The FPA Act 2022: a complex new law

Jo Douglas describes how the new Fair Pay Agreements landscape affects your business.

The Fair Pay Agreements Act 2022 is now law. Considered by some to represent the most significant change in the employment law landscape since the introduction of the Employment Contracts Act 1991, it puts in place a framework for bargaining not seen since the industry awards of the 80’s. 

This new framework does not replace, but sits alongside, the existing framework of setting terms and conditions of employment, through collective bargaining, and through the negotiation of individual terms of employment.   

The Act also sits alongside existing legislation which sets minimum entitlements and employment standards such as the Minimum Wage Act and Holidays Act with a view to providing greater protection to parts of the labour force.    

Will this apply to all businesses, large and small?

All employers need to be aware of this complex new law. It provides for industry wide or occupation wide collective bargaining to set minimum terms and conditions of employment.  

The agreements will be negotiated between bargaining sides that represent a sector or industry, and agreements may cover employers who have not been directly involved in that negotiation.

Small to medium businesses who were previously too small to be engaged in enterprise based collective bargaining, may find themselves now covered by minimum terms negotiated in their sector. For SMEs there is a concern that they may have terms imposed on their businesses negotiated by much larger players in an industry. 

What’s included in an FPA?

Certain terms must be included in an FPA:

• Coverage of the agreement.
• Standard hours of work for types of work and classes of employees covered.
• Minimum base wage rates.
• An overtime rate and when it applies.
• A penalty rate and when it applies.
• Arrangements for training and development.
• Leave entitlements.
• Commencement and expiry dates (term of between 3 and 5 years).

Bargaining sides must also discuss:

• The objectives of the proposed agreement.
• Health and safety requirements.
• Arrangements relating to flexible working.
• Arrangements relating to any redundancy.

Mandatory inclusion of overtime and penalty rates is a significant change from the current bargaining framework.  

It is possible that some employers may face an unexpected increase to their total wage bill, as FPA penalty rates could sit on top of existing base rates set under different circumstances (for example – a higher flat base rate across all hours including overtime).

In the case where both an FPA and an individual agreement applies, if an FPA clause provides for more favourable terms, that clause will apply. This will apply on a clause-by-clause basis – which means that the overall financial cost of a package of employment terms could be impacted by new FPA terms.  

Initiation of an FPA

It is anticipated that unions will attempt to initiate bargaining for a fair pay agreement in particular sectors where there is a perceived need for improved pay and conditions. To do so, a union must establish there is a threshold of representation:

• A thousand employee members; or
• the public interest test which allows a union to initiate bargaining if their workers are low-paid or otherwise in a vulnerable position.

The scope of this public interest test is not entirely clear and many aspects of this process will be left to determination by the Employment Relations Authority (ERA).  

How will I know if an FPA applies to me or my business?

A union that has been authorised to commence bargaining by MBIE must use its best endeavours to identify and then notify all relevant employees and employers. However, if coverage is broadly defined this may be difficult to do.   

Once agreement is reached, the FPA will be authorised by the ERA through a compliance assessment. The Authority will assess whether there is coverage overlap between the proposed agreement and any other FPA, and if so, determine which has better terms overall.

Overlapping coverage may result in another FPA being amended.

The ERA will also make sure that the FPA meets other employment law standards. It will then be ratified by employees and employers who would be covered, verified by MBIE and brought into force. MBIE will also check for coverage overlap.   

What next?

Employers should have an awareness of industry bargaining that may impact on their terms of employment and get advice early in the process to ensure they have a say.

Plan for the possible financial implications of new minimum terms, such as overtime rates, that might apply if an FPA is introduced in your sector.

Jo Douglas is a partner at Douglas Erickson, employment lawyers.