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Fair Pay Agreements Become Law

Published 28 Nov 2022

A new legislative framework governing the introduction of Fair Pay Agreements ("FPAs") which ushers in a new bargaining system in terms of industrial relations in New Zealand comes into effect on 1 December 2022.

Concerns Expressed by the Business Community

Much to the dismay of many businesses and employers throughout New Zealand, the Labour Government has proceeded with its election objective of establishing a new system for FPA’s in order to further lift wages and other conditions of employment for employees throughout New Zealand.

The new FPA system is ultimately going to be an additional cost that businesses will have to shoulder, and it will affect their bottom line. Further, FPA’s have arrived at a time when many businesses are struggling with other major issues such as recovering from the economic turmoil caused by multiple lockdowns, rapidly rising inflation, massive difficulties finding talent to meet labour demands, high fuel prices, etc.

What is an FPA?

FPA’s will require unions and employer associations to bargain for minimum terms of employment that would apply to all employees covered under a FPA in a particular industry or sector.
If at least 25% of the tasks in an employee's role is covered by an FPA then they will fall wholly to be covered by the FPA (or more favourable terms).
FPA's will be valid for 3 - 5 years in duration once in place, and if an employer fails to comply fines up to $40,000 will apply.

What’s the Process for applying for an FPA?

According to Employment New Zealand the key step in establishing an FPA is via a union initiating the process by applying to the Chief Executive of the Ministry of Business, Innovation and Employment for approval to negotiate a Fair Pay Agreement for a specific occupation or industry. Applications can be lodged from 1 December 2022.

If an FPA application is approved, employee and employer bargaining sides may form, and the bargaining process begins. Once the bargaining sides agree, covered employees and employers can vote on whether they support the employment terms proposed and, if there is a majority (from both bargaining sides), the FPA will become operative and bind the parties as terms of employment.

FPA’s will set minimum employment terms, and are required to include minimum terms of employment including:
  • Defining work covered by an FPA;
  • Provide for standard hours of work;
  • Set minimum pay rates, including overtime & penalty rates;
  • Provide for training and development initiatives;
  • Provide for employee leave entitlements.
Who can bargain for a FPA?

Eligible unions and employer associations can bargain on behalf of employees covered by a proposed FPA, and also extend to including representing employees and employers who are not members of their respective organisations.

The National Party vow to repeal if they are elected next year.