OPINION

A year ago, we wrote that the Government intended that Fair Pay Agreements (FPAs) would enhance wages for lower-tier earners, and in turn improve productivity and help “close the gap”.

The submission period for
the Fair Pay Agreements Bill has now closed, and the Bill will continue its way through the legislative process. It’s likely to become law by the end of this year.

When he first introduced the Bill to the House, the Hon. Michael Wood dedicated FPAs to:

“Mele and Malia and all the other cleaners who keep our offices, our schools, and our hospitals clean and hygienic… Jason and Wa’el and the security guards across New Zealand who work day and night to keep people and property safe… Connor and Muwela, and all of their colleagues across retail who have kept us all supplied with food and goods during the Covid 19 pandemic.”

The Minister’s reference to hard-working people from across Aotearoa mirrored the Government’s earlier announcements that FPAs were designed to enhance wages for lower-tier earners. But the reality of the legislation is somewhat different – FPAs are likely to have a much wider impact than the Minister first indicated.

On the Bill’s current drafting, only Unions can initiate bargaining for an FPA. Bargaining will commence in one of two ways.

The first is the ‘representation test’ which requires at least 1,000 employees, or 10 per cent of all employees covered by the proposed FPA, to support the initiation of bargaining. The second way is the ‘public interest test’, which can be engaged where there are factors indicating that there is a public interest in an FPA being put in place for the betterment of a particular cohort of employees.

Using either of these tests, a Union can apply to the Ministry of Business, Innovation and Employment (MBIE) to initiate bargaining.

While the Chief Executive of MBIE is not required to seek the views of the impacted employers, they can call for public submissions to assist with evaluating the Union’s application and in determining whether the relevant test is met.

If MBIE determines that one of the tests has been met, a public notification process will commence.

Affected employers (who have been contacted by the applicant Union) will have to notify their employees that the process has begun, and provide the Union with contact details for these employees.

From that point on, the process is convoluted and will be costly to employers. The Bill provides a $50,000 contribution to costs to each bargaining side, but that is negligible when you consider that affected employers are required to allow each employee two hours paid time to attend meetings during the bargaining.

The process proposed for the initiating of FPAs is similar to that already adopted when a Multi-Employer Collective Agreement is negotiated.

It is possible that sectors of New Zealand’s employment landscape that have previously engaged in the MECA process such as medical staff, first responders, education workers and other similar entities could satisfy the public interest test and initiate bargaining for an FPA to achieve specific minimum entitlements for their particular industry, effectively re-bargaining terms of employment that have already been settled. This was not an intended consequence of the Bill and not something Minister Wood focused on when introducing it.

It is clear that the FPA process will achieve one of its purposes of enhancing wages for lower-tier earners, but it is not clear how it will meet its other stated purpose of addressing falling productivity. At a time of record-high inflation, the cost to employers inherent within the FPA process will be passed on to consumers. Nothing within the Bill gives confidence or insight about how we grow the economy or increase productivity so that these costs can be paid for by increased profitability rather than a redistribution of wealth.

The Bill is currently before the Select Committee and a report is due to be released on 5 October 2022. Hopefully, the Select Committee’s report to the House will address some of the concerns outlined here and recommend changes to the Bill. Watch this space.

• David Grindle is the director in charge of the Employment Law team at WRMK Lawyers. He has practised in this area of the law for 17 years.