Fair Pay regime: How will it work?
The Government yesterday announced a radical overhaul of New Zealand’s labour laws, with a policy package that will place centralised wage bargaining back at the heart of industrial relations law.
The new Fair Pay Agreement system for collective bargaining is based on Australia’s modern awards system and will allow unions to negotiate on an industrywide basis.
‘‘Fair Pay Agreements will improve wages and conditions for employees, encourage businesses to invest in training, as well as level the playing field so that good employers don’t get undercut and disadvantaged,’’ Minister for Workplace Relations and Safety Michael Wood said.
‘‘Fair Pay Agreements will help good employers by stopping the race to the bottom that we have seen in various industries and encouraging competition that is not based on low wages but on better products, services and innovation.’’
But some employers and the political-Right argue it will lower employment by forcing them into sector-wide arrangements.
So what exactly is a Fair Pay Agreement (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, such as every single cleaner, or narrower, such as 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 will 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 the agreements would
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 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 begins. The Government will fund both sides with $50,000 and employers must allow employees two twohour 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 will be 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 will become 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 a FPA could be fined and even banned from employing people.
Why bring in FPAs?
Labour says this system will lead to better pay, conditions and productivity – particularly for low-wage sectors like cleaning.
Wood, the Workplace Relations Minister, 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 things other than labour costs – so on offering a better or more efficient service or product.
Underlying it all though is that Labour sees a problem with the fact that as collective bargaining has withered away, 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.
The system is 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.
Why are people against them?
Employer groups are extremely against FPAs, which would drastically reduce their power.
Kirk Hope, chief executive of BusinessNZ, argued the new system essentially forces all businesses into the same mould and takes away the ability for businesses to walk away from bargaining.
‘‘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 businesses less flexible, less 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.
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.