Legal Updates

Fair Pay Agreements (FPAs): A Brief Overview


The highly anticipated Fair Pay Agreements Bill[1] (“the Bill”) was introduced to Parliament this week and is expected to shake up the employment law scene.

The Bill provides a framework  within which fair pay agreements (“FPAs”) can be bargained. The Bill’s objective is to “improve labour market outcomes in New Zealand by enabling employers and employees to collectively bargain industry-wide or occupation-wide minimum employment terms.

The Bill will go through a full Select Committee process and is expected to be enacted into law by the end of 2022.


Initiating FPAs:

Under the Bill, negotiations between employees (at this stage, contractors will not be covered by FPAs) and employers could be initiated by a union applying to the Ministry for Business, Innovation and Employment (MBIE) and showing that the either of the following tests has been met:

1.       Either 10% of the total occupation or industry or at least 1000 employees in that occupation or industry support initiating bargaining for the proposed FPA (“the representation test”); or

2.       The employees in question receive low pay, have little bargaining power, or have a lack of pay progression in their employment (“the public interest test”).

The Chief Executive of MBIE must give the tick that one of the relevant tests has been met, and can call for public submissions in deciding so. If the test is satisfied, MBIE must issue a public notification within five days.


Bargaining process and criteria:

If the application is successful, bargaining can commence. The Bill proposes that employees will be represented by eligible unions and employers will be represented by eligible employer associations or specified public sector employers. In any case, a bargaining party must meet certain requirements, such as having an employee (or an employer who has an employee) within the coverage of the proposed FPA as a member. If one side is unrepresented (or becomes unrepresented during bargaining), default parties will step into bargaining.

The Bill creates notification and communication obligations for eligible unions and affected employers such as an obligation on employers to allow employees to attend two 2-hour paid meetings for FPA purposes.

The bargaining sides must use best endeavours to represent all those covered by the FPA, including non-members, and to ensure Māori interests and views are effectively represented.

All FPAs must specify when it comes into force and when it expires, base wage rates, ordinary hours, overtime and penalty rates. Additionally, some other topics must be discussed but don’t have to be agreed such as redundancy, training requirements, leave, and health and safety. Other employment terms can be included if the bargaining sides agree.

The parties to the FPA must deal with each other in good faith, and must not do anything to (or that is likely to) mislead or deceive each other throughout the bargaining process. These obligations apply between bargaining parties on different bargaining sides as well as bargaining parties on the same bargaining side. There may be penalties for parties who breach the prescribed good faith obligations.

It should be noted that an FPA is intended to supplement rather than replace existing employment agreements. However,  if the existing agreement includes terms that are less favourable to the employee than those contained in the FPA, the latter would apply.


Dispute resolution:

The Bill provides a dispute resolution process based on the Employment Relations Act 2000. Parties may access mediation and support services under the Bill. If parties cannot resolve their dispute using those services, a bargaining party may apply to the Employment Relations Authority (“the Authority") for a determination.

Strikes and lockouts would not be  lawful in relation to bargaining for FPAs.


Finalising an FPA:

For an FPA to become final, it must be:

  1. Assessed and approved by the Authority to ensure compliance with the FPA requirements;
  2. Ratified by the employees and employers it applies to;
  3. Verified by MBIE; and then
  4. Brought into force by the Chief Executive of MBIE through secondary legislation.

A finalised FPA will apply to all employers within its coverage, regardless of whether that employer participated in the bargaining or ratification process.  Similarly, the implemented FPA (and the new minimum employment terms set) would apply to all employees within coverage.

Parties within the scope of an FPA  could enforce their rights through the standard employment dispute resolution system. Moreover, the Labour Inspectorate would be able to enforce certain terms of the FPA.



This Bill is of course subject to amendments as it is passing through Parliament. The public will have the opportunity to provide submissions on proposed changes during Select Committee stage before it is enacted.

If you have any questions or need advice on what these proposed changes mean for you or your business, please get in contact Jaesen, Ruth, Jordan, Caylee or Lucy.