Is The Fair Pay Agreements Act Fair?

Does the most significant change to New Zealand employment law since the Employment Relations Act discriminate against smaller employers?

On 1 December 2022, the Fair Payment Agreements Act will come into effect. It has been touted as the most significant change to New Zealand employment law since the Employment Relations Act in 2000. But there is ongoing criticism that the Act is not fair, discriminates against smaller employers, requires all non-union members to be represented by unions, and creates risk of apolitical judicial appointments.

Fair Pay Agreements are intended to improve labour market outcomes, by enabling employers and employees to enter into industry-wide or occupation-wide collective bargaining. The aim is to establish minimum employment terms for the entire occupation or sector. In context, the aspirations are admirable when considering systemic underfunding of wages and/or poor working conditions in certain sectors, together with the inequitable overrepresentation of certain populations within those roles.

However, DTI Lawyers Employment Law Director Andrea Twaddle notes "within the existing employment framework are mechanisms to address the problem of employers exploiting workers, without the need for a significant regime change, and the large cost of implementation and bureaucracy required to manage it.” For some employers, the Act is seen as an administratively burdensome way of achieving penal rates, which the government could have inserted into minimum wage and other employment legislation.

Last week a multi-party collective employment agreement was reached for Countdown supermarket workers. Unions say that this could lay the groundwork for sector-wide change to achieve living wage, pandemic-leave and sick leave provisions. They argue that workers are disadvantaged by the current regime because other employers could remain paying the minimum wage and undercut the industry’s good work. Fair Pay Agreements provide an opportunity for sector wide terms such as those agreed in the multi-party collective bargaining. On the flip side, employers assert that the terms reached are a good example of the existing bargaining provisions of the Employment Relations Act working well to increase terms and conditions consistently across multiple employer parties. Further, that in a tight labour market, employees will simply chase better conditions of work. Employers who don’t respond and continue to provide poor working terms and conditions will be left without staff, or forced to increase their employment terms to meet the market. That said, Ms Twaddle notes “smaller employers ask whether it is fair that the owner of a small rural dairy may end up paying the same rates to employees as a large central city supermarket duopoly?”

Alongside supermarket workers, bus drivers were named as an occupational group with poorly paid workers which were expected to be targeted for bargaining for a Fair Pay Agreement. This is despite the pay of the public sector workforce being largely influenced by the government contracting model. A fortnight ago, a $61 million government pay contribution was announced to increase bus drivers’ pay, in order to address major driver shortages, bus cancellations and service issues. Ms Twaddle states that this reflects the other levers available to improve pay and conditions of a workforce, that do not require the introduction of an entirely new labour law regime.

Ms Twaddle draws attention to the real risk of there being no party to represent employers in bargaining. If this occurs, a union may apply directly to the Employment Relations Authority and terms will be set without employer involvement.

Based on the fundamental opposition by businesses that Fair Pay bargaining is removed from the actual parties to an employment relationship, Business NZ has made clear it will not be an employer bargaining agent. There are no other obvious nationwide alternatives.

Ms Twaddle states “The scale and complexity of the Fair Pay bargaining regime is significant. Without an employer bargaining side, there is a strong possibility that Agreements that will cover entire sectors or industries will bind employers by terms negotiated on their behalf, without the input of some affected employers.”

Even where employer associations exist, or are formed for the purpose of bargaining, there are real concerns whether all employer representatives will have sufficient capacity and capability to undertake the required large-scale bargaining. There is a high administrative burden of seeking the required information about parties' personal details, contact information and current terms and conditions of employment across the covered workforce. Unions already have significant systems and resourcing in place. Processes prescribed by the Act have short timeframes. This may compromise bargaining for employers, with the potential for inequitable outcomes.

Employee interests in bargaining will generally be aligned. However, Ms Twaddle states that while an employer bargaining party represents all employers covered, those interests may not necessarily be represented at the bargaining table. Well-resourced, large employers will likely dominate the bargaining process, despite there being varying impact of proposed terms between large and small employers.

A loss of small employer representation and voice is also possible for the ratification process of an agreed proposed Fair Pay Agreement. Only 50% of the vote from either side is required for the agreement to be ratified, which in most cases could be relatively easily reached based on large employer votes alone. She notes employers’ challenge that this is neither fair, nor appropriate in a national of small to medium employers.

Ms Twaddle raises concern that without a central database of employers and employees, it is likely that some parties will be missed from notification of bargaining being initiated, leaving them potentially unaware of the bargaining process. She states this is not uncommon in previous multi-party pay equity claims which have been raised in recent years. MIBE must provide a public notice of bargaining, but an employer would need to be looking for it. “The result of an employer not being notified of Fair Pay bargaining is that an Agreement could be bargained for and ratified, that binds their workplace with minimum terms, despite the employer having no part to play in the process.”

While the government provides some funding for the bargaining process, this is based on a limited number of Agreements being initiated and bargained for at any time. The enthusiasm of unions for the new legislation would suggest that those limits are shy of reality and the government funding will be well short of that necessary for an efficient bargaining process, for both unions and employers.

The Employment Relations Authority has a critical role in the Fair Pay process, including a compliance and coverage assessment, I.e. that only one Agreement will apply to the same workforce. Ms Twaddle draws attention to the more contentious role of the Authority in ratifying Agreements. If parties fail to ratify a proposed Fair Pay Agreement twice, which is not uncommon in collective bargaining processes, either bargaining side may simply apply to the Authority to fix the terms. This is a low threshold for Authority intervention.

The current Authority process is deliberately established as a low-level investigative body, to operate without regard to technicalities. There are limited circumstances for challenging the Authority’s decisions on fixing terms of Fair Pay Agreements.

Ms Twaddle says it is well known that the Employment Relations Authority continues to have significant delays in hearing and determining employment disputes. The resources required by the Authority for Fair Pay Agreements could result in new Members of the Authority being appointed. Given the individuals appointed would ideally require specialist collective bargaining experience, there is a risk of bias in any appointments made, regardless of whether this was intended. Ms Twaddle acknowledges the required confidentiality in such appointment processes. However cautions that with any perceived lack of transparency, any bias would be contrary to the independent, apolitical judicial appointment process in New Zealand and could undermine confidence in the Authority. She notes that the term of any Authority Member appointment would endure, regardless of whether a National government was successful in the 2023 election and repealed the Fair Pay legislation, as it has signaled. Any bias in appointments would be contrary to the independent, apolitical judicial appointment process in New Zealand.

Ms Twaddle states that employer concerns about Fair Pay Agreements are not fanciful. “Unfortunately, opposition to the Fair Pay Agreements regime was presented as a blunt difference in political ideology, which effectively minimised genuine concerns of New Zealand businesses.” While she commends the underlying intention of providing good terms and working conditions for workers, she cautions there are many legal and practical aspects of the legislation that will need close attention for the Act to be effective and any outcomes considered fair.

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About DTI Lawyers:

DTI Lawyers is a specialist employment law and commercial law practice based in the Waikato. DTI Lawyers was recently awarded NZ Lawyer’s Boutique Firm of the Year Award for its specialist employment law practice.

www.dtilawyers.co.nz

Andrea Twaddle bio:

Andrea is an experienced specialist employment lawyer and workplace investigator and director of DTI Specialist Lawyers. Andrea is frequently sought after as a commentator and educator on employment law issues. She presents to client and industry seminars (including the New Zealand Law Society, LexisNexis, ConfereNZ, EMA and various Chambers of Commerce), and provides advice and training to other lawyers, professional advisors, human resources practitioners, directors and leadership teams. Andrea has guest lectured at the University of Waikato, and has served on the (then) Waikato Bay of Plenty District Law Society, and as the Co-Convenor of the Waikato Bay of Plenty Branch NZLS Employment Law Committee.

For further information refer Andrea’s profile https://www.dtilawyers.co.nz/directors/andrea-twaddle

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