It seems clear now that the Fair Pay Agreements Bill will pass this year bringing into effect a massive change in how minimum employment entitlements are established in New Zealand.

The concept is relatively simple – unions will negotiate with employer associations for minimum terms and conditions that will apply to all employees and employers falling within coverage of the agreement.

Unions already exist for this purpose, and whilst membership has dropped to around 16% of employees in the years since the 1991 Employment Contracts Act, they have the institutional knowledge and capability to perform this role.  They will need to gear up because negotiating sector wide terms and conditions affecting potentially thousands or tens of thousands of employees is not a small job.

If we look to the pay equity space, it has taken 3-5 years in many cases to negotiate and settle pay equity claims.  This requires a significant amount of time and resource.

Under the proposed legislation, however, unions will get a leg up.  First, their central role in negotiating fair pay agreements will undoubtedly increase their relevance and credibility as representatives of employees.  They also stand to get a significant funding boost given that the bill allows fair pay agreements to include clauses that provide for union member payments which are no more than the total amount of the employee’s union membership fees for the period of the agreement.

In other words, union members can have the cost of their union fees covered as part of the settlement.  There are two obvious consequences of this.  Firstly, why wouldn’t you be a union member if there is no cost in doing so and potentially only upside.  Second, employers will effectively be funding union membership fees in this instance, as part of the settlement.

So far it is looking pretty good for unions.

For employers, not so much.   The bill provides that employers will be represented by an “employer association” which is defined as an association established as an incorporated society having the purpose of promoting the collective work interests of covered employers for the purposes of bargaining for a fair pay agreement.

The problem is that these employer associations do not currently exist in this form.  Further, an employer “bargaining side” must be formed 3 months after the date that the Chief Executive of MBIE approves the application for initiation.

Given that the coverage of fair pay agreements is likely to be very broad, covering whole sectors or industries, there will potentially be hundreds, even thousands of employers who will become bound by whatever is negotiated “on their behalf”. 

This is where it becomes very tricky.  The bill establishes something of a “whisper chain” through which employer parties are intended to be put on notice of the bargaining.  Basically, initiating unions will notify the employers they consider are likely to be covered.  This seems unrealistic.  In complex industries made up of multiple large, medium and small employers, unions will not necessarily know who they all are.

And then for those employers who are made aware, how do they go about organising themselves into employer associations and the employer bargaining sides? Who takes the lead on this?  Who pays for it?  Who is nominated as the employer lead advocate in the bargaining and how?

Equally important, assuming employers can organise themselves sufficiently to form an employer association and bargaining side, how do these representatives ensure the interests of all employers who would be covered by the fair pay agreement are fairly represented.   In reality it is likely that the larger, well-resourced employers will dominate these processes, but their interests may be quite different from those of smaller employers. 

On this issue the bill provides that the bargaining party must use its “best endeavours” to represent the collective interests of all covered employers, which includes providing regular updates and opportunities for employers to provide feedback.  But this requires those employers to actually know about the process and to be engaged. 

This becomes even more problematic given that employer voting power is still based on the number of employers employed by the employer, with a modest uplift for employers with less than 21 employees.  In practice this means that the interests of smaller employers may be swamped in the process.

The required level of coordination and cooperation is going to be a big ask for employers.  There is a “fall back” in the bill for situations where there is no employer bargaining side.  In this case a “default bargaining party” is to be appointed.  Curiously the bill does not indicate who this default representative will be other than that it will be specified in regulations and “an organisation that represents employers and is the most representative organisation of employers in NZ”.

I have no idea who this national employer representative body is, or even whether they are currently aware they have been nominated for this role, after Business New Zealand walked away from this “opportunity” earlier this year.

One thing is clear, fair pay agreements are coming and employers need to get organised now.