Broadly it seems unions are in favour of the Government’s Fair Pay Agreements Bill and employers aren’t. If the bill is passed after select committee scrutiny and public consultation, expect litigation to follow, says Liz Coats | Content partnership
Opinion: If the Fair Pay Agreements Bill is passed, it will bring about a significant change to New Zealand’s employment relations landscape.
Introduced at the end of March, the objective of the bill is to “improve labour market outcomes in New Zealand by enabling employers and employees to collectively bargain industry-wide or occupation-wide minimum employment terms”.
Based on public comment, the bill has met with a mixed reception: embraced by unions which see the potential to improve working and living conditions for their members; and feared by employers who perceive that FPAs will create complexity, significant cost and disruption, and reduced flexibility.
Such a major shift – and the gulf in opinions about it – means the introduction of FPAs will inevitably herald litigation.
Does a situation meet the specific thresholds required to initiate FPA bargaining? How will competitors address the need to bargain together, in good faith, for employment terms? These are the kind of issues likely to be contested as the finer points of FPAs are thrashed out in the courts.
Our current framework
New Zealand’s Employment Relations Act 2000 contemplates two types of employment agreement: an individual employment agreement (between an individual employee and their employer), and a collective agreement (which may be between one or more specified unions, and one or more specified employers).
Collective agreements are most commonly between a single union and single employer; their coverage is limited to a defined group of employees who belong to the union party or parties to the agreement; and they can be in place for a term of up to three years.
Those employment agreements must at least comply with the other minimum standards set out in our employment laws generally, including the Minimum Wage Act 1983, Holidays Act 2003, and Wages Protection Act 1983. Minimum standards prescribe basic entitlements to a minimum legal hourly wage, protections against unlawful deductions from pay, and ensure minimum holidays and leave entitlements for employees.
There is no law that requires all employers across an entire industry or sector throughout New Zealand to bargain with employees in a particular occupation within that industry or sector. The proposed FPA framework would change that.
Under the framework described in the current bill, FPAs would set compulsory minimum employment terms that would apply to all New Zealand employers and employees within specified industries or occupations. They won’t cover independent contractors – at least for now.
They would need to contain certain terms, including start and expiry dates (the FPA would need to be in force for between three and five years), coverage, normal hours of work, wages, and the process for variation. In addition, the parties bargaining for an FPA would be required to discuss certain matters, including health and safety requirements, flexible working, and arrangements relating to any redundancy.
Essentially, the new FPA would form an industry- or occupation-specific set of minimum standards that would need to at least comply with the existing minimum standards legislation, and which employers and employees could supplement further through individual or collective agreements.
In many ways, the FPA concept is similar to the national industry-wide awards that dominated New Zealand’s employment laws until the Employment Contracts Act 1991. It’s also similar to Australia’s awards system.
The path through Parliament
It is important to remember that the bill is not law yet. There is still a full Parliamentary process to come.
This will involve the bill being examined by a select committee, and the opportunity for the public to make submissions. It is unlikely to become law before the end of 2022.
This parliamentary process is likely to be hotly contested.
The Council of Trade Unions is strongly in favour of FPAs, while BusinessNZ has made it clear that it will oppose the bill and does not agree with the concept. BusinessNZ believes that a system of collective bargaining that imposes outcomes, including on parties who were not directly involved in the bargaining, involves compulsion and is inconsistent with international law. It is taking a case to the International Labour Organisation on this basis.
It is reasonable to expect that many employers in New Zealand will be concerned at the timing of the bill, coming as it does in the wake of recent ‘tweaks’ to employment law that increase employee entitlements (such as increasing sick leave entitlements) and after two years of Covid-related disruption. They will also be concerned by the potential implications of the FPA framework overall.
On the other hand, unions may be heartened at the possibility of a system that increases the bargaining power for low-paid workers across New Zealand, and raises the overall minimum employment terms and standards within particular sectors or occupations.
Litigation is inevitable
If the bill becomes law, there will undoubtedly be litigation while the finer details of the system are tested and worked through.
There is clear scope for a number of test cases on a range of questions under the proposed law, including:
► Whether a union has satisfied the thresholds for initiation of FPA bargaining, based on the “representation” (10 percent or 1000 workers in the proposed coverage) or “public interest” tests;
► Defining the coverage of a proposed FPA, based on an industry or occupation;
► Navigating the requirements of “good faith” that will now exist between employers, who are on the “same side” of bargaining in terms of the FPA process but are in all other respects competitors; and,
► The provisions that will prevent an employer from engaging an independent contractor instead of an employee, if the employer has the intention of avoiding that person being covered by an FPA.
One of the most significant aspects of the bill is the power bestowed on the Employment Relations Authority to fix the terms of a proposed FPA. A panel of three authority members will be required to fix the FPA terms, rather than just a single member as is the authority’s normal process.
While this power would be subject to certain limitations, once the authority fixes the FPA terms, these will be binding and enforceable.
Given that the terms being fixed will apply to all New Zealand employers and employees who fall within the defined coverage, this is an incredibly broad power. While the setting of minimum standards has been a matter for Parliament (through statute), it is arguable that in being entitled to fix FPA terms, the authority would have its own quasi-lawmaking powers.
The biggest question of all is: how will this system work in practice?
Employers and employees alike will have the opportunity to air their views as part of the select committee’s public submission process, open until May 19.
While the FPA framework has been a consistent part of the Government’s employment relations agenda for several years, the strength of business opposition suggests there’s a long way to go before we know how this will play out.
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