On Wednesday 26 October 2022, the ‘Fair Pay Agreements Bill’ passed its third and final reading in Parliament. It is expected to come into force on 1 December 2022.
What is a ‘Fair Pay Agreement’?
A ‘Fair Pay Agreement’ (FPA), is an agreement which will bind all employers in a specific industry to provide specified minimum employment terms and conditions to all workers in that industry. In other words, FPAs are intended to set a baseline of employment rights within specific industries, which employers in those industries would be required to match or better.
In what circumstances will an FPA apply?
A union will first be required to make an application to the Chief Executive of the Ministry of Business, Innovation and Employment (MBIE) for approval to initiate bargaining.
To be successful in its application to initiate bargaining, the union must be able to demonstrate that:
- at least 1000 employees who would be covered by the FPA, or 10 % of the workforce who would be covered by the FPA, support the application; or
- a prescribed portion of the employees who would be covered by the proposed FPA meet a ‘public interest test’ (they are low-paid, and have little bargaining power, lack pay progression, and/or are not adequately paid in the circumstances).
If the Chief Executive of MBIE approves the application to initiate bargaining, the union/s and employers within a sector can then commence bargaining. Those who would be covered by the proposed FPA will be notified so they can participate in the bargaining if they wish.
Once the bargaining sides have reached agreement on the terms of an FPA, they will submit the proposed FPA to the Employment Relations Authority for a compliance assessment.
If the Authority approves the proposed FPA, the bargaining sides must then hold ratification votes. For the proposed FPA to progress further, a majority of both covered employees and employers must vote in support of it. If the vote fails, the parties must re-start bargaining. If, following a second round of bargaining, the vote fails again, either party may apply to the Authority for a determination to fix the terms of the proposed FPA.
If both employees and employers vote in support of the FPA, the Chief Executive of MBIE must then verify the FPA if satisfied that the correct process has been complied with.
Terms of FPAs
Bargaining parties will be able to agree to any terms they wish in their FPAs, provided they relate to covered employees, are not contrary to law, and are not inconsistent with the Fair Pay Agreements Act.
However, at a minimum, FPAs will be required to include:
- The dates on which the FPA comes into force and expires (to be of a duration no less than 3 years, but no more than 5 years).
- The coverage of the agreement (identifying the work/type of work covered).
- The standard hours for each type of work and class of employees.
- For each type of work and class of employees:
- a minimum base wage rate, and when it applies
- an overtime rate, and when it applies
- a penalty rate, and when it applies
and the amount by which, and calculation to be used, to adjust the above rates.
- The arrangements for training and development for each type of work and each class of employees.
- The leave entitlements for each type of work and each class of employees.
- The governance arrangements applicable when the agreement is in force.
- The process where one side requests agreement to bargain for a variation.
- The process for bargaining to vary the FPA.
When will FPAs commence?
The legislation is expected to commence on 1 December 2022. It is likely to then be some months before any FPAs are verified by MBIE, given they must first be negotiated, agreed, approved by the Authority and ratified by the parties.
Another consideration is that the opposition has committed to repeal the FPA legislation if they are elected in 2023. We will therefore have to wait and see if and how this new process unfolds.
To find out more get in touch with our team.