The following is the summary from the Government’s Fair Pay Agreement Working Group’s report released by Workplace Relations and Safety Minister Iain Lees-Galloway on Thursday. The Group is chaired by former Prime Minister Jim Bolger.
The full report is here, and Lees-Galloway’s statement here. He says the Government will take time to consider the recommendations.
New Zealanders work longer hours and produce less per hour than in most Organisation for Economic Co-operation and Development (OECD) countries. Our productivity growth over recent decades has been poor, and our economic growth has largely been driven by increased labour force participation, rather than by labour productivity.
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. Income inequality has been rising in many developed countries in recent decades and the OECD has warned that high inequality has a negative and statistically significant impact on economic growth.
We have both an inequality and a productivity challenge. Figure 1 shows growth in our labour productivity is lagging internationally.1
The Government’s vision is to use the employment relations framework to create a level playing field where good employers are not disadvantaged by paying reasonable, industry-standard wages. New Zealand must have a highly skilled and innovative economy that provides well-paid, decent jobs, and delivers broad-based gains from economic growth and productivity.
The Government asked the Fair Pay Agreement Working Group (the Group) to make independent recommendations on the scope and design of a system of sector or occupation wide bargaining to set minimum terms and conditions of employment and achieve these goals.
Many other countries, especially in Europe, use sector-wide collective agreements as part of their employment relations systems. The OECD recommends a model of combined sector and enterprise level collective bargaining, because it is associated with higher employment, lower unemployment, a better integration of vulnerable groups and less wage inequality than fully decentralised systems like ours. Some countries also link wage increases to skills and training pathways, with the aim of increasing productivity and sharing its benefits. Care needs to be taken in selecting the most appropriate pathway for a given country.
The Group considered that introducing a sector or occupational level bargaining system could be most useful in sectors or occupations where particular issues with competitive outcomes are identified, for example, where competition is based on ever-decreasing labour costs rather than on increasing quality or productivity. It could be useful more generally where workers and employers identify opportunity to improve outcomes across a sector or occupation. We also considered that this may not be a necessary or useful tool in some sectors or occupations.
We have therefore designed a system where workers can initiate sector- or occupation-wide collective bargaining, if they meet a representativeness threshold or a public interest test.
We all agreed that if a collective bargaining dialogue at sectoral or occupational level is introduced, it is most likely to gain real traction when:
• it is focussed on problems that are broadly based in the sector,
• it presents real opportunities for both employers and workers to gain from the process,
• parties are well represented, and
• it is connected to the fundamentals of the employment relationship: the exchange of labour and incentives to invest in workplace productivity-enhancing measures such as skills and technology.
We have designed this system with these principles in mind. Another fundamental design principle was to minimise cost and complexity for all parties, and this has led us to build on the existing mechanisms in the employment relations and standards system where possible.
Most of the Group agreed that to achieve the Government’s objectives, all employers in the sector or occupation should be covered by a Fair Pay Agreement (FPA).
Employer representatives participated actively and constructively in the process and can agree with many of the recommendations and design features of the proposed FPA system. However, they advised the Group they cannot support the compulsory nature of the system for employers as currently drafted.
The employer representatives’ preference would be a system which is based on voluntary participation for employers at the start, and for reasonable grounds for employers to opt out from the process or resulting agreement later on.
Apart from the matter of the compulsory nature of the system, on which there was not agreement, the Group agreed that if the Government decided to introduce this system, then this was the best way to design it.
Designing a Fair Pay Agreement System
The Group concluded that:
1. There is no international model for collective bargaining that can be applied to New Zealand, without being adapted to suit our social and economic context.
2. A FPA system cannot be designed from a blank sheet. Certain characteristics of our current state need to be considered pragmatically:
• the existence of statutory minimum standards,
• low levels of organisation among workers and employers, and
• low levels of take up of voluntary approaches to sector or occupational collective bargaining in New Zealand, particularly in the private sector and among small businesses.
3. This system is intended to complement, not replace, the existing employment relations and standards system. Where possible a FPA system should be designed to build on and adapt existing provisions to minimise cost and complexity.
4. New Zealand could benefit from stronger employer- worker dialogue.
5. FPAs could be most useful in sectors or occupations where particular issues with competitive outcomes are identified. For example, they could be useful where competition is based on ever-decreasing labour costs, rather than on increased quality or productivity.
6. They could also be useful more generally where workers and employers identify scope to improve outcomes across a sector or occupation. However, they may not be a necessary or useful tool in some sectors or occupations.
7. Apart from the matter of the compulsory nature of the system, on which there was not agreement, the Group agreed that if the Government decided to introduce this system, then this was the best way to design it.
8. FPAs are most likely to gain real traction where:
• they are focussed on problems which are broadly based in the sector,
• there are real opportunities for both employers and workers to gain from the process,
• parties are well represented, and
• agreements are connected to the fundamentals of the employment relationship: the exchange of labour and incentives to invest in workplace productivity-enhancing measures such as skills and technology.
9. Training and skills provisions should be a key feature of collective agreements.
10. The Government should seek advice on the compatibility of the proposed system with New Zealand’s international obligations.
Detailed design of a Fair Pay Agreement system
The Group agreed the following recommendations on how to design each of the key features of the FPA collective bargaining system.
11. A FPA bargaining process should be initiated by only workers and their union representatives.
12. There should be two circumstances where a FPA collective bargaining process may be initiated:
a. Representativeness trigger: in any sector or occupation, workers should be able to initiate a FPA bargaining process if they can meet a minimum threshold of 1000 or 10 per cent of workers in the nominated sector or occupation, whichever is lower.
b. Public interest trigger: where the representativeness threshold is not met, a FPA may still be initiated where there are harmful labour market conditions in the nominated sector or occupation.
13. The representativeness threshold should cover both union and non-union workers.
14. The conditions to be met under the public interest trigger should be set in legislation.
15. An independent body will be needed to determine whether the trigger conditions are met.
16. The Government will need to consider how to assess and mitigate potential negative effects, including to competition.
17. The occupation or sector to be covered by an agreement should be defined and negotiated by the parties.
18. It is important for agreements to cover all workers – not just employees – to avoid perverse incentives to define work outside of employment regulation.
19. All employers in the defined sector or occupation should, as a default, be covered by the agreement.
20. There may be a case for limited flexibility for exemptions from the agreement in some circumstances.
21. The legislation should set the minimum content that must be included in the agreement.
22. Parties should be able to bargain on additional terms to be included in the agreement.
23. Any enterprise-level collective agreement must equal or exceed the terms of the relevant FPA. Bargaining parties
24. Parties should nominate a representative organisation to bargain on their behalf.
25. There should be a role for the national representative bodies to coordinate bargaining representatives.
26. Parties should be encouraged to coordinate.
27. Representative bodies must represent non-members in good faith.
28. Workers should be allowed to attend paid meetings to elect and instruct their representatives.
29. Costs should not fall disproportionately on the groups directly involved in bargaining.
Bargaining process rules
30. Clear timelines will be needed to prevent lengthy processes creating excessive uncertainty or cost.
31. Notification of parties will be a critical element of the process.
32. Bargaining should be supported through facilitation.
Dispute resolution during bargaining
33. The Government has stated there will be no recourse to industrial action during bargaining.
34. After initiation, disputes over coverage may be determined by the Employment Relations Authority.
35. When disputes arise during bargaining, parties should go to mediation in the first instance.
36. Where a dispute cannot be resolved through mediation, parties should be able to apply to have the matter determined.
37. Parties should only be able to challenge the determination on limited procedural grounds, with rights of appeal.
38. Once in force, any dispute over the terms of a FPA should use the standard dispute resolution process.
Conclusion, variation and renewal
39. Where parties reach agreement, conclusion should require ratification by a simple majority of both employers and workers.
40. Where bargaining is referred to determination of the terms of the agreement, the final agreement should not need ratification.
41. The procedure for ratification must be set in law.
42. Registration of agreements should be required by law, and agreements should be publicly available.
43. Before an agreement expires, either party should be able to initiate a renewal of the agreement, or for variation of some or all terms.
44. The Employment Relations Act 2000 approach to enforcement should be applied. Support to make the bargaining process work well
45. Support to build capability and capacity of the parties and to facilitate the process will be needed.
46. Resourcing levels for support services will need to be considered.
1 OECD, “Productivity statistics: GDP per capita and productivity growth”, https://data.oecd.org/lprdty/gdp-per-hourworked.htm.