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Charlotte Bates | 20 January 2023

Fair Pay Agreements

A new way of bargaining

The Fair Pay Agreements Bill came into effect on 1 December 2022 and if unions meet the relevant test, unions can now initiate bargaining for a Fair Pay Agreement (FPA). This is one of the most significant changes to New Zealand’s employment framework in many years and is a fundamental change in the way employment terms and conditions are bargained for. Businesses need to understand FPAs and how they might impact them. 

What is a Fair Pay Agreement?  

An FPA is a legally-binding agreement that sets out minimum terms and conditions for employees in a certain sector, industry or occupation. This means that as an employer, you may not have the same flexibility you currently have to agree on terms and conditions of employment with your people. This is because once a FPA has been finalised and made into law, it applies to all covered employees and covered employers. 

When will Fair Pay Agreements impact my business? 

You may operate in a sector where FPAs will never apply or at least not for a while. At the time of writing four FPA applications have been lodged with Ministry of Business, Innovation and Employment (MBIE). These applications cover: 

  • Hospitality related – general
  • Interurban, rural and urban bus transport – Bus and coach drivers
  • Interurban, rural and urban bus transport – Bus drivers, coach drivers, and cleaners
  • Supermarket and grocery store – General

We also understand applications are likely to be made for retail workers and security workers. If the applications are approved by MBIE, bargaining sides will form and they will start bargaining for a FPA. If your business is not involved in these sectors or does not employ these types of workers, a FPA may not be in your immediate future. 

How will the Fair Pay Agreements system work? 

The FPA system will bring together employers and unions within a sector to bargain for minimum terms and conditions for all covered employees in an industry or occupation.

1. The first step: initiation

A union can initiate the FPA process if it meets the:

  • Representation test – at least 1000 employees or 10% of all employees in the proposed sector support initiating bargaining for a FPA; or.  
  • the public interest test – where the employees have low pay and either little bargaining power, long or unsocial hours, contractual uncertainty.

The initiating union must set out what they want covered in the proposed FPA, this could be either: 

  • The occupation of employees (occupation based FPA) e.g., cleaners or bus drivers
  • The occupation and industry of employees (an industry based FPA), e.g., an application has been made for the hospitality industry and sets out all the roles proposed to be covered. 

What to expect if you are included in a FPA process

Employers who would be covered by the FPA should be contacted directly by the union if the application is approved. You should also receive information about the proposed FPA for your employees. Employers also have obligations to provide unions with the contact details of their relevant employees and need to pass on details of the relevant union and to covered employees.

2. Bargaining sides form 

Unions will represent employees (even those who are not union members). Approved employer associates may bargain in the employer bargaining side (including on behalf of employers that are not members). 

If one side doesn’t form a bargaining side, the default bargaining party can step in, however it is unclear what organization this will be for employers after Business New Zealand said it will not do this. If either side cannot form a bargaining side, the ERA can determine the terms of the FPA.

3. Bargaining process

Certain employment terms must be discussed and included in an FPA; these include coverage of the FPA, normal standard hours, minimum base wages and whether this includes the employer’s superannuation contribution, overtime and penal rates, and how long the FPA applies for. 

Matters which must be discussed but don’t have to be agreed include objectives of the proposed FPA, health and safety requirements, arrangements regarding flexible working, any entitlements relating to redundancy and leave and any others terms the parties both agree to. 

The obligation of good faith applies to all parties while bargaining for a FPA – this means not doing anything that is likely to mislead or deceive the other party. 

The employer bargaining side must represent the collective interests of all covered employees and: 

  • provide regular updates about the bargaining to all covered employers
  • give all covered employers the chance to provide feedback on the bargaining and then consider any feedback
  • give covered employers details of the ratification vote; and 
  • consider whether all interest groups of covered employers are recognised and given a chance to provide feedback. 

Employers must allow employees to attend two paid meetings during bargaining.

If the parties fail to reach an agreement, either party can apply to the Employment Relations Authority (ERA) to set the terms of the FPA – critically, employers will not be able to walk away from the bargaining table.  

4. Finalising a FPA

The ERA will review an agreed FPA to ensure the terms are lawful before it goes to vote. If it is lawful, the FPA needs a majority of employee and employer votes to be ratified. If two votes fail to get a majority, the ERA may fix the FPA.

Once a majority has been reached, the voting process and results will be confirmed by MBIE and the FPA will be set as law. Once a FPA is passed into law, the terms of the FPA apply to any covered employees where 25% or more of their work is covered by the FPA. 

You can read more information about the FPA system here:

Things to consider if you have employees in roles that are likely to be covered
by a FPA

  • Don’t panic – while this is a new process, bargaining for a FPA won’t be quick, and you will have time to provide feedback on any proposed FPA. However, taking the time now to get up to speed with the process will help, especially understanding your obligations under this new framework. 
  • If you have an employer association in your industry, reach out to see what support and information it can provide.
  • Consider how you talk about FPAs with your people – while you may not agree with FPAs, they are now part of our legal framework and employees are entitled to want to be covered by a FPA - be kind and willing to hear different viewpoints. 
  • The basis for the FPA system is that wages haven’t experienced growth at anything like the same rate as the economy. We are also experiencing high inflation and record high cost of living. Take time to consider your workers’ terms and conditions and whether they feel right in the current market as happy employees may be less likely to want to bargain for a FPA. 
  • Revisit your budget for the upcoming year to see if you could absorb any potential wage increases. 
  • Keep your employees’ experience front of mind at all stage of the FPA process – while you may not have control over the FPA process, you can take steps to ensure you workplace culture is as good as it can be, and your people feel supported through the process.

We will keep you updated on any new applications for FPAs and we are here if you have any questions or need any help throughout the FPA process. Remember, this is a new process for everyone involved so there are a lot of unknowns and everyone will have questions!

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