Mike’s Blog: Perverse Outcomes from Fair Pay Agreements

Perverse Outcomes from Fair Pay Agreements. Will there be unintended consequences coming out of the Government’s and the Unions push for Fair Payment Agreements (FPA)?

There’s an old saying be careful what you wish for. In this blog I put the case for there being unintended consequences coming out of the Government’s and the Unions push for Fair Payment Agreements (FPA). I do not think these are the results or outcomes that the Government and Unions want. The Fair Payment Agreements Bill has now become law with significant amendments added to the version considered by Parliament’s Select Committee. Labour’s majority ensured it become law despite vigorous objections from the opposition parties. National, if elected Government next year, has stated it will repeal the Fair Payment Agreements Act.

The outcome wanted from this legislation seems to be a return to or a move to a much greater unionised workforce across all sectors. It is as close as it can get to compulsory unionism. Unions need only sign 1,000 or 10% of workers up to then be able to negotiate a collective agreement across a whole sector. There is also a public interest trigger that does not require any number of workers to be members of a union, which is essentially directed at poorly paid workers with little bargaining power working long hours on short term agreements. A particular focus for a public interest test approval is migrant workers where there is exploitation, systemic health and safety issues and a systemic failure to comply with minimum employment standards for employees with the focus being on employers employing less than 20 workers. Under the public interest test none of the workers need to be members of unions


This is the unions’ response to the dramatic fall in union membership. Data from Stats NZ shows more than 80% of workers aged between 15 and 34 are not in a union. With older workers the stats show between 5% and 10% more people are members of unions. In the proposed Act workers in a sector do not have to be members of a union for a union to bargain on their behalf.

Now to the unintended or, depending on your point of view, the intended consequences of FPAs which include:
  • A FPA can be negotiated for workers who are not members of a union and who may not want to be members of a union. How does the Union establish what these workers want? Surely this is not up to the Union to develop isolated from the wishes of the workers they are seeking to represent. So what is negotiated may not align with what the workers actually want or require.
  • Unions competing with each other to negotiate a FPA causing confusion for both workers and employers. This is because competition between unions at the negotiation stage is expressly permitted under the proposed Act. This could well end up in a bidding war between the unions for worker support with workers being pawns in a political chess game
  • Who can be covered by a FPA is drafted in such a way as to be wide reaching with FPAs designed to cover whole industries and occupations. Taking horticulture as an example: there is fruit, vegetables, berries and nuts grown. All of these crops have different conditions of employment, standards and operate in different regions. So instead of being able to have one horticulture agreement, the agreements may have to be crop by crop with regional and other differences accounted for. This may well lead to complication, multiple and different agreements and general confusion.
  • An industry wide FPA applies not only to workers with entry skills but to all workers in an industry, including highly paid roles. Presumably it is the union who will determine, which roles are covered, even if there is no support from the workers in those roles for an FPA.
  • Innovation and premium pay for performance could well be lost as adding too much complexity actually resulting in a reduction in workers conditions of employment and pay and further stifling the growth of the business.
  • Some employers may not be able to fund increases or find the FPAs too complex and so exit the industry reducing the overall number of workers employed.

The real question about the FPA Act is will it actually improve conditions of employment for workers. The complexity and change FPAs will institute may not achieve a tangible and workable outcome. Much will depend on the good will of all the parties involved and their ability to work through the issues rationally. All of this will take time and care. The bottom line is an appropriately rewarded and supported employee does the best for their employing business and that in turns contributes to our New Zealand economy. My hope is FPAs will not wind back employer and union relationships to an era of confrontation and fragmentation plus stagnation of the economy.