Fair Pay Agreements Bill: What changes?

The Fair Pay Agreements (FPA) Bill has passed into law, coming into effect on 1 December 2022 – but what does this mean, and how does it impact yourself or your business?

The FPA system brings together unions and employer associations within a sector to bargain for minimum terms and conditions for all employees within that industry or occupation.

There are certain employment terms that are required to be included in a FPA, these are:

 1.       Defining the work covered by the FPA

2.       The standard hours

3.       Minimum pay rates (including overtime rates and penalty rates)

4.       Training and development

5.       Leave entitlements

6.       How long this FPA applies for

The process to establish a FPA involves several key steps:

1.       An eligible union commences the FPA process by applying to the Ministry of Business, Innovation and Employment (MBIE) for approval to start bargaining (negotiating a FPA for a specific industry/occupation).

 2.       To be an eligible union, you need to be able to meet one of 2 initiation tests:

 2.1          Representation Test:

 (a)                At least 1,000 employees, who would be covered by the proposed FPA, supporting the application: or

 (b)                At least 10% of all employees, who would be covered by the proposed FPA, supporting the application.

 2.2               Public Interest Test:

 The Chief Executive of MBIE needs to be satisfied that a number of employees, who would be covered by the proposed FPA, receive low pay for their work and meet one or more of the following criteria:

(a)                Have little bargaining power;

(b)               Have a lack of pay progression; or

(c)                Are not adequately paid when considering working factors such as shift work or seasonal work.

 3.       When the application has been approved by MBIE, employee and employer bargaining sides will form, and the bargaining process will commence.

 4.       Once bargaining is complete and both the bargaining sides have agreed to the terms of the proposed FPA, to become law the FPA must be assessed and approved by the Employment Relations Authority (ERA). The FPA must be submitted to the ERA by both bargaining sides so that the ERA can assess whether the FPA complies with the law.

 5.       After the ERA has assessed the FPA, it is then voted on by covered employees and employers, this is known as ratification.

6.       When the votes and the results are verified by the Chief Executive of MBIE, the FPA will be made into law by MBIE.

7.       Once the FPA is made into law, any employer who has employees that meet the work threshold to be covered by the FPA must provide the minimum employer terms set out in the FPA to those employees.

How does the FPA work with other employment agreements?

The employment terms of the FPA automatically apply to any covered employee that meets the threshold test for their work. An employee meets the threshold if 25% or more of their work is covered by the FPA. However, if an existing term in an individual employment agreement is more favourable than one contained in the FPA - then the existing term will apply and vice versa. This should be done in line with good faith practice.

Ultimately, the purpose of the FPA system is to ensure fair minimum employment terms are set across an industry or occupation.  

If you have any questions regarding the Fair Pay Agreement, and how it may impact you as an employer or employee, please do not hesitate to contact Olivia Day at iCLAW olivia@iclaw.com or 07 929 4300 to make an appointment.