New Zealand: Fair Pay Agreements – the model proposed

Brief Counsel

The Bolger-led tripartite Working Group charged with developing a workable Fair Pay Agreement (FPA) system has produced a set of recommendations covering most of the design features.

The Minister has refused to rule out any of the recommendations, saying that all of them will be considered carefully. But it is clear from the report and the reaction to it that a key area for debate will be whether an FPA system should be compulsory. 

The employer representatives in the Group were strongly of the view that participation should be voluntary and that employers should be able to opt out of the bargaining process, and out of any resulting FPA at any time.

Proposed procedure

Initiating bargaining

The Group recommends that only workers and their union representatives should be able to initiate an FPA. It proposes that two triggers should be available to initiate a bargaining process:

  • a minimum threshold of 1,000 workers or 10% of the workforce (including non-unionised members), whichever is the lesser, and
  • a "public interest trigger" where there are "harmful labour market conditions" in the nominated sector or occupation. These would be set in legislation and assessed by an independent third party, and the Government would need to consider in the policy design how to mitigate potential negative effects on competition.

Coverage

The occupation or sector to be covered would be defined and negotiated by the parties.

All workers – not just employees – would be covered to avoid "perverse" incentives for work to be defined in a way that would set it outside employment regulation. The Group notes that this would be "a significant change to the current employment relations model" and might be hard to reconcile with contractors operating under a business structure. 

We agree that it would create practical implementation problems and are not surprised that this was a majority rather than a consensus recommendation.

In accepting the fact that lifting standards may force some employers out of business or discourage them from hiring workers with "perceived risk factors", the Group recommends that some flexibility should be allowed for temporary exemptions within an FPA on application to an independent third party.

Scope

The legislation should set the minimum content for an FPA, which would include redundancy and flexible working arrangements.  Parties would also be free to discuss other matters, such as productivity-related enhancements, even if they do not agree provisions to insert into the FPA.

Any enterprise-level collective agreement would need to equal or exceed the terms of the relevant FPA. 

Bargaining parties

The Group recommends that parties nominate a representative to bargain on their behalf, with a role for national representative bodies (Business NZ or the CTU) to coordinate bargaining representatives. 

Bargaining process

There would be clear timelines to prevent drawn out negotiations creating excessive uncertainty or cost. Notification of all affected employers and workers will be critical, with minimum requirements set in law.

Dispute resolution    

The Government had already ruled out recourse to industrial action. Disputes over coverage could be referred to the Employment Relations Authority (ERA), and disputes during bargaining could be addressed through mediation, with the ERA having the final word if the dispute cannot be resolved.

Chapman Tripp comment

It is worth noting that the recommendations are prefaced with the comment that, if the Government wanted to proceed with an FPA framework, "then this was the best way to design it" – a caveat which probably reflects a lack of employer enthusiasm for the idea.

The fact that the Prime Minister has already said that there will only be "one or two" FPAs concluded this term. This shows that the Government is acutely aware of the political risks associated with this policy. 

The Government is taking a cautious approach, saying it will not rush any decisions but will "take the time to get it right". This may reflect the experience of the Employment Relations Amendment Bill last year, when New Zealand First forced a late back down on the 90-day trial periods rule.

We agree with the two key issues that the media commentary has highlighted to date: whether an FPA system should be compulsory and whether the recommended trigger for bargaining has been set too low. 

We also question whether the report truly answers Treasury's challenge on whether a lack of sector-wide bargaining is in fact the cause of New Zealand's poor productivity and low wages. 

The Working Group accepts that "the relationship between these factors is not clear cut, and is highly dependent on wider labour market systems, and the social and economic models of individual countries". 

However the Minister's comments following the report seem to accept that there is a causal relationship. We would like to see that assumption and the broader economic context (including the planned increase of the minimum wage to $20 an hour) to be a part of the debate.

On the one hand, it is an important deliverable to the unions, a key part of Labour's support base. On the other, the Government will not want to send business confidence into another tailspin. Then, there is the difficulty of negotiating a mutually acceptable compromise with more conservative and small business-friendly NZ First.

Chapman Tripp will continue to monitor developments in this space and will keep you informed through Brief Counsels or the Workplace Watch publication.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

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