1 December 2022: Fair Pay Agreements System set to Kick-off
The Fair Pay Agreements Bill passed its third reading on 26 October 2022 after a lengthy debate in the chambers, meaning royal assent for the hotly debated fair pay agreements system (FPA) isn’t far off now.
Once royal assent is provided, the chief executive of the Ministry of Business, Innovation and Employment (MBIE) will be able to start approving and issuing regulations and forms the day after.
The Act itself is set to come into force on 1 December 2022, just over a month away – although the National Party has indicated its intention to repeal the legislation if they are elected to government for the next term.
Have a read below for a quick rundown on the FPA system’s key aspects, and changes that have come through as a result of the Select Committee Report published on 5 October 2022 – though many of the basic aspects remain the same:
- FPAs provide new ‘base’ minimum standards for industries (e.g. grocery industry) or occupations (e.g. commercial cleaners), its purpose being to establish fairer outcomes for employees. FPAs are intended to sit alongside collective agreements, meaning all collective agreements need to contain terms on par with, or over and above, the relevant FPA. What this will look like in practice for future negotiations remains to be seen.
- 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, little bargaining power, lack of pay progression or inadequate pay taking into account factors such as unsocial working hours.
- The Select Committee has, however, recommended that the public interest test require employees within the proposed coverage to be low paid. This is to ensure highly paid industries do not nudge their way into the ambit of the FPA system, as this would go against the spirit of the legislation.
- FPAs must include, at a bare minimum, terms and conditions in relation to the following:
- commencement and expiry dates (3 – 5 years);
- coverage (we expect this will be a breeding ground for litigation, with employees challenging their respective employer’s decision to not apply an FPA to their employment, or decision to categorise the employee under an FPA with ‘lesser’ terms);
- normal hours of work required of each ‘class’ of employees;
- minimum base wage rates; overtime rates and when they apply; penalty rates; calculation methods; governance arrangements; bargaining process agreement.
- The Select Committee has further inserted the requirement for arrangements relating to training and development and leave entitlements to be specified in FPAs.
- The reference to superannuation in the original Bill has been taken out to make clear compulsory employer contributions to KiwiSaver cannot be deducted from an FPA minimum base wage.
The amendments may have ironed out some of the kinks in the legislation, but we anticipate several complex and practical issues will still arise once bargaining for these FPAs get underway – for example:
- The backstop: if no eligible representative steps forward to be a bargaining party on one side, then the Employment Relations Authority will simply set the terms of the agreement. But what will that look / how is this possible absent any employer input?
- Conversely, how will parties manage in circumstances where too many parties are interested in joining the Employer association as the bargaining representative?
- How will the Authority manage this workload considering the backlog already existent? FPAs may take years to finalise if they are handed over to the Authority.
FPAs are a highly complex and unprecedented system. Please get in touch with our employment team should you require any advice in advance of the kick-off date on 1 December 2022.
If you have any questions on the above please contact Fiona McMillan – Partner