Design of a fair pay agreement system

18 October 2019

The Government is seeking feedback through a 53 page discussion document on how to design a fair pay agreement (FPA) system.

This consultation is based on the recommendations of the Jim Bolger led tripartite Working Group which reported in December 2018.

Submissions close on 27 November 2019, allowing just six weeks to respond to almost 100 questions. No timeline is indicated for the implementation legislation. ​

There is clearly significant work to do in the design and set-up of this new system and the indications are that it is still a reasonable way off. For the most part, the Ministry of Business, Innovation and Employment (MBIE) does not offer its own views, simply laying out the options with some limited commentary.

It would seem to us that the previously indicated “one or two” FPAs this term are now highly unlikely, and also that the consultation is potentially an interim step to try to appease those who were dissatisfied with the progress to date.

Initiation of an FPA

The Working Group recommended that bargaining be initiated when either a representation test (10% or 1,000 of the affected workers) or a public interest test (the existence of harmful conditions) was met.

The consultation document sets out two possible criteria for the previously un-particularised public interest test:

  • current problematic outcomes for workers in the sector, and
  • the potential for more sectoral coordination to be beneficial.

Low union representation (although a common factor across the whole country) is identified as a possible indicator of the need for better coordination.

Comment is sought on:

  • whether it is sufficient that one test is met or whether they should both be met (MBIE’s view, which we agree with, is that both should be required to trigger bargaining)
  • the criteria for the tests
  • whether employers should be able to apply to start an FPA negotiation and, if so, how they should be counted – by number or on a proportionate basis in terms of relevant employees, and
  • whether government agencies, employers, employer organisations and unions should all play a role in notifying people that an FPA has been initiated and whether the employer should have this responsibility.


The Working Group recommended that an FPA cover all workers in the named sector or occupation, including contractors. It was divided over whether an FPA should bind all employers. It did not recommend any guidelines for determining the boundaries of coverage.

Whether an FPA should include contractors is not offered as an issue for submission. We consider this surprising, given that it is at variance with the current position which has contractors sitting outside the employment relationship and unable to be represented by unions. MBIE justifies this stance on the basis that options for strengthening contractor protections are currently being considered by the Government and it therefore would “make sense” to include them in FPAs.1

Other coverage questions include:

  • whether the Australian and New Zealand Standard Classification of Occupations and the Australian and New Zealand Standard Industrial Classifications should be used to define the scope of an FPA or if there are better alternatives
  • whether the parties should be able to bargain different coverage and, if so, whether there should be limits to this discretion, and
  • the circumstances in which a temporary exemption clause may be warranted, how long the exemption should apply and whether exemptions should be available from the entire FPA or just from aspects of it.

New Zealand First Leader Winston Peters has indicated that his party wants an ability for FPAs to reflect the circumstances of particular regions. The document asks:

  • whether regional variations should be allowed in the minimum terms of an FPA, and
  • how a region should be defined – whether by territorial authority catchments or left to the parties to decide.

The bargaining process

A key issue for employers will be the scope of an FPA and how parties will be represented during the process.

In relation to scope, comment is invited on:

  • which terms and conditions should be mandatory in an FPA, which are permissible and which are excluded, and
  • whether a permissible list should be created or an excluded list, with the unlisted matters categorised by omission.

Proposed mandatory topics are: base wage rates, increases across the term of the agreement, whether employer superannuation contributions are included in the base rate, overtime and penal rates, redundancy, leave requirements, coverage, duration and other governance arrangements. Careful consideration of these proposed mandatory terms will be required as the consultation document proposes that the Employment Relations Authority and Employment Court would have the ability to set these mandatory terms in the event of a stalemate.

The consultation document recommends that only employers and unions may act as bargaining representations (including for non-members). In MBIE’s view, “Given FPAs are intended to be a system of collective bargaining for setting minimum standards in an occupation or sector, it is logical for the bargaining parties to be unions and employers (or employer organisations), as they are in the current system”. That would clearly see unions speaking for and on behalf of large numbers of workers who are non-unionised.

Feedback is sought on:

  • whether unions and employer organisations be the major bargaining representatives
  • whether there should there be a limit on the numbers engaged in the negotiations
  • whether other interests should be (separately) represented – e.g., non-unionised workers, non-organised businesses, future entrants to the market, and
  • how representatives should be selected, including whether there is a role for the government in ensuring the right mix of parties at the table.

There are also three proposals put forward in respect to sharing the costs of bargaining: through fees, with a government contribution, as they fall.

Dispute resolution

Strike action will not be available in pursuit of an FPA so the dispute resolution mechanisms will be important. The system proposes the use of mediation and then a procedure whereby the Employment Relations Authority will be able to make a determination on those mandatory terms on which the parties have been unable to agree.

Key questions are:

  • whether mediation should be a required step before the parties seek a determination
  • whether determinations can be binding in circumstances where the parties are at impasse
  • whether the determining body should only be able to set terms for the mandatory topics
  • what role, if any should the determining body have in relation to stalemates on permissible terms, and
  • whether appeal rights should be limited to matters of law.

Ratification and enactment

Ratification would require a majority vote by employees and employers. Input is sought on whether the employer vote should be one per business or should reflect the proportion of workers employed.

Enactment would be through force of regulations. The paper asks whether the Government should be allowed to change any terms of an FPA in the process of enacting it and, if so, on what grounds.

Chapman Tripp intends to file its own submission and would be happy to assist with any employer led submissions.

To read our commentary on the Working Group report, please click here.

1 The Government signalled that it would introduce statutory support and legal rights for “dependent contractors”. The consultation suggests that a review of the protections for independent contractors will be imminent and that it will be conducted in parallel with the introduction of an FPA system.

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