Fair Pay Agreement System: Implications for Employees and Employers

In May 2021, the Government announced the introduction of a new Fair Pay Agreement system.

This system is intended to bring together employers and unions and require them to bargain for and agree on minimum terms and conditions of employment in the relevant industry.  The design of the Fair Pay Agreement system was largely informed by discussions between the Fair Pay Agreement Working Group, the New Zealand Council of Trade Unions, and BusinessNZ.

A draft Fair Pay Agreements Bill is expected to be introduced in early 2022 (although it may be that this (like so much else) is delayed due to Covid-19).

What is a Fair Pay Agreement?

It is envisaged that a Fair Pay Agreement will set out the terms and conditions of employment which must be complied with across the entire sector and/or industry; much like an industry-wide collective agreement.  It is proposed that the Agreement itself will be reached by way of sectoral and collective bargaining between unions and businesses and will cover minimum terms and conditions of employment such as wages, leave entitlements and overtime rates.  The Agreement would then apply to all workers in the sector (regardless of whether they are members of the union or not).  If a Fair Pay Agreement is reached, it will need approval of a simple majority of both the employee and employer voters.

Where the parties cannot collectively agree on the terms and conditions, they can resolve the dispute via mediation or, if necessary, litigation.  In such a case, the Employment Relations Authority is proposed to have the jurisdiction to set the terms of the Fair Pay Agreement where the relevant players cannot reach agreement. 

It is important to note that a Fair Pay Agreement is not intended to replace the existing employment agreement between an employee and their employer or company-specific collective agreements that are already in place.  However, the minimum terms of the Fair Pay Agreement would nonetheless apply if the individual or collective agreement provided for terms that are less favourable to the employee.  This means the parties can contract for terms and conditions (e.g., pay) that are above those provided in the Fair Pay Agreement, but not below them.

Where to from here?

While the Fair Pay Agreement System is likely to improve wages and conditions for employees, it may also encounter some challenges in concluding negotiations due to the competing interests between the parties.

It will be interesting to see what impact the Fair Pay Agreement system will have on the employment landscape in New Zealand once the Bill is introduced in the next few months.  Our team will keep you updated on further developments in this area.

If you have any questions about the Fair Pay Agreement system, please get in touch with our employment team or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

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