In a recent post on this blog, Dr David Madland examined the resurgence of interest in sectoral collective bargaining in the United States, the United Kingdom, Canada and Australia.  Support for sectoral bargaining has also gained traction in New Zealand in recent years, culminating in a proposal, by the New Zealand government, for the implementation of a sectoral collective bargaining system.  The details of that proposal were recently released.  The system will involve unions and employer representatives bargaining for “Fair Pay Agreements” (“FPAs”) that establish minimum terms and conditions for all employers and employees across a particular industry or occupation.  Draft legislation implementing the FPA system is slated to be introduced to the New Zealand Parliament in the latter part of 2021, with the legislation anticipated to be enacted in 2022.     

Under the FPA system, a union can apply to the New Zealand Ministry of Business, Innovation and Employment (“MBIE”) to start the bargaining process for an FPA, provided that the union has at least one member in the industry or occupation that is proposed to be covered by the FPA.  Bargaining for an FPA can only be initiated if either the representation test or the public interest test is satisfied.  The representation test requires a demonstration of support from 10% or 1000 employees (whichever is lower) in the nominated sector or occupation.”  The MBIE must have regard to certain criteria when determining whether the alternative test – which involves the question whether an FPA would be in the public interest – is satisfied.  Broadly, these criteria direct attention to whether the relevant industry or occupation is marked by certain conditions, such as the prevalence of low wages. 

The coverage of an FPA is to be delineated by the parties involved in the bargaining process.  The union seeking to initiate FPA bargaining must define the industry or occupation that is proposed to be covered, and coverage issues can be the subject of negotiations between unions and employer representatives.

During the bargaining process, employees will be represented by the union that initiated the process, along with other unions (which have at least one member falling within the proposed coverage of the FPA) that choose to participate in the process.  Employers will be represented by an employer organization (or organizations), with details regarding employer representatives to be refined during the drafting of the FPA legislation.  In the consultation process on the FPA system, employers pointed to the absence of employer organizations in some industries and the limited “expertise and infrastructure needed for employers to coordinate and bargain FPAs”.  In response, the government has stipulated that the peak employer body, BusinessNZ, will play a role in locating appropriate employer representatives for FPA bargaining.  Where such representatives do not exist, BusinessNZ will be the bargaining representative for the employers. 

Where there is more than one bargaining party on a particular side (for example, where there are multiple unions representing the employees in negotiations), the bargaining parties on that side must “enter into an agreement on how they will progress, and make decisions for, FPA bargaining” and “[a]ppoint a lead advocate to chair the bargaining side and act as the primary spokesperson.”  Good faith obligations, which already exist in the Employment Relations Act 2000 (NZ), will apply to all parties in FPA bargaining.      

If an agreement is reached, it will be scrutinized by the New Zealand Employment Relations Authority (“ER Authority”) (for compliance with relevant statutes, among other things) and then put to a vote by all employers and employees falling within the coverage of the FPA.  A simple majority of those who vote on both the employee side and the employer side is required for the FPA to be ratified.  Each employee will have one vote, and employers will generally have one vote for each employee falling within the coverage of the FPA.  If the first vote fails, then bargaining will resume, and the ensuing agreement will be put to a second vote.  If this subsequent vote fails, then the ER Authority will, by determination, set the terms of the FPA. 

Disputes arising in the course of bargaining for an FPA will generally be dealt with by mediation or by a recommendation or determination of the ER Authority.  Industrial action is not permitted during FPA bargaining.  Where an agreement cannot be reached, the unions representing the employees or the organizations representing the employers in bargaining may apply to the ER Authority to have the terms of the FPA set, by determination, by the ER Authority.  Once an FPA has been concluded by ratification or determination, it will be given force by secondary legislation and will cover all employers and employees in the particular industry or occupation (subject to certain exemptions and variations).   

Terms that must be included in an FPA include those pertaining to coverage, base wage rates, ordinary hours and overtime.  Terms that must be discussed, but which need not be included in an FPA, include those relating to leave entitlements and health and safety.  In addition, the bargaining parties may decide to include other terms that are related to employment in their FPA.  

The proposed FPA system will operate alongside the current system of collective bargaining in New Zealand, which is based on bargaining at the level of the enterprise (with some provision for multi-employer bargaining).  The FPA system when first introduced will apply only to employees, but the system will subsequently be expanded to bring certain independent contractors within its remit.  In the meantime, employer attempts to avoid the FPA system through misclassification of employees as independent contractors will be met with penalties. 

The introduction of sectoral collective bargaining marks a significant development in New Zealand’s labor law system.  Justifications given by the government for introducing sectoral bargaining include the need to address the sharp decline in collective bargaining coverage, the stagnation in wages growth, and the “race to the bottom” propelled by some employers who cut wages and conditions to bolster their competitiveness.  In respect of the latter point, the New Zealand government noted that uniformity of employment terms and conditions across an industry or occupation will prompt employers to compete instead on the basis of productivity and innovation.  As noted in the original report of the Clean Slate for Worker Power project, sectoral bargaining “help[s] take wages and working conditions out of competition.” 

There has, in recent times, been increasing support for sectoral collective bargaining among some labor law scholars, unions and activists across multiple jurisdictions who are concerned, among other things, with low wages and rising inequality.  The peak union body in Australia has, for example, expressed strong support for a system of industry-wide bargaining.  And the development and implementation of a system of sectoral bargaining in the United States was one of the primary recommendations advanced in the original Clean Slate report.  The New Zealand experience might, in time, provide valuable lessons for those in other jurisdictions who are advocating for a recalibration of the balance of power between employers and workers.