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Are fair pay agreements the old award system in drag?

26 May 2022

| Author: Rod Vaughan

A battle royale is shaping up over the government’s Fair Pay Agreements Bill with unions and employers at loggerheads about the biggest change to workplace laws since the Employment Contracts Act was passed in 1991.

Unions are welcoming it with open arms, saying the changes will address in-work poverty which they describe as an albatross around New Zealand’s neck. But business says the bill is badly timed, unworkable and will drive up consumer costs.

And, if some are to be believed, the only winners will be lawyers who will have a field day with an avalanche of litigation that’s likely to be spawned.

In essence, the bill establishes a new system of collective bargaining for workers to negotiate minimum pay and working conditions across a raft of industries and businesses. Fair pay agreements will affect current employment contracts only if the latter are less advantageous to the worker than the FPA.

Employees will be able to force their employers to negotiate working conditions and pay if at least 10% of their workforce, or 1000 staff, agree to it. The bill allows for a public interest test, removing that threshold if there are systemic employment issues in a sector.

Such issues could include low pay, low bargaining power, lack of pay progression, long hours or contractual uncertainty that isn’t compensated adequately.

The debate

The Council of Trade Unions says the bill will provide minimum fair pay standards for some of the lowest paid people in the workforce such as cleaners and security staff and workers employed in supermarkets and early childhood centres.

However, employers maintain the 244-section bill goes much further, allowing the highest paid members of the workforce, such as doctors and skilled tradespeople, the right to negotiate FPAs.

If parties fail to reach an agreement, the matter will be referred to the Employment Relations Authority (ERA) for resolution.

Given the ERA’s heavy workload and serious backlogs, this could be problematical.

To gauge the depth of feeling on some of these contentious issues LawNews sought the views of key players in the debate, including Business New Zealand, private sector union E tū and employment lawyers.

Annie Newman, assistant national secretary of E tū, believes FPAs are essential to address in-work poverty in New Zealand.

“The current model of employment relations remains firmly bedded in individualism and this drives litigation as individuals and unions seek justice through the legal system,” she says.

“We need a regulatory framework that supports negotiation between parties representing collectives of employers and unions, along with tripartism that addresses the big systemic issues of industry and occupation.

“For too long there has been a race to the bottom as businesses compete to reduce costs and workers bear the brunt of this competition through lower wages and pressure on hours of work, among other things. FPAs provide that framework for the first time in 30 years.”

All of which is hotly disputed by Kirk Hope, chief executive of Business NZ.

“In-work poverty is not an accurate description of New Zealand’s wider employment conditions and does not justify introducing Fair Pay Agreements across the economy,” he says.

“Unions are conflating concerns over a small number of groups they consider at risk such as cleaners, drivers and supermarket employees with the entire economy and promoting an economy-wide policy based on employment conditions in a very small part of the economy.”

Hope also dismisses the unions’ claim that most developed economies now have some form of sector-wide bargaining and New Zealand should fall into line.

“This is incorrect. The OECD has noted that while sector-level collective bargaining has been common in the past, there has not been any extension of it since the 1970s.

“Further, those most engaged in sector bargaining – for example, Germany and France – have moved steadily towards an enterprise model of collective bargaining since the early 2000s,” he says.

“New Zealand’s fair pay agreements policy is in fact heading back to where the world was 30 years ago, not towards the future.”

Hope’s says the timing of the FPA Bill is “dreadful and unworkable” and will exacerbate the pressures businesses are already facing.

“Coming on top of the pressure created by covid, several significant increases to the minimum wage and increased cost pressures in the current inflationary environment makes the introduction of FPAs very badly timed.

“The lack of available guidance and the complete inexperience of the vast majority of employers – and, indeed unions – in award-based bargaining systems increases the risks considerably. This is not conducive to the economic agility required in today’s challenging business environment.”

Hope is concerned that many, if not most, employers are not associated with any national organisation, let alone one with the expertise needed to represent them in collective bargaining.

“Even identifying and contacting employers whose employees will be caught by the coverage of a proposed FPA will be hugely problematic.

“This means many thousands of small businesses may have no input at all into matters that affect the very existence of their businesses.”

Regulatory safety net

But Newman shrugs off such concerns, maintaining the timing of the bill is both necessary and workable.

“Cost-of-living pressure is driving more families into poverty, highlighting the need for a regulatory safety net that does not leave workers exposed to the exigencies of the market.

“FPAs will create stability for New Zealand businesses because the parties will decide on the best outcome for their own sectors. The covid pandemic has reminded us exactly what work is essential and we have seen that they are often the lowest-paid people,” she says.

“Improving their wages and conditions is not only the right and fair thing to do, but it will also support the economic recovery as the costs of poverty fall on us all.

“Low-income earners spend a higher proportion of their wages in the local economy and so improving wages is an investment in local businesses and local economies. FPAs are one important way we, as a nation, can build back better from this pandemic.”

Such reasoning cuts little ice with Hope who also dismisses the government’s claim that FPAs will increase productivity and innovation in many sectors.

“It won’t,” he says bluntly. “The Global Financial Crisis and covid pandemic, as well as other economic pressures, have taught us that to survive, businesses need to be agile and free to react to circumstances.

“A collective agreement covering all workers in a single occupation is by definition anything but agile. Changes a business may need to make quickly may infringe an FPA, for instance hours of work, thus constraining the ability to react.

“Furthermore, FPAs may not deliver as much as workers expect. Under the pre-1991 award system, settlements became more and more conservative in order to enable most businesses to cope with negotiated or arbitrated changes.

“A national-level FPA may be no different.”

More strikes?

Hope also warns of “the real prospect of increased industrial action”.

“Dissatisfied with low outcomes, workers and their unions may put pressure on individual employers for ‘above award’ settlements. History suggests FPAs will need to be similarly conservative, which will create pressure for extra increases at enterprise-level bargaining, thus recreating the ingredients of the disastrous industrial environment of the 1970s and 80s.”

Hope suspects the FPA Bill amounts to little more than unionism by stealth and is a throwback to the ‘problematic perks’ of that era such as triple time and long meal breaks.

“High penal rates and generous meal breaks were features of the award system prior to 1991,” he says.

“While these are issues to be bargained over in the first instance, the Employment Relations Authority will make the final determination as to what is included on these matters if agreement cannot be reached over the table.

“Whether ‘problematic perks’ resurface under Fair Pay Agreements will therefore be up to the ERA, as employers will not have any control at this point.”

Under pressure

For a legal perspective of the issues, LawNews sought the opinions of experts in employment law.

Simon Schofield, a teaching fellow at the University of Auckland and a member of the ADLS Employment Law committee, says businesses are undoubtedly under pressure and this will be exacerbated by the introduction of FPAs.

“The common way to deal with timing is to have a long lead-in time for commencement. This government, however, has indicated it is keen to get several FPAs in force as soon as possible.

“Fair pay agreements certainly add to the long list of burdens on businesses that are being implemented by this government.”

Schofield does not believe the FPA Bill is unionism by stealth but concedes that ‘problematic perks’ will almost certainly be an issue.

“For instance, each fair pay agreement must specify details of wages to be paid to employees including the minimum base wage rates, whether superannuation is included in or excluded from that rate, overtime rates, penalty rates and any adjustments over time.

“Most private sector employers simply do not have overtime rates, penalty rates or adjustments over time. This is on top of the fact that some private sector employees do not have a wage rate at all but instead have salaried employees.

“To put it in perspective, currently a collective agreement requires only that remuneration in the collective agreement is specified as ‘the rates of wages or salary payable to employees bound by the agreement’.

But what does Schofield make of Business NZ’s assertion that fair pay agreements will breach international law?

“The government’s position is that while it acknowledges that there may be a breach of international law, the greater benefits provided by fair pay agreements mean that any such possible breach is justified.

“This argument highlights the fundamental flaw in how fair pay agreements have been conceptualised. The problem is in the name. The idea that this is an agreement is conceptually unsound.


“Collective bargaining must be voluntary. It would have been better to call them industry-wide or occupation-wide minimum employment terms and conditions or, as they were previously called, ‘awards’. The government has made, however, a conscious decision to dissociate them from ‘awards’ to dictate the fair pay agreement narrative but ‘awards’ are really what they are.”

Schofield also has reservations about the 10% threshold to initiate an FPA, something the business sector believes is too low and anti-democratic. It believes it should be at least 50%.

“A good argument can be put that the representation test for initiating bargaining of at least 1,000 covered employees or 10% of all covered employees should be dropped altogether, or at least should be required as well as satisfying the public interest test for initiating bargaining,” Schofield says.

“This is because the purpose of fair pay agreements is to provide better terms and conditions for vulnerable workers who have little bargaining power.

“That said, raising the 10% threshold to a 50% threshold may mean some vulnerable employees who do not work in a unionised environment are unable to satisfy the representation test.

“However, the reference to the idea that the representation test is ‘undemocratic’ highlights the irony that fair pay agreements have not been designed to be democratic but, rather, have been designed to be imposed on employers and employees alike.”

And what of the raison d’etre for fair pay agreements – the need to address in-work poverty? Does Schofield believe they are the correct prescription for those struggling to make ends meet?

“Given the well-recognised inequality of bargaining power between employers and employees in New Zealand, it is true that some groups of employees suffer from greater inequality than others,” he says.

“In particular, New Zealand law already recognises a group of these so-called ‘vulnerable employees’ in Schedule 1A to the Employment Relations Act 2000 which includes employees who provide cleaning services, food catering services, caretaking, orderly services, laundry services and security services in specified workplaces.

“The question is not so much whether there is inequality but whether fair pay agreements are the solution to that inequality.”

Another cornerstone of the government’s push for FPAs is the belief that they will increase productivity and innovation in many sectors, but according to Schofield this could be a double-edged sword.

“Due to the increased cost of labour, employers will be forced to invest more heavily in technology to reduce labour costs – think robots in restaurants – which in turn will lead to greater productivity and higher unemployment.”

Cost concerns

Specialist employment lawyer and Bell Gully partner Liz Coats is another who sees downsides for both employers and employees.

“The timing may well prove difficult for some, given these issues as well as the many other proposed or intended employment law reforms on the cards.

“Many employers are very concerned at the increased cost that will come with FPAs – not just the cost arising from the terms of any FPAs themselves, but the cost of learning this system, participating in bargaining and the cost of ensuring compliance.

“We have heard accounts from employers that an FPA could cripple their ability to employ staff and might result in them exploring options to employ workers off-shore, or to reduce staff in exchange for increased use of technology.”

Coats says evidence from countries that have sector-wide bargaining, such as Australia, demonstrate how complex and fraught with litigation such agreements can be.

So, given the likely complexity of FPAs on this side of the Tasman, it’s probable many will be referred to the Employment Relations Authority for resolution, raising yet another problem.

The ERA already has a very heavy workload and is unlikely to have the resources and time to cope with all the litigation that may come its way.

It’s an issue that concerns Schofield.

“In my view, the Employment Relations Authority does not have the resources or expertise to deal with fair pay agreements. In truth, this power should lie in the first instance with the Employment Court,” he says.

“It is important to emphasise several points. Firstly, the changes wrought by covid-19 have seen an increase in cases before the Employment Relations Authority.

“It now commonly refers previously mediated matters back to mediation to delay matters and avoid having to make a decision on them.

“Secondly, the Employment Relations Authority does not record or transcribe evidence which means that important decisions can be made which potentially lack transparency.

“Indeed, it is not unknown for Employment Relations Authority files to be destroyed once a matter has been heard.

“Thirdly, the Employment Relations Authority members are not subject to the Judicial Conduct Commissioner and Judicial Conduct Panel Act 2004 so there is no effective oversight and accountability of the conduct of Employment Relations Authority members.

“All in all, fair pay agreements are exactly the type of employment relationship problem which will be subject to complex legal argument which the Employment Relations Authority was established to avoid.” ■

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