What Employers Need to Know About NZ’s Latest Fair Pay Agreements Act

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Table of Contents

• What are Fair Pay Agreements?
• What Changes Did the Fair Pay Agreements Act Introduce?
• What Must I Include in a Fair Pay Agreement?
• Does the Fair Pay Agreement Impact My Business?
• Finalising the Fair Pay Agreement
• Difference Between Fair Pay Agreements and Collective Agreements
• Key Takeaways
• Frequently Asked Questions

On 1 December 2022, the Fair Pay Agreements Act (the Act) came into force, bringing significant changes to New Zealand’s bargaining system between unions and employer associations. The Act aims to improve minimum employment for workers in the most vulnerable industries. There are also changes relating to employer/industry associations, which will impact negotiations when entering fair pay agreements. This article discusses the latest changes and how they will impact your business. 

What are Fair Pay Agreements?

Fair pay agreements are a kind of contract which specifies minimum employment terms for all employees in a certain industry or occupation. Typically, the employee and employer would bargain and come to an agreement for their specific industry. 

Unions that are eligible will represent all employees within that industry, even if certain employees are not part of the union. Therefore, if an employee is covered by a fair pay agreement, the union will bargain on their behalf regardless of whether they are part of the union.

What Changes Did the Fair Pay Agreements Act Introduce?

The Act aims to support workers in the most vulnerable industries, such as cleaning, catering, caretaking or laundry services for specific sectors. It aims to improve minimum employment conditions and ensure employers do not disadvantage their employees through individual employment agreements. 

Before the Act, each employer would typically negotiate with a union or employees before entering an agreement. Now, eligible employers can have an employer/industry association negotiate on their behalf and bargain with a union or employees. Employer/industry associations are similar to unions but act for the employer or specific industry, even if the employer is not a member.

What Must I Include in a Fair Pay Agreement?

You must include certain terms in a fair pay agreement, such as:

• who the fair pay agreement covers;
• what work is being covered;
• the minimum rate of pay, including any overtime pay or penalty pay;
• standard hours of work;
• training and development;
• leave entitlements; and
• the duration of the agreement.

You must also discuss several issues during the bargaining stage, though you do not need to include them in the final agreement. Such issues relate to:

• redundancy arrangements;
• flexible working arrangements; and
• health and safety requirements.

Does the Fair Pay Agreement Impact My Business?

The Act will likely apply to your working arrangements with employees if your industry is considered vulnerable. Again, this is because the Act aims to improve minimum employment conditions for those in vulnerable industries. 

However, if the pay and conditions you offer to your employees or contractors are considered fair and reasonable, it is unlikely the Act will have a significant impact on your business.

There are penalties for breaching the fair pay agreement, which includes:

• a maximum fine of up to $10,000 for an individual; and
• a maximum fine of up to $20,000 for an employer

Where a breach occurs during the bargaining process, the maximum penalties are even higher:

• up to $20,000 for an individual; and
• up to $40,000 for an employer.

Many employers are not part of an employer association or one may simply not exist for your specific industry. This means that the Employment Relations Authority automatically has the power to set the terms of the fair pay agreement.

Finalising the Fair Pay Agreement

After the initiation, scoping and bargaining for the fair pay agreement, the process to finalise it is as follows:

1. the Employment Relations Authority assesses and approves the agreement;
2. employers and employees vote on the agreement;
3. the Chief Executive of MBIE brings it into force through secondary legislation.

Difference Between Fair Pay Agreements and Collective Agreements

Be sure to distinguish fair pay agreements from collective agreements. Fair pay agreements are the minimum standard of work conditions that all workers in a specific occupation or industry are entitled to receive. They apply to all workers, including workers not part of a union. Whereas, collective agreements are a form of employment agreement that only covers union members who negotiated for the agreement. 

Similarly, with bargaining for collective or individual employment agreements, both parties must ensure that they deal with each other in good faith.

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Key Takeaways

From 1 December 2022, the Fair Pay Agreements Act protects the minimum rights of employees and contractors working in vulnerable industries. If your business is part of a vulnerable industry, it is vital that you understand how the new changes impact your business. Otherwise, penalties for breaching a fair pay agreement include a maximum fine of up to $20,000 for an employer.

If you are unsure whether fair pay agreements apply to your business, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page. 

Frequently Asked Questions