initiate bargaining). The second test is a ‘public interest test’ where the employees in question must be receiving low pay for their work and meet at least one of the following criteria:
- they have a lack of bargaining power in their employment;
- they have a lack of pay progression in their employment; or
- they are not adequately paid in relation to their long/unsocial work hours and contractual uncertainty.
The Regulations clarify the second, ‘public interest’, test by specifying percentage thresholds for the criteria in (1) to (3) above and the low pay requirement. For example, in relation to the requirement that employees receive low pay, the Chief Executive of the Department must be satisfied that approximately 60% or more employees receive a rate of pay close to the minimum adult wage or, alternatively, that approximately 30% or fewer employees receive a rate of pay close to the median wage.
These percentage figures provide some guidance as to what is needed to meet the criteria in the Act, but remain relatively broad in nature with some flexibility for the Chief Executive to determine whether these are met.
The Act states that when initiating bargaining, the coverage of the proposed fair pay agreement (FPA) must be stated. An FPA will either be an occupation-based agreement or an industry-based agreement, but there is little guidance in the Act as to how to specify the coverage of an FPA with sufficient clarity.
The Regulations add additional requirements. For occupation-based agreements, an ANZSCO code must be used to specify the occupation covered by the proposed agreement. For industry-based agreements either ANZSCO codes must be used to specify all occupations covered by the agreement or an ANZSIC code must specify the industry covered by the proposed agreement.
The issue with using ANZSCO codes is that it often does not accommodate modern job titles/occupations.
The Regulations provide that where a bargaining party considers that neither an ANZSCO or ANZSIC code accurately describes the coverage of an FPA, they must:
- explain why;
- clearly describe the nature of the occupation or industry; and
- provide any codes they believe are close to the relevant industry.
Considering the ever-evolving employment space and creation of new occupations, this flexibility is theoretically helpful, but the guidance in the Regulations remains overly broad, limiting its usefulness.
Default bargaining parties
Regulation 13 of the Regulations confirms that the New Zealand Council of Trade Unions Te Kauae Kaimahi Incorporated (NZCTU) and Business New Zealand Incorporated (Business NZ) will act as the default bargaining parties for employees and employers respectively.
It has always been envisaged that a union would be a bargaining party for employees and that an employer association, most likely Business NZ, would represent employers. However, in December 2021 Business NZ advised that it no longer agreed to be the default employer bargaining party in all FPA bargaining. This created a large gap within the legislation and vulnerability within the FPA system as there was no clear ‘employer association’.
It is unclear whether Business NZ has changed its mind regarding acting as the default bargaining party for employers, or if the Government has chosen to slot them into this role regardless. If it is the latter, it is deeply problematic as employers could be left without a default bargaining party, or with a reluctant bargaining party, and the ‘backstop’ provisions of the Act may need to be utilised. These backstop provisions allow the alternative bargaining party to apply to the Employment Relations Authority to fix the terms of the FPA without any bargaining occurring.
The Regulations also provide that the Chief Executive may request information from either the employer or employee bargaining party when considering whether to approve an application to consider bargaining.
The Regulations were created to provide further guidance on the application of the Act. They succeed in providing some useful detail in terms of thresholds, but uncertainty remains, and this is an area that requires careful navigation.
If you would like any guidance or assistance with your involvement in the process, please get in touch.
Special thanks to Kaitlin Burden for her assistance in writing this article.
 Fair Pay Agreements Act 2022, s 29.
 Section 32.
 Regulation 10.
 Cabinet Paper “Fair Pay Agreements – Backstop where one side is not represented” (2 May 2022) CAB-22-MIN-0080.02 at 14.
 Section 244.