Fair Pay Agreements

20 November 2017

Labour promises to, “in conjunction with relevant stakeholders, develop and introduce a legislative system of industry and sector collective bargaining that allows unions and employers, with the assistance of the Employment Relations Authority, to create Fair Pay Agreements that set minimum conditions, such as wages, allowances, weekend and night rates, hours of work and leave arrangements for workers across an industry based on the employment standards in that industry”.

That sounds a bit like the manner in which Australia developed its so-called Modern Awards back in 2009. In that case there wasn’t a negotiation as such but the Commission created the awards based on consultation with the relevant employers and unions.

Given the diverse arrangements that have evolved in NZ businesses since our old award system was scrapped over 25 years ago, achieving any sort of alignment will be a challenge - and a financial risk for many businesses. Even within a narrow sector, there are large variations in terms of employment. For example some businesses pay salaries or flat rates, whereas others pay overtime after 8 hours per day or perhaps after 45 or 50 hours per week. Issues are bound to arise for many of those employers if the relevant FPA provides for overtime, penal rates and a raft of other allowances. Some employers may pay lower rates but offer significantly better benefits, such as higher KiwiSaver contributions, life insurance, medical insurance and so on.

Experience suggests that the bar will wind up being set so high that some smaller employers will not be able to meet the standard; and too low for the liking of unions in more successful businesses which will inevitably result in some form of second tier bargaining like the 1970s and 80s.

As any Australian employer will tell you, the main concerns with an award system are knowing with confidence which award covers your employees; and being able to apply the relevant award correctly to your particular operational circumstances. By way of example, the Fair Work Ombudsman recently audited 696 employers in the health sector and found 26% of them were not complying with Australian employment laws.

Back to the future….

All this will go on in an environment where many former union rights will be restored such as:

Unions having the right to initiate bargaining before employers (an insignificant issue in our view).
Unions having the right to access an employer’s premises – to visit members and pitch their services to non-members.
Union delegates being entitled to paid time to carry out their roles.
An obligation to conclude a collective agreement (unless there is a genuine reason not to).
New employees having to be employed on the same terms as the collective.
No pay deductions for partial strikes.
Tighter rules on passing on terms and conditions to non-union employees.
New employees having access to information and unions at the start of employment.
Effective bargaining fee arrangements for the extension of collective bargaining outcomes to non-unionised employees.

And other potential changes such as:

Replacing trial periods with a fairer system – The policy states that “Labour has always supported trial periods for new employees as a way of giving a person a chance”, so we think trial periods will remain but with a simple referee system perhaps similar to that which operates for non-employment disputes in the Disputes Tribunal. Depending on the remedies available and the upper limit for compensation, this idea will either work or deter employers from offering trial periods.
“Investigating options for ensuring that people who work over 40 hours per week receive adequate remuneration” – That could mean statutory overtime, night and weekend rates.
“Restoring the right to rest and meal breaks” – potentially a return to National’s prescriptive approach which didn’t work before.
More protection for redundancy – The policy promises “consultation on improving minimum redundancy protection for workers affected by restructuring, giving regard to the recommendations of the 2008 Ministerial Advisory Group report on redundancy and restructuring”. Recommendation 1 of that report provided for “compensation based on length of service, a maximum level of statutory compensation and provision for support and other active labour market mechanisms”.
Restoring reinstatement as the primary remedy for personal grievance.
Restoring protections for vulnerable workers where a business is sold or transferred – currently an employer with 19 or fewer employees is exempt.

We will have a more in depth analysis of this subject in the New Year.