The Fair Pay Agreements Act 2022 came into effect on 1 December 2022
It outlines the system for bargaining between employers and employees across entire occupations or industries for Fair Pay Agreements (FPA).
The aim is to set minimum standards of employment including pay for specific industries or sectors.
There is no opportunity for employers to opt out, so even SME businesses will be affected meaning less freedom to negotiate individual employment terms.
How will it work?
Generally, a union can initiate the bargaining process if it meets either:
- the representation test or
- the public interest test.
The representation test requires the union to obtain 10% of a given occupation of a sector or 1,000 workers, whichever is less supporting the FPA.
The public interest test is where relevant employees have little bargaining power, lack of pay progression or other unfavourable terms such as unsocial working hours.
Hence workers will generally be represented by a union. Employees do not need to be union members to be represented. The union will initiate and bargain on their behalf. Employers will likely be represented by Employer Associations or obtain legal assistance.
If there is agreement on the terms of the FPA by both the Employer and Employee the FPA then requires approval from the Employment Relations Authority (ERA). Agreements must be between 3 and 5 years.
If terms cannot be agreed, parties can access MBIE mediation services or apply to the ERA for a final determination.
An FPA covers all employees in that relevant sector or industry regardless of whether they participate in that bargaining process.
Independent contractors are not covered by the FPA but there are penalties under the Act if employers try to avoid the FPA process by engaging independent contractors when they are truly employees.