• Tony Teesdale

Fair Pay Agreements - a concern for all employers

The spectre of Fair Pay Agreements (“FPAs”) is yet another contributor to the drop in business confidence. Labour’s policy states: “FPAs will set basic standards for pay and other conditions within an industry or sector.  By setting a floor for terms and conditions of employment FPAs will prevent the race to the bottom seen in some industries where good employers are undercut by bad employers who reduce labour costs through low wages and poor conditions.”

On the face of it this means the terms and conditions of employment in your business could be set by your competitors, without any involvement by you. That could mean higher base rates, penal rates, a raft of allowances, double time overtime, additional leave benefits, excessively high redundancy compensation and so on. 

This approach fails to recognise the differences in scale between employers in a sector, the differences between start-ups and well-established businesses, and the financial fluctuations in the life cycle of those businesses.

Further, removing the need to have to bargain with individual employers has the unintended consequence that larger, more financially resourceful businesses will be able to “squeeze” smaller competitors in the same sector by agreeing to provisions that their competitors may not be able to afford, or have the human resources to meet.

You only have to look to Australia’s modern award system to see an example of why such an approach raises legitimate concerns for business in New Zealand. Interestingly, France, which has very strong industry awards and a labour code which is famously “longer than the Bible”, is introducing laws to encourage more enterprise bargaining.

The Government says that strike action will not be permitted during FPA bargaining, but that is of no consolation to an employer who doesn’t wish to be party to an FPA.  Even if the law should allow an employer to opt out of, or not participate in, the first round of FPA bargaining, this will subsequently become a live issue once collective agreements expire and strike action is taken against employers that do not match the FPA terms. 

A Working Group headed by Sir Jim Bolger is developing the concept. It is concerning that very few members of the group, apart from two union representatives, have any previous experience in this area; perhaps this was the intention. The group is required to report to the Minister by November 2018, which suggests legislation could be in force from the second quarter of 2019, but there is a fair bit of water to go under the bridge yet.  If you are bargaining currently or about to do so, the best option is to secure a three year deal as soon as possible and wait for the dust to settle.

Issue 91 September 2018