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Fair Pay Agreements - what are they?

Updated: May 17, 2021

This year we will hear and see more about Fair Pay Agreements.

If you haven't heard about these, then here is a quick re-cap. Fair Pay Agreements (FPAs) are an agreement that sets out minimum binding standards for both employees and employers in a particular sector or occupation. FPAs will set minimum wage rates, ordinary hours, overtime, and penalty rates within specific industries or occupations.

The Labour Government sees FPAs as one way to stop the "race to the bottom" where employers are competing by have lower salaries/wages. The Government wants FPAs to:

  • increase bargaining power for employees

  • ensure minimum pay and employment terms reflect the needs of sectors

  • create an environment where businesses compete on better products and services rather than driving down wages and conditions

  • incentivise businesses to invest in training and innovation

  • create sector-wide coordination

A broad outline of the details of how FPAs will operate are:

  • Any union (but not an employer) will be able to initiate an FPA within an industry/sector if it meets either the representation test (a minimum threshold of 1000 employees or 10% whichever is lower) of workers in the nominated sector or occupation; or the public interest test (where there is evidence to show there is either low pay, low bargaining power, lack of pay progression or long hours and contractual uncertainty that is inadequately compensated such as an FPA would be in the public interest).

  • Only unions will be able to initiate bargaining for an FPA

  • Regardless of whether an employer participated in the FPA bargaining process, they will be bound by the FPA. All employees within the industry will receive the benefits of the FPA

  • Initially, the FPAs would apply only to employees, however there is an intention to expand to contractors in the future.

  • After initiating for an FPA, any disputes may be determined in the Employment Relations Authority

Legislation is expected to be drafted later this year with the Bill passed through into law by the end of 2022.

An explanation of the FPA system is on the MBIE website.

As with any new proposed legislation, the devil will be in the detail. The challenge for employers will be in understanding how they could be impacted by an FPA in which they might have no role in bargaining for. This raises questions of how would that scenario comply with Good Faith when an employer can be bound by an "Agreement" for which they had no say over.

As soon as legislation is drafted we will have better understanding of the issues that might arise. We recommend that when the bill comes out that employers familiarise themselves with it and make submissions to the Select Committee.

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