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Overview of Fair Pay Agreements

Learn about how the Fair Pay Agreement system works, the roles in the system and what it means when an agreement is in place.


Please note that this information is for general information purposes and doesn’t cover every aspect of the Fair Pay Agreements Act. For more detailed information on working through the Fair Pay Agreement system, refer to:

Information for bargaining parties

The Fair Pay Agreements System: A Guide for Participants [PDF 2.1MB]


The Fair Pay Agreements system – an overview

The Fair Pay Agreements system brings together unions and employer associations to bargain for employment terms for all covered employees in an industry or occupation. This means that these organisations will meet to discuss and agree on a set of employment terms for the work being done within an industry or occupation.

Representation

Bargaining is between an employee side and an employer side

Fair Pay Agreement bargaining is between an employee bargaining side and an employer bargaining side. Eligible unions that are approved to be an employee bargaining party bargain on the employee bargaining side for employees. The employee bargaining side must bargain for all employees, including those that are not members of any of the unions involved. If you are covered by the proposed Fair Pay Agreement, the employee bargaining side must bargain on your behalf.

Eligible employer associations approved to be an employer bargaining party bargain on the employer bargaining side. These organisations must also bargain on behalf of employers that are not their members.

Representation of Māori

Bargaining sides must use their best efforts to make sure Māori employees or employers are represented in the process. This includes by:

  • getting and considering feedback from representatives of Māori employees or employers
  • considering whether the bargaining side should include a person that represents the interests of Māori employees or employers.

Parties must act in good faith towards each other

There is a duty of good faith that exists between specific parties involved in the Fair Pay Agreements system. This means that those parties must create and maintain positive and productive relationships. Those parties also need to do other things, such as communicate and respond to each other. They must also not do anything to mislead or deceive each other, either directly or indirectly.

Terms the Fair Pay Agreement must cover

A Fair Pay Agreement must cover certain terms including what work is covered by the Fair Pay Agreement, standard hours, minimum pay rates (including overtime rates and penalty rates), training and development, how much leave an employee can have and how long the Fair Pay Agreement applies for.

The process to get a Fair Pay Agreement

The general process to get a Fair Pay Agreement involves several steps, which are described below.

  1. Initiation – the start of the process
  2. Bargaining sides form
  3. Bargaining process
  4. When an agreement is reached

However, in certain situations the process will be different.

The general process is also shown in diagram form:

Fair Pay Agreement system diagram [PDF 249KB] 

1. Initiation – the start of the process

Initiation begins with a union collecting evidence to show it meets one of the initiation tests required and applying to the Ministry of Business, Innovation and Employment (MBIE) for approval to begin bargaining.

For a new Fair Pay Agreement, the initiating party would be an eligible union. This union is referred to as the initiating union. For a renewal or replacement Fair Pay Agreement, it could be an eligible union or eligible employer association.

To get approval, the initiating union must specify if they are applying to initiate bargaining for an industry-based agreement, or an occupation-based agreement.

Coverage must be detailed clearly so that employees and employers can determine whether they are within coverage. Coverage means the work or type of work that the proposed or finalised agreement applies to.

A covered employee for a proposed agreement means someone who performs work that is within coverage of the proposed agreement. A covered employer is someone who employs at least one covered employee.

For an occupation-based agreement, an initiating union must provide the relevant Australian and New Zealand Standard Classification of Occupations code (ANZSCO). For an industry-based agreement the relevant Australian and New Zealand Standard Industry Classification (ANZSIC) code must also be provided.

The initiating union must also specify which initiation test they rely on:

  • the representation test where either at least 10% or 1,000 employees who would be covered by the proposed Fair Pay Agreement, support the application to initiate bargaining, or
  • the public interest test showing that employees covered by the proposed Fair Pay Agreement receive low pay for their work and:
    • have little bargaining power at work or
    • have a lack of pay progression at work or
    • are not paid well enough when factors like working long hours, night shift, weekends or employment uncertainty (like short-term or seasonal work) are considered.

They must also provide evidence to support the test and evidence that they are an eligible union.

Application to initiate bargaining for a proposed Fair Pay Agreement [PDF 379KB]

An eligible union, for the purposes of bargaining for a proposed agreement, a proposed variation, or a Fair Pay Agreement, is a union that has:

  • at least one member who is a covered employee (an employee who performs work that is within the coverage of the proposed Fair Pay Agreement) and
  • a constitution that enables the union to represent the collective interests of covered employees, whether the employees are union members or not. 

Constitution means: 

  • the rules of the union as registered under the Incorporated Societies Act 1908, or 
  • the union’s constitution as registered under the Incorporated Societies Act 2022. 

For more information about initiating bargaining, refer to:

Initiating bargaining for a Fair Pay Agreement

There may be a public submission process

If the initiating union’s application is based on the 10% representation test or the public interest test MBIE may invite public submissions before deciding whether to approve the initiation application.

You can find out if any public submissions are open by checking the Fair Pay Agreements Dashboard on the MBIE website.

Fair Pay Agreements dashboard – MBIE (external link)

Submissions are open to anyone but limited to whether the application to initiate bargaining meets the 10% representation test or the public interest test – whichever the union used in their application.

The submissions period will be at least 20 working days long, but not longer than 30 working days.

The representation test is met when MBIE is satisfied that: 

  1. at least 1,000 employees who would be covered by the proposed Fair Pay Agreement support the application to initiate bargaining, or  
  2. at least 10% of all employees who would be covered by the proposed Fair Pay Agreement support the application to initiate bargaining.  

The public interest test is met when MBIE is satisfied that a portion of employees who would be within the coverage of the proposed Fair Pay Agreement:

  1. receive low pay for their work and 
  2. meet one or more of the following criteria: 
  • have little bargaining power in their employment, or
  • have a lack of pay progression in their employment (for example, pay rates only increase to comply with minimum wage requirements), or
  • are not adequately paid, when considering factors such as:  
    • working long or unsocial hours (for example, working weekends, night shifts, or split shifts)
    • contractual uncertainty, including performing short-term seasonal work or working on an intermittent or irregular basis. 

2. Bargaining sides form

An employer association can apply to be a bargaining party

If MBIE approves a union’s application to initiate bargaining for a proposed Fair Pay Agreement, an eligible employer association can then apply to become an employer bargaining party. Applications must be made in writing and on the form issued by MBIE.

Employer associations need to provide evidence that they are an eligible employer association.

Application to become a bargaining party for a proposed Fair Pay Agreement [PDF 421KB]

An employer association is defined as an association of employers that:

  • is an incorporated society registered under the Incorporated Societies Act 1908 or the Incorporated Societies Act 2022 and
  • is independent from, and is constituted and operates at arm’s length from, any union or worker organisation.

An eligible employer association has:

  • at least one member that is an employer covered by the proposed Fair Pay Agreement
  • a constitution that enables the employer association to represent the collective interests of covered employers for the purposes of bargaining for a proposed agreement, a proposed variation, or a Fair Pay Agreement (even if they aren’t a member of the employer association) and
  • a constitution that is democratic, not unreasonable, not unfairly discriminatory, not unfairly prejudicial and not contrary to law.

Constitution for employer associations means:

  • the association’s rules as registered under the Incorporated Societies Act 1908 or
  • the association’s constitution as registered under the Incorporated Societies Act 2022.

Other eligible unions can also apply to be a bargaining party

Any eligible union that meets the requirements can also apply to be approved as an employee bargaining party. All employee bargaining parties form the employee bargaining side.

Applying to be a bargaining party

To be approved as a bargaining party each organisation needs to apply to MBIE on the form issued by MBIE. They will be required to provide evidence that shows they are eligible to be a bargaining party.

An application can be made at any time between the date of initiation and while bargaining is occurring.

For more information, refer to:

Default bargaining parties and if no party comes forward to bargain on one side

The Fair Pay Agreement system relies on employee and employer bargaining sides to bargain with each other. If there is no willing or suitable bargaining party on one side, bargaining may be held up.

If, after three months of getting approval to start bargaining, no eligible representative has stepped forward to be a bargaining party on the employer side, then the employer default bargaining party BusinessNZ will have one further month to decide whether they will bargain on the employer side.

If BusinessNZ chooses not to be an employer bargaining party, MBIE will let the employee bargaining side know and any employee bargaining party has three months to apply for the Employment Relations Authority (the Authority) to set the terms of the Fair Pay Agreement. If this happens, the Authority will set terms without any bargaining. If no employee bargaining party applies to the Authority during this three-month period, the process to develop the proposed Fair Pay Agreement stops.

A default bargaining party (either on the employer or employee side) can also step in if during bargaining all bargaining parties (other than a specified employer bargaining party) on that side cease to be a bargaining party.

3. Bargaining process

Once the bargaining sides have been established, each bargaining side agrees an interparty side agreement, which sets out how each side will make decisions throughout the process. They will also appoint a bargaining side lead advocate who is the primary spokesperson for that side.

Together, the employee bargaining side and the employer bargaining side must use best efforts to agree to a Bargaining Process Agreement. This agreement sets out how they will bargain effectively and efficiently. They must also meet from time to time for the purpose of bargaining, consider and respond to proposals made by the other side, and provide information requested by the other side during bargaining to verify claims or responses to claims made during bargaining.

When bargaining sides can’t reach an agreement

If the bargaining sides can’t reach an agreement after using their best efforts, they can ask for help from bargaining support services or apply for mediation through Employment Mediation Services online.

Support during bargaining

If bargaining sides still can’t reach an agreement, or if certain breaches of good faith relating to bargaining occur, or if the ratification vote has failed twice, a bargaining side can apply to the Authority to make a decision on the Fair Pay Agreement terms. Decisions by the Authority are called a determination and are legally binding.  

4. When an agreement is reached

Once bargaining is complete and the bargaining sides have agreed the terms of the proposed Fair Pay Agreement, the Fair Pay Agreement must be:

  • assessed and approved by the Authority. The proposed Fair Pay Agreement must be jointly submitted to the Authority by both bargaining sides so that the Authority can assess whether the proposed Fair Pay Agreement complies with the law. The Authority will also assess whether there is a coverage overlap with an existing Fair Pay Agreement (and if so, determine which agreement provides better terms overall)
  • voted on by eligible covered employees and employers (this is called ratification)
  • assessed so that the process for the vote and the results can be verified by MBIE
  • made into law.

When a Fair Pay Agreement is in place

Once a Fair Pay Agreement is passed into law, the employment terms of the Fair Pay Agreement apply to any employee where 25% or more of their work is covered by the agreement. In addition, if an employee is covered by more than one Fair Pay Agreement, the agreement that covers the greater percentage of their work applies. This is so that only one Fair Pay Agreement will apply to a particular employee.

How Fair Pay Agreements work with other employment agreements

Fair Pay Agreements set minimum employment terms for covered employees. If an employment term in an Individual Employment Agreement or Collective Employment Agreement is better than the term in a Fair Pay Agreement, then that term will apply. If the Fair Pay Agreement term is better, the Fair Pay Agreement term will apply.

Further information

Up to date information about Fair Pay Agreements that have been applied for, approved or in force:

More information for bargaining parties can be found at:

Information about the duties and rights for both employers and employees during the bargaining process:

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Page last revised: 20 December 2022

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