A slew of Fair Pay Agreement (FPA)-related briefings were released last week, available at MBIE's document library. If you want to understand the complexity of the system, I recommend taking a look. There's a hell of a lot of good analysis in there.
The most important document released, the Regulatory Impact Statement (RIS), has already been covered in the media so I'm not going to rehash what has already been said. The gist, as Stuff reports, is that 'officials recommended scrapping Labour's Fair Pay Agreement plan and strengthening existing law' and the RIS highlights the significant risks and challenges with the system. Most importantly (and most damning) the RIS warns that the costs of the FPA system may outweigh the benefits. Turns out that free and frank advice isn't dead after all. You love to see it.
The briefings that were released had some fascinating bits too. The two pieces of advice that I found most interesting are:
1) MBIE recommended a more targeted application of FPAs and pointed out the risks of not doing so; and
2) if Business NZ hadn't agreed to be the default bargaining representative for employers then the next best option entailed significant risks to the FPA system.
MBIE recommended a more targeted application of FPAs
Remember when FPAs were sold to us as helping the poorest and most vulnerable workers in the labour market: the cleaners, security guards and supermarket workers? Unfortunately, the proposed initiation tests in the Cabinet paper for FPAs do not guarantee that these workers will be prioritised.
The threshold for what sectors/occupations get to initiate bargaining for an FPA are decided by initiation tests. Under the proposed system, the initiation test involves satisfying one of the following tests:
1. A representation test, that would require at least 10% of the covered workforce or 1,000 employees in coverage to support initiation (whichever is lower), or
2. A public interest test, that would require evidencing that an industry or occupation faces certain labour market issues, such that an FPA would be in the public interest.
These thresholds seem extremely low: requiring only limited support from workers even when there is no evidence of labour market issues, and not requiring a mandate from workers if labour market issues are identified.
But, it turns out that things didn't have to be this way. MBIE recommended having a narrower scope for FPAs and provided advice on the risks associated with the approach ultimately taken in the Cabinet paper. The previous Minister (partially) agreed to this. Here's MBIE's advice:
The briefing goes on to explain the risks of the Cabinet paper's approach of having a rather low and untargeted initiation test. First, it would make it more difficult to ensure priority for workers in sectors where there is a ‘race to the bottom’. This is pretty important if the point of the system is meant to be aimed at vulnerable and low paid workers. In fact, MBIE points out that it is the most coordinated, unionised sectors (say, in the public sector) are better placed to initiate an FPA, and could crowd out less resourced and organised sectors who are more in need.
The lower initiation tests will also substantially increase the fiscal costs of the system. This is important given the RIS has already warned that there is a possibility that the FPA system may not produce net benefits.
Finally, the untargeted approach makes it harder to justify the fact FPAs negatively affect human rights and international obligations. This is a biggie. The RIS covers this issues too:
Under MBIE's preferred approach, if FPAs were only able to be initiated in sectors where both tests were met, then maybe there'd be some justification for affecting human rights and international obligations. At least under MBIE's approach there'd be a stronger mandate from workers. I'm keen to see what advice comes out in the public submissions process on this point.
This is a fun thing to consider: what if employers simply refused to participate in FPA bargaining? It's not really a crazy possibility, given how many employers have said they do not support the system. That's why securing BusinessNZ's agreement to be the default bargaining representative for employers if no one else steps up is so important (and yes, at the time of writing they have agreed). But I have wondered what would have happened if BusinessNZ had refused to participate in the FPA system.
MBIE's briefing sheds some light on this. Here's the advice (excuse my bad snip and paste):
The 'next best' option also comes down to how great an incentive it is to have a bargained outcome rather than a determined one. Remember, collective bargaining can be a messy and costly process. And there is still a risk of going to determination anyway if parties cannot agree. In fact, the RIS points out that:
"Although the outcome is difficult to predict we anticipate in many cases the system is likely to result in bargaining stalemates and determinations fixing terms by the Employment Relations Authority, so the added benefit of bargaining may be limited."
So... going straight to determination may actually save both bargaining parties a lot of time and resources if they're likely to end up in a stalemate and determination further down the line. If this becomes an expectation, then there doesn't seem to be much incentive to participate in bargaining.
Anyway, all of this is interesting because BusinessNZ have called for FPAs to be scrapped. So while the 'next best' option is currently moot, I'm filing it away in my memory palace just in case.
To conclude, I must end with an apology: I am sorry if you got to the end of this and discovered there was nothing fun about the FPA briefings at all. For future reference, I'm the kind of person who gets a thrill out of organising my sock drawer. But even if you find FPAs hopelessly boring and complex (they are definitely the latter), the implications for freedom and the way we negotiate employment agreements in New Zealand are massive. And all this, without requiring any evidence of a real labour market problem. Boy am I looking forward to reading the submissions on this thing.