Fair Pay Agreements

6 Jul 20

The Government established the Fair Pay Agreement (FPA) Working Group in June 2018.  This was chaired by Jim Bolger.  The Working Group delivered its report on 20 December 2018.  Almost a year later, in October 2019, the Government released its discussion paper and sought feedback on a range of options for the design of FPAs.  The consultation period closed on 27 November last year.

The rationale for FPAs is that wages in New Zealand have grown much more slowly for workers on lower incomes, than those on higher wages.  Wages have grown more slowly than labour productivity.  The OECD has warned that income inequality has a negative and significant impact on economic growth.  New Zealand has both an inequality and a productivity challenge.  The Government’s vision is to use the employment relations framework to create a level playing field where employers are not disadvantaged by paying reasonable industry-standard wages.

The Working Party recommendations were that FPAs could be most useful in sectors or occupations where particular issues with competitive outcomes are identified – e.g. competition is based on ever-decreasing labour costs, rather than an increase in quality or productivity.  FPAs could also be used more generally where workers and employers identify scope to improve outcomes across a sector or occupation.

The Working Party paper addressed a number of practical considerations.  It recommended that the process should be initiated only by workers and their Union representatives.  The threshold should either be the representativeness trigger (a minimum threshold of workers or percentage of workers in a nominated sector or occupation) or the public interest trigger where there are harmful labour market conditions in a nominated sector or occupation.

The recommendations regarding coverage included that FPAs cover not only employees but contractors and that all employers in the defined sector or occupation should, as a default, be covered by the FPA.

The Working Party recommended that the legislation should set the minimum content that must be included in the FPA.  Bargaining parties should nominate a representative organisation to bargain on their behalf and there should be a role for the National Representative Bodies to coordinate bargaining representatives.  Representative bodies must represent non-members in good faith.

The Working Party also recommended that clear timelines will be needed to prevent lengthy processes creating excessive uncertainty or cost and that notification of parties will be a critical element.  Bargaining should be supported through employment relations facilitation.

The Government has indicated that there will be no recourse to industrial action during bargaining.  Disputes over coverage may be determined by the Employment Relations Authority (Authority) with parties attending mediation as the first port of call.

Where disputes cannot be resolved through mediation, the parties should be able to apply to the Authority to have the matter determined.  Those determinations should only be appealed on limited procedural grounds.   Once in force, any dispute over the terms of an FPA should use the standard dispute resolution process.

When FPAs are concluded, the procedure for ratification should be set in law.  Registration of FPAs should be required by law and should be publicly available.


Proposed bargaining and dispute resolution process

Business groups have lobbied hard against the plan to implement FPAs, claiming they would represent a return to national awards.  The National Party claims that no legislation will be seen before the election and that Labour has effectively ‘kicked PFAs for touch’.  The Council of Trade Unions however sees FPAs as a core promise made by the Labour Government.  If Labour is re-elected, it is highly likely that the majority of the Working Party’s recommendations will be translated into legislation.

The support packages rolled out by the Labour Government in response to Coronavirus, emphasise the Labour Government’s intent to provide better parity for workers across industries and across sectors.  It is hard to see that approach changing as workers and businesses slowly come out the other side of this pandemic world economic event.


Want to know more?

If you have any questions about Fair Pay Agreements, , please contact our specialist Employment Team.

This article along with many others were included in the June edition of our Employment Newsletter.

For more information contact:

John Farrow