Troubled Life and Imminent Death of FPA’s in New Zealand – Lessons for the UK?

On 14 October New Zealand voted to replace the current Labour Government with a new right-wing coalition government. The New Zealand Labour Party had been in power for six years, three of those as part of a coalition government and, since 2020, in its own right, an unprecedented event since the introduction of the MMP election system in 1993. It’s vision for the future of employment in New Zealand was encapsulated in two policies, the introduction of fair pay agreements and the creation of a social insurance scheme. At the time of the election its achievements could be summarised as ‘too little, too late.’

The social insurance scheme, which was announced in 2022, was genuinely progressive and would have provided workers who lost their jobs due to redundancy or because of a health condition with a benefit, payable for up to six months, equivalent to 80% of their previous income. This figure was essentially the same as that received by injured workers under New Zealand’s accident compensation scheme. Additionally the scheme would also have provided compensation for those unable to work because of employment related psychosocial harm, a type of harm not recognised by the current accident compensation scheme. The proposed scheme was effectively abandoned in early 2023 following a change in the Labour Party’s leadership. Indeed virtually all progressive policy initiatives were abandoned at that time. Not so much too little as nothing.

In the case of Fair Pay Agreements (FPAs) it was a matter of being too late. FPAs had their genesis in the Report of the tripartite Fair Pay Agreements Working Group (FPWG) which reported in December 2018. The Government then took more than three years finalising the design of the system and for a Bill to be introduced into Parliament. By the time the Fair Pay Agreements Act 2022 (FP Act) came into force on 1 December 2022 the general election was less than a year away and the opposition parties were already promising to repeal the legislation. Not only have the principal coalition parties (the centre-right National Party which won 39% of the party vote and the far-right ACT Party which won 10%) promised to repeal the FPA Act but also indicated they would either reduce or freeze further growth in the statutory minimum wage. During its period in office the Labour Government substantially increased the minimum wage in an attempt to combat very low wage growth.

By way of background it might be noted that, while New Zealand has a statutory minimum wage (currently $22.70/hr) but the concept of a “living wage” (currently $26/hr) has become increasingly important for industrial and political campaigns encouraging employers to become living wage employers. The “living wage” has no official status, and is calculated independently of government. Those negotiating FPAs would consider the living wage as a minimum benchmark for fair pay.

Within a week of the election the New Zealand Restaurant Association issued a press release stating that 80% of respondents to its post-election survey considered that repealing fair pay legislation, should be a top priority for the incoming government. This response is hardly surprising. Significant elements of the hospitality industry thrive on a model of low pay and precarious employment and are notorious for employment abuse including widespread breaches of minimum labour standards. Unsurprisingly the same survey strongly supported the reintroduction of 90 day trial periods during which employees may be dismissed without justification. The demands of the Restaurant Association and other industry groups are likely to be realised before the end of the year. Consequently the FPA Act will almost certainly be repealed without any fair pay agreements (FPAs) being concluded. At date of the election bargaining had commenced for six industry FPAs and one further application was being assessed. None of these applications have resulted in a concluded agreement. The industries in the process of bargaining included a number of industries where low pay is typical; hospitality, security officers and guards, commercial cleaners, early childhood education workers and grocery supermarket workers.

The impact of the repeal can be illustrated by the position of grocery supermarket workers. The New Zealand supermarket industry is effectively a duopoly of Countdown and the Progressive Enterprises/New World chain. The Countdown chain, owned by Woolworths Australia, recently concluded a collective agreement which will increase wages by $4 an hour, effectively moving the base rate from the minimum statutory wage to the “living wage”. Unlike Countdown, the New World chain is made up of independent franchises trading under the New World name. As New Zealand law seriously inhibits multi-employer bargaining these individual franchisees have been able to successfully resist attempts to negotiate any form of collective agreement covering workers throughout the chain. The repeal of the FPA Act will effectively destroy hopes that the Countdown collective would form the basis for an industry FPA.

The Fair Pay Act

The FP Act had its genesis in the Report of the tripartite Fair Pay Agreements Working Group which reported in December 2018. The Report noted that “Wages in New Zealand have grown, but much more slowly for workers on lower incomes than those on high wages; and they have grown more slowly than labour productivity”. It recommended the creation of “a system where workers can initiate sector- or occupation-wide collective bargaining [providing] they meet a representativeness threshold or a public interest test.” The system as enacted involved three phases. First an initiation phase which required a union to demonstrate that had a mandate to bargain for an FPA. This was to be achieved by gaining the support of 10% or 1000 workers within the group to be covered by the FPA. Second a bargaining phase between the relevant employee representatives, required to be a trade union, and a representative of industry employers (or, if employers refused to bargain, a default representative). If agreement could not be reached provision was made for an FPA to be determined by the Employment Relations Authority. Strikes and lockouts in pursuit of an FPA were unlawful. The third phase was essentially a ratification phase by both affected employers and employees but if a ratification vote failed the agreement could be returned to the Authority for a determination, most likely to occur if an agreement was not ratified by industry employers.

What went wrong?

The most important mistake made by the Government was not to give much greater urgency to the enactment of the necessary legislation. By the time the FPA Act was enacted the tripartite consensus at the time of the 2018 Report had long collapsed, if it ever genuinely existed, and the notion of fair pay agreements was stridently opposed by the primary employer lobby group, BusinessNZ. Indeed BusinessNZ went so far as to attempt to persuade the ILO Committee of Experts that the Act violated Convention 98. It is highly likely that had the Government given greater priority to enacting the necessary legislation a number of FPAs would have been in force well before the election and the repeal of the FP Act would have been much more difficult politically. There were a number of reasons for the delay, including the Covid-19 pandemic, but problems were also caused by the unwillingness or inability of relevant Ministers to drive the reforms through the, possibly resistant, government bureaucracy. If the legislation had been prioritised and enacted a year earlier it is likely that some at least of the current applications would have been concluded well before the election.

However, even if enacted earlier, a second problem would almost certainly have been the complexity of the legislation. The need to establish a representative mandate and have that approved by MBIE (Ministry of Business, Innovation and Employment) typically took several months for those applications that were made. Once approval to bargain for an FPA was obtained it was still first necessary to ensure employer representation before bargaining could commence and then to either reach agreement or show that an impasse had been reached. Given that the Act has not been in force are long enough, and that given the upcoming election employers were likely to be using delaying tactics, it is difficult to estimate how long these processes might have taken. It is however fairly clear that employers would have ample opportunity to engage in delaying tactics including legal challenges. It might be noted that similar problems attached to pay equity applications made under Pt 4 of the Equal Pay Act 1972. Part 4 was enacted in 2020. While some pay equity agreements have been negotiated with government the expansion of such agreements in a more hostile environment seems unlikely.

Conclusion

The political reality is that progressive reform in the area of labour relations was abandoned by the Labour government and any such reform is unlikely in the foreseeable future. Labour’s share of GDP has declined for many years and in many low-paid industries the minimum wage is regarded as a target rather than a safety net. New Zealand workers in those industries face a future of low pay and increasingly insecure employment.