One of the biggest changes to employment law in a decade, a system of nationwide Fair Pay Agreements, now moves to detailed policy development and consultation and faces a tight timeframe to be in place before next year’s election.

A framework for the policy, a flagship of the Labour Party industrial relations programme, has been advanced by a working group led by former National Prime Minister Jim Bolger.

The group recommended Fair Pay Agreements – which would set minimum employment conditions for all workers (employees and contractors) for industries or occupations if sought by 10 percent of workers within them – or if a public interest test is met – be tied to skills development and productivity gains.

Its recommendation that employers be compulsorily covered by the deals has been controversial, with the working group itself divided, unions welcoming it but employers favouring a voluntary regime. The National Party has pledged to overturn any compulsory system if re-elected to government. 

While the Prime Minister Jacinda Ardern has sought to soothe business concerns by estimating just one or two FPAs in place before the 2020 election, even that could be ambitious given the amount of work yet to be done by government officials and Parliament in fleshing out the detail of the Bolger group’s proposal.

Workplace relations minister Iain Lees-Galloway said: “The report outlines the challenges in making changes around fair pay.” The Government would work on detailed policy consideration and consultation “and we’ll take the time to get it right.”

Employment law specialist Liz Coats, a partner at Bell Gully, says the working group has set down “an idea of a broad framework. We can really only say we have some idea of what the FPAs might be.”

The issues of employer compulsion, the ‘triggers’ of how many and what proportion of workers must be needed to initiate negotiations for an FPA, what would constitute public interest and how costs would be met were likely to be subject to close scrutiny and debate.

“It’s important not to jump to conclusions. It is very much a first step. While it is clearly on the Government’s agenda, there are lots of ways this could play out.”

Coats says: “It’s not impossible that there could be some model that business and union interests could align on – but there would need to be a lot of work done to find that middle ground.”

The element of compulsion was one aspect of the policy on which the working group was divided. Its report said most of the group agreed that to achieve the Government’s objectives all employers in a sector of occupation should be covered by an FPA, but employer representatives advised they could not support the compulsory nature of the system.

Coats says business is likely to seek voluntary participation in FPAs, with a system of opt-in, driven by employers believing there could be benefits not only for their workers but to the business brand. She agreed there could be an element of being a good corporate citizen, in the same way organisations had adopted the living wage voluntarily.

However the counter argument was that a “half-way house” arrangement might create an employment framework that does not add much to the political objectives, and too much trust would be placed on employers to comply.

Another recommendation from the working group, that all workers be covered by an FPA, not only employees of the firms in the sector, would likely be challenging for those charged now with developing the policy further.

The working group said total coverage would be important “to avoid perverse incentives to define work outside of employment regulation.” There have been notable examples of firms using contractors rather than employees on reduced working conditions.

Coats believes even the broader coverage of “workers” would not necessarily eliminate the risk of perverse results. “The term ‘worker’ would result in a broader group of people covered but at the fringes of that you could still have dispute.”

A separate Member’s Bill – the Employment Relations (Triangular Employment) Bill – now before the education and workforce select committee, is already targeting some concerns about exploitation and the rights of contractors. 

A major point of debate would likely be over the ‘triggers” by which a Fair Pay Agreement negotiation could be started.

The working group said the first criteria should be that an FPA process would require the support of 1000 workers or 10 percent of the sector workforce, whichever is lower. Coats believes that threshold for ‘representativeness’ will be seen by many in business as too low. A binding FPA could be initiated even if up to 90 percent of workers were not actively seeking one.  “Is that achieving what the system is is trying to achieve if there has not been buy-in from the other 90 percent?”

As a result of the coming consultation process “we would expect the threshold to move to a greater proportion of the sector workforce than has been proposed.”

The second trigger advanced by the Bolger group covers public interest “where the representativeness threshold is not met. An FPA may still be initiated where there are harmful labour market conditions in the nominated sector or occupation.”

While the key term “harmful labour market conditions” was consistent with the intent of FPA policy, Coats says “we don’t have a lot of detail about how you would measure that criteria for the purposes of the legislation.”

Another issue likely to arise in the policy development and consultation phase was where the costs of FPAs would fall and how the system would integrate with current employment institutions (the working group proposes a Commission-style entity to verify the triggers are met and suggests mediation ought to be required early in the process if agreement is not reached between the parties.)

Coats pointed to a further issue of some complexity – how under national agreements the parties can cater for different living and working conditions in distinct regions of the country. The working group had indicated there should be scope for regional differences but it would be a challenge “to work that through when you are trying to get agreement that someone in Auckland should be treated differently from people in the regions.”

The working group wants FPAs to be connected to what it calls “the fundamentals of the employment relationship: the exchange of labour and incentives to invest in workplace productvity-enhancing measures such as skills and technology.”

Coats says a focus on improved skills and increasing productivity would be seen as a good thing by businesses but it is too early to speculate on whether FPAs will achieve those goals. “The Treasury analysis said further work needed to be done to confirm there is such a link. I think it is far too early to say that one [an FPA] would lead to another [productivity improvements].”

She said the working group report was a careful first step on a subject that could have massive implications for businesses and workers.

The half-way point of the government’s term looms next month. So the time left to develop the policy fully and then draft, introduce, consult through a select committee and pass legislation, before having a sector initiate, bargain and agree an FPA would be tight if the first agreements are to be in place before the election.

Bell Gully is a Foundation Supporter of Newsroom.

Tim Murphy is co-editor of Newsroom. He writes about politics, Auckland, and media. Twitter: @tmurphynz

Leave a comment