Updated: Nov 16
The Fair Pay Agreements Act 2022 obtained Royal Assent on 1 November 2022 bringing this piece of legislation into law.
For employers Fair Pay Agreements (FPAs) sound like scary beasts, particularly if you’re a small business that may get caught up in a union initiated FPA. While the intent behind FPAs is to increase the pay, training/development, and leave conditions of some of our lowest paid workers, this may come at a cost for a small business that is not unionised however finds itself part to an FPA.
However, it is expected that negotiating an FPA will be a lengthy process due to the notification requirements and "best endeavours" requirements for the intended parties of an FPA to notify all the employers and employees who are intended to be covered by the FPA. The parties to the FPA negotiations must also use their best efforts to make sure Māori employees and employers are represented in the process.
Let’s look at how an FPA gets initiated.
Only an “eligible union” may initiate bargaining for an FPA. An “eligible union” is defined as a union that has at least 1 member who is a covered employee; and that has a constitution that enables the union to represent the collective interests of covered employees, whether or not the employees are union members.
So, while a union-initiated bargaining, it will be negotiating an FPA for both union and non-union members. This is where it is possible for a mum and dad employer with no unionised workforce to be caught up and be bound by an FPA – even without being directly involved in the negotiations.
To initiate for an FPA the eligible union must demonstrate that its application meets one of the following initiation tests:
the representation test; or
the public interest test; and
the Chief Executive of MBIE has notified approval of the union’s application to initiate bargaining for the proposed FPA.
A union is not permitted to initiate bargaining if all of the work or each type of work that would be within the coverage of the proposed FPA is already within the coverage of an FPA or a proposed FPA for which bargaining has already been initiated.
When the union initiates for the FPA, as well as satisfying one or other of the representation or public interest tests, they must clearly specify the intended coverage of the FPA so that employees and employers in that industry or occupation are able to determine if they are covered by the proposed FPA.
The initiating union needs to specify in the form whether they want to bargain for an occupation-based FPA or an industry-based FPA.
The representation test under which the Chief Executive of MBIE must be satisfied that:
at least 1,000 employees who would be covered by the proposed FPA support the application to initiate bargaining, or
at least 10% of all employees who would be covered by the proposed FPA support the application to initiate bargaining.
An initiating union relying on the representation test will need to provide evidence that the representation test has been met.
The public interest test under which the Chief Executive of MBIE must be satisfied that a number of employees who would be within the coverage of the proposed Fair Pay Agreement:
receive low pay for their work and
meet one or more of the following criteria:
have little bargaining power in their employment
have a lack of pay progression in their employment (for example, pay rates only increase to comply with minimum wage requirements)
are not adequately paid, when considering factors such as:
working long or unsocial hours (for example, working weekends, night shifts, or split shifts)
contractual uncertainty, including performing short-term seasonal work or working on an intermittent or irregular basis.
What happen once an FPA is initiated?
Within 5 days of approving a unions application to initiate bargaining for an FPA, the Chief Executive must publicly notify the application stating:
They have approved the application,
name of the applicant:
the reasons why the chief executive is satisfied that the application meets the public interest test or the representation test (as applicable):
the coverage of the proposed FPA.
A public notice must also state:
that each covered employee and each covered employer (as at the date on which the Chief Executive approved the application to initiate bargaining) may be represented in the bargaining for the proposed FPA; and
that, unless the coverage of the proposed FPA changes during bargaining, the fair pay agreement will apply to—
each employee who, in relation to the fair pay agreement, will be a covered employee; and
each employer who, in relation to the fair pay agreement, will be a covered employer; and
where to find a plain language explanation of the next steps for bargaining.
Once the Chief Executive of MBIE has approved the initiation the employee and employer bargaining side have three months to form a negotiating team. The union also has 15 days to:
use its best endeavours to identify each other union that the initiating union considers is likely to have members who are covered employees, and notify it that the initiating union has received approval to initiate bargaining; and
use its best endeavours to identify each employer that the initiating union considers is likely to be a covered employer, and—
notify it that the initiating union has received approval to initiate bargaining; and
provide it with an email address to which the employer is required to send the employer’s covered employees’ contact details; and
publish a notice on an Internet site that is administered by or on behalf of the initiating union, publicly available, and free of charge; and in the daily newspapers circulating in Auckland, Hamilton, Tauranga, Wellington, Christchurch, and Dunedin.
Also, within these 15 days, a union that has members within the coverage of the proposed FPA must send a notice to each employer that is a party to a current collective agreement with the union, if the collective agreement covers employees who are within the coverage of the proposed FPA.
There are other requirements in respect to the notice that are covered by s37 of the FPA Act 2022, which I won’t go into now.
Upon receipt of a notice to bargaining for an FPA the employer has 15 days to:
use its best endeavours to identify each union that has a member who is a covered employee employed by the employer, and notify it—
the Chief Executive has approved initiating bargaining for the proposed FPA; and
where to find the notice issued by the chief executive.
As soon as possible, but no later than 30 working days after being advised (whether in accordance with this Act or otherwise) that the Chief Executive has approved initiating bargaining for the proposed FPA, a covered employer must provide each of its covered employees with a copy of the form provided under section 39(2)(d) and—
a copy of the statement provided under section 39(2)(c); or
if the employer has not received a statement from the union, the information required to be contained in that statement in the format required under section 39(4)(a) and (b).
An employer must provide the information required in writing and individually to each covered employee (for example, by emailing the information to each covered employee, but not by posting the information on a staff intranet).
If a union provides an employer with a statement under section 39(2)(c) and a form under section 39(2)(d), the employer—
must not amend the wording of the statement or the form before providing it to the employer’s covered employees; but
may provide information to the covered employees that is additional to the information contained in the statement and the form.
Further to this, an employer who is advised (whether in accordance with this Act or otherwise) that the Chief Executive has approved initiating bargaining for a proposed FPA must provide the contact details for each of the employer’s covered employees to the initiating union (or, if applicable, to the contact address for the employee bargaining side) for the proposed FPA.
These contact details must be provided in an electronic format and as soon as practicable after the date that is 20 working days after the date on which the employer received notice from the initiating union, or was made aware of the approval to start bargaining in another way of the intended FPA negotiation but no later than 30 working days after that date.
The employer must not provide the contact details of an employee who has elected not to have their contact details provided.
An employee must specifically advise their employer if they wish to opt out of receiving information about the FPA process and/or having their details provided to the union party.
However, even if an employee chooses not to take part in the process, if enough of your work is covered by the FPA and it is finalised and made into law, the employer must give that employee the employment terms in the FPA as a minimum.
How long will bargaining take?
This is an unknown at this stage. However, given the notification requirements and the timeframes for establishing bargaining teams for an FPA, it is likely these negotiations will take up to 12 months, if not longer to conclude.
While unions that are employee bargaining parties represent the employee side in bargaining, the employer bargaining side is made up of eligible employer associations that have been approved to be employer bargaining parties. The employer bargaining parties represent the interests of all employers covered in the proposed FPA, including those that are not part of an employer association. The employer bargaining side may be made up of several employer associations or just one.
As an employer covered by a proposed Fair Pay Agreement you will be kept informed throughout the Fair Pay Agreement process. The employer bargaining side needs to use its best efforts to:
provide regular updates to you if you are a covered employer
give you the opportunity to provide feedback during the bargaining process
make sure Māori employers are represented in the process. This includes getting and considering feedback from representatives of Māori employers and considering whether to include a representative of the interests of Māori employers on the bargaining side
consider all interest groups of covered employers
advise of any ratification vote.
Can Unions strike in support of an FPA?
The short answer is no. It is illegal to take industrial action in support of an FPA.
Ratification of an FPA
If an FPA is agreed during bargaining it is subject to a ratification vote by both employee and employers. More than 50% of employees and 50% of employers vote in favour of ratification.
If a ratification vote fails twice, the FPA is then determined by Employment Relations Authority.
MBIE have prepared a one-page overview of the FPA process that can be accessed here.
For comprehensive details on the FPA process visit MBIE’s Employment website.
NOTE: This blog is provided for informational purposes and does not constitute professional advice.