Fair pay agreements: How they affect you
After four years of talking about them the Government finally unveiled its ‘‘Fair Pay Agreements’’ yesterday.
The new system for collective bargaining is based on Australia’s modern awards system and aims to improve pay and conditions for workers, especially those in low-wage sectors such as cleaning and security.
But some employers and the political Right argue it will lower employment by forcing them into sectorwide arrangements.
Here is an explainer on what exactly Fair Pay Agreements (FPAs) are.
What is an FPA?
An FPA is a legally binding agreement that sets out minimum pay and conditions between employers and employees across an entire sector. That could mean something overarching, like every single cleaner, or a bit narrower, like all checkout operators in supermarkets with more than 10 employees.
The agreements will have to cover things like base wages, hours of work, overtime and penalty rates. They could also cover other conditions like redundancy but this is not mandatory.
Employees and employers would still be able to contract for pay or conditions above what is in an FPA but not below them.
The Government is aiming to create a ‘‘floor’’ for pay and conditions across a sector.
Obviously this is somewhat similar to a collective agreement but those only cover employees of one employer – not employees across an entire sector. And unlike many collective agreements, they would cover all employees – not just those who are a member of the union.
Right now they will just cover employees but the Government is keen to bring in contractors eventually. It is envisaged they will typically last three years before being renegotiated.
How would they be created and agreed to?
The bargaining process for an FPA can be sparked in several ways.
A union in the sector can start one if they have the agreement of either 10 per cent of a workforce or 1000 employees. They can also meet a ‘‘public interest test’’ that is yet to be set. If they meet one of these tests, bargaining between the union (or unions) and the employers begin.
The Government will actually fund both sides $50,000, and employers must allow employees two two-hour paid meetings during the bargaining.
Businesses are generally expected to bargain through their peak bodies like BusinessNZ or another peak group.
If the two sides agree on something, then the FPA goes out for ratification, with both employees and employers voting. Employers get as many votes as they have employees that would be covered, with slightly more if they have less than 20 employees.
During bargaining, strikes and other industrial action is prohibited.
If agreement can’t be reached, or ratification votes fail twice, the Employment Relations Authority will set the terms of the FPA.
An FPA actually becomes a sort-of law after it is agreed to – the Ministry of Business, Innovation and Employment (MBIE) will create a ‘‘legislative instrument’’ that makes the agreement legally binding. Employers who breach the terms of an FPA could be fined and even banned from employing people.
Why bring in FPAs?
Labour argues this system will lead to better pay, conditions, and productivity – particularly for low-wage sectors like cleaning, where operators in a competitive tendering process compete by offering the lowest price possible.
Workplace Relations Minister Michael Wood said the system would help workers as well as employers, because ‘‘cowboy’’ employers that undercut everyone else by treating their employees badly or paying them bad wages won’t be able to do so.
Instead he is keen to see businesses compete on other things than labour costs – so on offering a better or more efficient service or product.
Underlying it all though is the fact that Labour sees a problem with the fact that as collective bargaining has withered away, the workers’ share of national income has dropped too – even as productivity has grown. As a proportion of overall net income in New Zealand, wages and salaries peaked at just over 70 per cent in the early 1980s, before dropping to just below 60 per cent in the late 2010s.
Many Labour MPs see the party’s main purpose as improving pay and conditions for working people.
The system is quite similar to Australia’s Modern Awards System, where workers generally receive better pay than in New Zealand.
Ironically, Labour has built this proposal around a report from a working group led by former National Party prime minister Jim Bolger, whose law changes in the early 1990s decimated union membership and collective bargaining. (Bolger has taken something of a Left-wing turn in recent years).
Why are people against them?
Employer peak-groups are extremely against FPAs, which would drastically reduce their power when hiring people. (Unions, as you would expect, are big fans.)
BusinessNZ chief executive Kirk Hope argued the new system essentially forces all businesses into the same mould and takes away the ability for businesses to walk away from bargaining if they wish to.
‘‘Any pay deals reached would not be fair because the process is essentially compulsory – employers would be required to agree to what unions wanted, with compulsory arbitration if they didn’t,’’ Hope said.
The Employers and Manufacturing Association head Brett O’Riley said FPAs would make New Zealand businesses less flexible, resilient, and less productive – which could lead to some businesses shutting up shop or hiring fewer people.
‘‘Our concern is that FPAs will result in higher wages, and the solution for businesses will be to cut down their workforce, or in the case of already struggling manufacturers and [small businesses], they may have to shut up shop,’’ O’Riley said.
National Party MP and workplace relations spokesman Scott Simpson echoed those concerns and promised National would repeal the system if elected.
‘‘This is compulsory wage controls. It is unionism gone universal.
‘‘The National Party will repeal these recycled National Awards.’’
When is this all happening?
Not for a while. The Government is not intending to introduce legislation until November and it will then go through a full six-month or so legislative process. Once in law the Government is aiming to fund four or five bargaining rounds per year – so not every sector is going to be covered right away.