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Fair Pay Agreements: Back to the future?

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Contributed by: Kylie Dunn and Josie Butcher

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Published on: February 21, 2019

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Employment Update – February 2019

The Fair Pay Agreement Working Group has now released its recommendations (the full text can be found here). It proposes a new (old) system that would provide a framework for bargaining for compulsory minimum entitlements for all workers within sectors. So are the recommendations a revolutionary way forward, or a backwards step to a 20th century awards system?

The stated intention

The Fair Pay Agreement Working Group (and its recent recommendations) has its genesis in a June 2018 announcement from the Government that it was progressing the scope and design of a system to set minimum terms and conditions of employment across industries or occupations. The overarching aim was the creation of a system for Fair Pay Agreements, intended to avoid a 'race to the bottom' and lift wages and productivity in New Zealand.

The Working Group was led by former Prime Minister Jim Bolger and included representatives from government, unions and business. It was charged with making recommendations on the design of a Fair Pay Agreement system in light of the current New Zealand economic climate. Minister Lees-Galloway suggested that it is time for New Zealand to move forward with a new system of sector-level collective bargaining which he said was now common across the developed world.

The Minister has said that the Government will need some time to consider the recommendations. We anticipate that this will be progressed within the year. Fair pay agreements were one of the big ticket items in Labour's workplace relations policy during the election campaign, so it is likely to want to demonstrate progress sooner rather than later.

The Work Group's recommendations

The Working Group recommended that New Zealand adopt a framework whereby Fair Pay Agreements would be negotiated centrally and apply to all employers and workers in an industry. The framework would complement (not replace) New Zealand's minimum entitlement framework and existing bargaining regimes. Additional terms and conditions could then be negotiated via collective agreements and/or individual employment agreements.

The key aspects of the proposed framework are as follows:

  • Bargaining for a Fair Pay Agreement could only be initiated by workers/unions and only if a certain threshold was met.
  • All "workers" in an industry or sector would be covered – both employees and contractors. It is not clear to what extent current statutory protections for employees (for example, minimum wage, holidays, and the personal grievance regime) would be extended to contractors.
  • Once initiated, bargaining would be centralised. The deal negotiated would need to be ratified by both employers and workers prior to coming into force.
  • The legislation would prescribe matters that must be included in a Fair Pay Agreement (including pay, hours, and redundancy, meaning Fair Pay Agreements could create additional new entitlements rather than enhancing existing ones).
  • Once agreed, a Fair Pay Agreement would cover all employers and workers in an industry. The Agreement would represent a minimum standard for everyone, regardless of union membership status and regardless of whether the individual parties had any opportunity to participate in the bargaining and whether they agreed with the outcome.

The Working Group noted that employer representatives involved in the discussion expressly stated that they could not support the compulsory nature of the system and would prefer a system based on initially voluntary participation and reasonable grounds for employers to opt out of the process.

Threshold for initiating a Fair Pay Agreement

The Working Group recommended that a Fair Pay Agreement bargaining process be initiated only if one of two circumstances are met:

  • Representativeness trigger: a minimum of 1000 workers or 10% of workers in a sector (whichever is lower) seek to initiate the process.
  • Public interest trigger: where the representativeness threshold is not met, a Fair Pay Agreement bargaining process could still be initiated where there were "harmful market conditions" in a specific sector. Conditions for this trigger would be set out in legislation.

The Working Group acknowledged that an independent body would be needed to determine whether the initiation conditions were met prior to the bargaining process commencing. If an employer did not believe they were within the coverage of a particular Fair Pay Agreement, they would be able to apply to the independent body for a determination.

Coverage – what constitutes a sector or occupation?

The Working Group has proposed that the sector or occupation to be covered should be negotiated by the parties. As above, where there was a dispute regarding whether the conditions for initiation had been met, this could be determined by an independent body. The Working Group recommends that after initiation, dispute over coverage would be determined by the Employment Relations Authority.

The bargaining process

The Working Group proposes that each party should nominate a representative organisation to bargain on their behalf and that there should be a role for national representative bodies to coordinate bargaining representatives. It is not clear how such bodies would be selected, endorsed or instructed by those they represent. The logical national representative bodies are unions and employers associations. The framework could force non-members to be represented by a body they may not want to join, without a say in the matter. This may butt up against the freedom of association enshrined in the New Zealand Bill of Rights Act 1990.

The Working Group proposes that the parties to the bargaining be supported through the bargaining by mediation and facilitation (although not via the Employment Relations Authority), but industrial action would not be permitted. It also proposes that a ratification process (for both employers and workers) be determined.

What next?

The Working Group's recommendations are a skeleton only. There is considerable detail to be filled in before matters can be progressed. This detail will be critical to understanding the extent to which Fair Pay Agreements are likely to alter the employment law landscape in New Zealand. At the moment, there appears to be real potential for a mirage; it looks good from a distance, but there is a significant lack of substance when you get up close. In fact, the detail we do have looks a lot like multi-tier bargaining under the awards system that governed industrial relations in New Zealand until the late 1980s. If the old award system was disbanded to increase efficiencies and competition, can we expect that returning to a revamped version will achieve the same end?

It does appear that any change will be some time away. Certainly, a Bill will need to be drafted and presented to Parliament. The public will have opportunities to express views, either during consultation prior to the drafting of a Bill or during the Select Committee process.

We will keep you updated regarding developments in this area. In the meantime, please feel free to contact our Employment Law Team to discuss this or any other matter.

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