Fair Pay Agreements Bill

2.1. Are there any publicly available inquiry, review or evaluation reports that have informed, or are relevant to, the policy to be given effect by this Bill?

         YES

Fair Pay Agreements: Supporting workers and firms to drive productivity growth and share the benefits, Fair Pay Agreements Working Group, December 2018

https://www.mbie.govt.nz/dmsdocument/4393-working-group-report-pdf

Cabinet Paper: Fair Pay Agreements: Approval to draft, April 2021

https://www.mbie.govt.nz/dmsdocument/14297-fair-pay-agreements-approval-to-draft-proactiverelease-pdf

Initial summary of submissions on the Fair Pay Agreements discussion document, December 2019

https://www.mbie.govt.nz/business-and-employment/employment-and-skills/employment-legislation-reviews/fair-pay-agreements/

Final summary of submissions on the Fair Pay Agreements discussion document, Ministry of Business, Innovation and Employment, 2020

Final summary of submissions on the Fair Pay Agreements discussion document (mbie.govt.nz)

Supplementary summary of submissions on the Fair Pay Agreements discussion paper – overall merits of the system, Ministry of Business, Innovation and Employment, 2020

Supplementary summary of submissions on the Fair Pay Agreements discussion paper – overall merits of the system (mbie.govt.nz)

Background policy documents contributing to the design of the Fair Pay Agreement System –

https://www.mbie.govt.nz/business-and-employment/employment-and-skills/employment-legislation-reviews/fair-pay-agreements/

2.2. Does this Bill seek to give effect to New Zealand action in relation to an international treaty?

NO

2.3. Were any regulatory impact statements provided to inform the policy decisions that led to this Bill?

YES

Fair Pay Agreements – Regulatory Impact Statement (RIS), Ministry of Business, Innovation and Employment, Published 8 July 2021. A copy of the RIS is available at:

https://www.mbie.govt.nz/dmsdocument/15512-fair-pay-agreements-regulatory-impact-statement-pdf

Fair Pay Agreements Regulatory Impact Assessment update to account for the expansion of Labour Inspectorate powers. A link to the document will be published on the MBIE website as soon as possible.

2.3.1. If so, did the RIA Team in the Treasury provide an independent opinion on the quality of any of these regulatory impact statements?

YES

MBIE’s Regulatory Impact Analysis Review Panel (which Treasury provided input) reviewed the RIS prepared by MBIE (published 8 July 2021 - link in 2.3 above seeking Cabinet’s agreement to draft legislation). The Panel considered that the information and analysis summarised in the RIS meets the criteria necessary for Ministers to make informed decisions on the proposals.

MBIE’s Regulatory Impact Analysis Review Panel also assessed the RIS for the expansion of the Labour Inspectorate powers as meeting the criteria necessary for Ministers to make informed decisions on the proposals.

2.3.2. Are there aspects of the policy to be given effect by this Bill that were not addressed by, or that now vary materially from, the policy options analysed in these regulatory impact statements?

YES

A decision is being sought from Cabinet to expand the power of the Labour Inspectorate to enable them to decide if an employee is within coverage of an FPA. This was not addressed in the (published) 8 July 2021 RIS (link in 2.3 above) but is included in the expansion of Labour Inspectorate powers RIS (published as soon as possible).

The objective is to ensure that the Labour Inspectorate can obtain sufficient information to enable a robust, defensible decision as to whether an employee is covered by an FPA or not in the majority of cases with only the most complex cases needing to be referred to the Employment Relations Authority (Authority) for investigation. This will enable more timely and cost-effective decisions on coverage for both employees and employers.

Expanding the Labour Inspectorate’s powers has privacy implications, which have been considered and discussed with the Office of the Privacy Commissioner (refer section 3.5 for the powers).

2.4. Has further impact analysis become available for any aspects of the policy to be given effect by this Bill?

NO

2.5. For the policy to be given effect by this Bill, is there analysis available on:

(a)   the size of the potential costs and benefits?

YES

(b)   the potential for any group of persons to suffer a substantial unavoidable loss of income or wealth?

YES

The RIS[1] estimated that the monetised benefits of higher wages covered by FPAs could be around ~$150–600m (ongoing annual benefit) for workers.[2] This figure is based on one set of eight FPAs being concluded in low wage occupations, and would increase over time cumulatively as more FPAs are concluded.

Employers would likely face higher costs as a result of increased worker terms and conditions, although the extent will vary depending on the terms and conditions they previously offered employees. There may also be flow-on costs from claims for improved terms and conditions from employees not covered by an FPA, and non-wage costs from reduced flexibility, potentially impacting innovation, productivity and competition.

There may also be costs to some employees if employers reduce hours of work, reduce the size of their workforce or do not hire as many workers in order to remain competitive. These risks depend on the ability of employers to absorb higher labour costs, which may vary across firms, and the price elasticity of demand.

Please refer to Appendix One for further information on section 2.5.

2.6. For the policy to be given effect by this Bill, are the potential costs or benefits likely to be impacted by:

(a)   the level of effective compliance or non-compliance with applicable obligations or standards?

YES

(b)   the nature and level of regulator effort put into encouraging or securing compliance?

YES

a)    The main impact is likely to be reduced remunerative benefits to covered employees from employers’ non-compliance with the relevant obligations. This has not been quantified in the RIS (link above, 8 July 21) and depends on the level of effective compliance. Expected employee benefits from improved employment terms and conditions are also likely to be reduced if obligations are not met. This is due to the impact that the level of compliance is likely to have on employees’ bargaining power during bargaining, e.g. if obligations, such as allowing employees to attend a meeting, are not complied with during bargaining.

b)    The main enforcement approach is employees enforcing their own rights through the dispute resolution system. The Labour Inspectorate as regulator has a supplementary enforcement role for minimum entitlement provisions only. Additional costs, such as MBIE’s education and guidance activity, may be incurred by the regulator to raise compliance but these costs are likely to be offset by increased benefits (mainly to employees) from enforcement activity. This means that the potential costs and benefits are likely to be partially impacted by the level of regulator effort. A key mitigation to significant additional costs is that the Labour Inspectorate has good regulatory and compliance systems already in place to manage reported non-compliance and, as regulator for the employment regulatory system, has wide ranging experience in addressing these matters. Also, MBIE's Employment Services will provide education and guidance activities to inform employers and employees of their rights and obligations under FPAs and support compliance activities.

3.1. What steps have been taken to determine whether the policy to be given effect by this Bill is consistent with New Zealand’s international obligations?

At various points of the policy development process, consultation took place with the MBIE’s Employment’s International Labour Policy Team, the Ministry of Foreign Affairs and Trade, and the International Labour Organization’s International Labour Standards Department on implications of the proposed FPA system models for specific international obligations. The Ministry of Justice was consulted on the policy relating to the Bill’s compliance with international obligations as part of the Ministry’s Bill of Rights Act vetting.

Inconsistencies with or limitations on international human rights obligations identified were covered in the Cabinet paper seeking approval to draft the Bill. These were minimised in the design of the FPA system to the extent possible while still achieving the policy objective.[3]

Cabinet decided (CAB-18-MIN-0100 refers) that industrial action would be prohibited within the FPA system. This aspect of any FPA legislation will engage the right to strike and is likely to be seen by the ILO as inconsistent with ILO Convention 87. However, while industrial action is an important corollary of collective bargaining, the objectives of the FPA system may not be achieved if parties are allowed to take industrial action at the occupation or industry level during bargaining. Instead of resorting to industrial action to resolve an impasse in bargaining, parties will be more easily able to access dispute resolution services compared to bargaining under the Employment Relations Act,[4] including recommendations from the Authority and the fixing of terms. The prohibition on industrial action as part of FPA bargaining does not prevent all industrial action in New Zealand in that parties will still be able to take industrial action during collective bargaining under the Employment Relations Act.

Feedback from submitters during the public consultation is included in Appendix Two.

3.2. What steps have been taken to determine whether the policy to be given effect by this Bill is consistent with the principles of the Treaty of Waitangi?

As FPA bargaining will be enabled by legislation, and the resulting agreements enacted by secondary legislation, the Crown is obligated to design the FPA system in a way that facilitates effective representation and participation of Māori during bargaining. The Bill supports the Crown’s Te Tiriti o Waitangi obligations by requiring bargaining parties to use their best endeavours to ensure Māori are effectively represented and to consider Māori views and interests.

MBIE will continue to engage with Te Puni Kōkiri to ensure that implementation of the Bill is consistent with the principles of the Treaty of Waitangi.

3.3. Has advice been provided to the Attorney-General on whether any provisions of this Bill appear to limit any of the rights and freedoms affirmed in the New Zealand Bill of Rights Act 1990?

YES

The Ministry of Justice assessed the FPA Bill and has concluded that it is consistent with the Bill of Rights Act 1990. Its advice has been provided to the Attorney-General, which is expected to be available on the Ministry of Justice’s website upon introduction of the Bill: http://www.justice.govt.nz/policy/constitutional-law-and-human-rights/human-rights/bill-of-rights

3.4. Does this Bill create, amend, or remove:

(a)   offences or penalties (including infringement offences or penalties and civil pecuniary penalty regimes)?

YES

(b)   the jurisdiction of a court or tribunal (including rights to judicial review or rights of appeal)?

YES

(a)   The Bill creates two levels of penalties for failing to comply with an obligation: when

bargaining (up to $20,000 for an individual, and up to $40,000 for any other person); and

when a FPA is in force (up to $10,000 for an individual, and up to $20,000 for any other person). The rationale for the penalty for ‘other person’ (e.g. company) being double the ‘individual’ amount is to maintain consistency with the existing penalty framework in the Employment Relations system. This is because many of the actions in the FPA system are the same or similar across the Employment Relations system.

Clauses that apply when bargaining, and when a FPA is in force, are in Appendix Two.

(b)   The Bill includes clauses relating to the jurisdiction of a court or tribunal. The jurisdiction

of the Authority will be expanded to include FPA-related matters. It’s exclusive jurisdiction is to make determinations about all matters arising under the FPA Act.

When the Authority makes decisions under the FPA Act, appeal and judicial review rights will be consistent with those available under the Employment Relations Act where: the Authority has fixed the terms of an FPA, appeal rights are limited to appeals on a question of law; and

a party must exhaust any appeal rights before seeking judicial review; and judicial review is limited to situations where the Authority lacked jurisdiction.

The Employment Court has exclusive jurisdiction to determine challenges to the Authority’s determination, actions for the recovery of penalties, and applications for review.

3.4.1. Was the Ministry of Justice consulted about these provisions?

YES

The Ministry of Justice was consulted on the penalty clauses in the FPA Bill and was comfortable with the approach taken.

3.5. Does this Bill create, amend or remove any provisions relating to the collection, storage, access to, correction of, use or disclosure of personal information?

YES

The FPA Bill creates key clauses that relate to how personal information is dealt with:[5]

Employer to provide employee information: An employer who is advised that the chief executive has approved initiating bargaining for a proposed FPA must provide contact details about each of the employer’s covered employees to the initiating union and any other employee bargaining party for the proposed FPA. If coverage changes, an employer must also provide contact details of each newly covered employee except an employee who elects not to have their contact details provided. An employee can elect not to have their details provided.

Use of employee information: An initiating union or employee bargaining party that receives contact details about employees must only use those contact details for an FPA-related purpose. This is an important safeguard, consistent with the Privacy Act principles.

Storage and retention of information: A union that receives information about employees must ensure that the information is stored separately from any other information held by

the union. Access to the information is limited to union employees for a purpose in the Act, to communicate with the employee about bargaining, or for the union to access the workplace to discuss a proposed FPA. A union must not keep the information for longer than is required.

Please refer to Appendix Two for a list of other clauses that also engage privacy rights.

3.5.1. Was the Privacy Commissioner consulted about these provisions?

YES

The Office of the Privacy Commissioner (OPC) provided the following feedback:

“The Fair Pay Agreement Bill is complex and involves significant flows of personal information between different interested parties, governed by prescriptive legislative provisions. To protect the privacy of employees and build trust in the system, many of whom may be in vulnerable employment situations, it is important to pursue a data minimisation approach to the design of the Fair Pay Agreement system, and ensure employees are made aware of how their personal information will be used and disclosed.

The Privacy Commissioner considers there are important design questions that need to be addressed with regard to: (a) the level of personal information needed at the initiation stage of bargaining for a proposed FPA; (b) ensuring the provisions related to use, storage and retention of personal information are applied consistently through the process of a FPA; and (c) notifying employees why their personal information is needed, how can they opt-out, implications of opting out and the process of opting back in at the initiation stage as well as before the ratification stage.

We have suggested a range of drafting amendments to help clarify and enhance privacy safeguards in the Bill, so as to ensure employee personal information is protected. The Privacy Commissioner welcomes the opportunity to work with Officials on the Bill.”

MBIE’s response to the feedback is set out in Appendix Two.

3.6. Has there been any external consultation on the policy to be given effect by this Bill, or on a draft of this Bill?

YES

In September 2019, Cabinet agreed to consult on a proposed FPA model broadly consistent with the FPAWG’s model, and to release the discussion paper, ‘Designing a Fair Pay Agreements System’ [DEV-19-MIN-0266]. Public consultation occurred from 17 October to 27 November 2019. The discussion document informed the public about the FPA system and the submission process. Overall, 648 submissions were received on the design of a FPA system and that feedback from the consultation has informed particular design features.

A large number of submitters expressed views in support or opposition to an FPA system in general. Workers and unions generally supported FPAs and supported design features that made FPAs more accessible, while employers generally opposed FPAs and supported design features that limited FPAs.

Initial summary of submissions: https://www.mbie.govt.nz/business-and-employment/employment-and-skills/employment-legislation-reviews/fair-pay-agreements/

Final summary of submissions on the Fair Pay Agreements discussion document (mbie.govt.nz)

Supplementary summary of submissions on the Fair Pay Agreements discussion paper – overall merits of the system (mbie.govt.nz)

3.7. Have the policy details to be given effect by this Bill been otherwise tested or assessed in any way to ensure the Bill’s provisions are workable and complete?

NO

4.1. Does this Bill contain any provisions that could result in the compulsory acquisition of private property?

NO

4.2. Does this Bill create or amend a power to impose a fee, levy or charge in the nature of a tax?

NO

4.3. Does this Bill affect rights, freedoms, or impose obligations, retrospectively?

NO

4.4. Does this Bill:

(a)   create or amend a strict or absolute liability offence?

YES

(b)   reverse or modify the usual burden of proof for an offence or a civil pecuniary penalty proceeding?

YES

a)    The Bill creates some strict liability offences, for example, a party that does not comply with any provision of a fair pay agreement (clause 161(3) and (4)), an employer who fails to provide its employees’ contact details (clause 39(4)), an employer who fails to allow a covered employee to attend the minimum paid fair pay agreement meetings they are entitled to attend (clauses 82(6), 83(5), and 84(3)). The rationale for these strict liability clauses is to maintain consistency across the employment relations system. Higher penalty amounts are applied where the behaviour can negatively affect FPA bargaining and employees’ ability to participate in the FPA process.

b)    Clause 21(3) imposes a penalty where an employer misclassifies an employment relationship as a contractor relationship to avoid FPA coverage. Cabinet has agreed that the onus of proof be reversed for this offence, and that to avoid being penalised, an employer would need to prove that they took the action for reasons other than to avoid FPA coverage [Rec 71 CAB-21-MIN-0126]. The onus of proof is to be consistent with any other civil standard, whereby the decision maker needs to be satisfied on the balance of probabilities.

The justification for this reversal of proof is that it would be very difficult for an employee to prove what the employer’s intention was. Where there has been a successful case establishing misclassification relating to an individual, the Labour Inspectorate can issue an improvement notice in relation to other similar employees in that employer’s workplace.

4.5. Does this Bill create or amend a civil or criminal immunity for any person?

NO

4.6. Does this Bill create or amend a decision-making power to make a determination about a person’s rights, obligations, or interests protected or recognised by law, and that could have a significant impact on those rights, obligations, or interests?

YES

The Bill creates significant decision-making powers to the Authority, including, for example, the ability to fix the terms of a FPA (especially minimum entitlement provisions), and determining whether a person is in or out of coverage. Such coverage determinations are particularly significant because they directly affect employees’ and employers’ rights, obligations and entitlements. A Labour Inspector may also determine whether an employee is covered by a FPA.

Safeguards are included in the Bill to ensure that there are checks and balances in place when exercising these decision-making powers. For example, the Authority must comply with the principles of natural justice and must consider specified matters when fixing the terms of a proposed FPA. A person who is dissatisfied with a coverage determination made by a Labour Inspector has a right of appeal to the Authority against the determination.

4.7. Does this Bill create or amend a power to make delegated legislation that could amend an Act, define the meaning of a term in an Act, or grant an exemption from an Act or delegated legislation?

YES

One of the terms of a FPA may be a time-limited exemption from the application of a FPA (i.e. a delayed commencement) for named employers for specified terms for a specified period. The power created in the Bill to grant an exemption provides flexibility to avoid undue negative impacts (such as an employer going out of business) by giving employers who need more time before they must comply with the terms of the FPA. 

The Bill also creates regulation-making powers that, for example, define the meaning of terms that are used in the public interest test (e.g. systematic exploitation of migrant workers), specify who the employee default bargaining party is, and set out the requirements of the terms of the FPA.

The Bill also enables FPAs (secondary legislation) to set new minimum entitlement provisions that will override minimum entitlements (such as minimum wage rates, leave and entitlements) that are set out in the Minimum Wage Act and Holidays Act.

4.8. Does this Bill create or amend any other powers to make delegated legislation?

YES

FPAs will be brought into force by the Chief Executive of MBIE making secondary legislation, empowered by the primary legislation. The Chief Executive will not have any discretion about whether to bring a FPA into force, but will need to be satisfied that procedural steps in the process had been followed, e.g. the FPA had been vetted and then ratified or fixed by the Authority.

The Chief Executive may also vary the terms of a fair pay agreement (if the variation has been agreed by both sides and ratified) by issuing a fair pay agreement variation notice.

These empowering provisions, including regulation-making powers, are necessary to ensure that people understand what is meant by the requirements in the FPA Act and have more detail to comply with the obligations.

The Bill creates the following regulation-making powers to:

(a)   provide for anything this Act says may or must be provided for by regulations;

(b)   specify who the employee default bargaining and the employer default bargaining parties are;   

(c)   specify further detail around the public interest test criteria;

(d)   specify further details around evidence that may be provided by the union in an application to show the public interest test has been met;

(e)   prescribe other information to be included in union’s application to initiate bargaining;

(f)    prescribe other information to be included in eligible employer association’s application to form or join employer bargaining side;

(g)   specify other information in union’s application to join the employee bargaining side;

(h)   specify other information in application to cease being a bargaining party;

(i)    specify the form required, and details of mandatory content in a FPA;

(j)    specify the form required, and details of leave entitlements;

(k)   prescribe minimum entitlement provisions as either a specified amount or method of calculation;

(l)    specify a term in a FPA that applies to employees in different districts;

(m)  prescribe the form for the chief executive issuing a fair pay agreement notice;

(n)   prescribe the form for notice to amend a FPA;

(o)   prescribe the form for setting out terms in the chief executive’s notice to vary FPA;

(p)   specify other information in application to commence bargaining for proposed renewal or replacement FPA;

(q)   prescribe the format for Authority’s determination to fix terms of a FPA;

(r)    prescribe the manner for electing to challenge the Authority’s determination.

4.9. Does this Bill contain any provisions (other than those noted above) that are unusual or call for special comment?

NO

Government’s proposed model (assumes eight FPAs per year)

Employees within coverage

Cost of bargaining/ consultation

~$1–2m

Cost of displacement

Low

Regulated employers

Costs of bargaining/ consultation

~$1–2m

Increased labour costs, leading to a reduction in profit or increase in prices of goods or services[6]

~$150–600m

This figure reflects one set of 8 FPAs. The ongoing costs would be cumulative.

Non-wage costs

Medium–high

Regulators and costs faced by government

Costs to government

~$10–12.5m per annum operating

~$1–2m in capital funding (one-off)

Total monetised costs

Est $163–618.5m per year

Total unmonetised costs

Medium to high

Government’s proposed model (assuming eight FPAs per year)

Employees covered by FPAs

Increase in annual remuneration

Est $150–600m ongoing annual benefit.

Note: this figure is for one set of eight FPAs so this would increase cumulatively over time.

Increase in wellbeing from improved terms and conditions

Low to high

Regulated employers

More engaged and productive workforce

Low

Total monetised benefits

Est $150–600m per year

Total unmonetised

benefits

Low to high