A significant shift in New Zealand employment law is now in force, requiring the attention of employers and high-income employees. However, it’s not a ‘free pass’ for employers.
Andrea Twaddle
The law change prevents high income earners; those earning $200,000 or more including bonuses, commissions and share-based remuneration; from raising a personal grievance for unjustified dismissal or unjustified disadvantage if it relates to their dismissal. The reform is part of wider employment law amendments the Government promoted as increasing labour market flexibility.
Any high-income earner commencing employment after 21 February this year is automatically captured. For existing employees, there is a 12-month transition period, to either negotiate changes to employment agreements; or agreement by employers to ‘opt out’ and preserve personal grievance rights relating to dismissals. If there is no agreement, the threshold will automatically apply to high income earners from 21 February 2027.
Employers should expect sophisticated and competitive negotiations, weighing their commercial interests with employees seeking job security, particularly in tight recruitment markets.
Under the new regime, the statutory requirement for an employer to follow a fair and reasonable process for dismissal no longer applies, nor does the obligation of good faith to provide relevant information or a reasonable opportunity to comment before making a decision.
However, employees retain the right to raise claims for breach of contract, discrimination, whistleblowing protections and other statutory breaches, creating the possibility of an increase in alternative claims being pursued.
Many employers are expected to be hesitant to opt out of the high-income threshold, although some already use ‘no fault’ termination clauses for senior executives. There may be potential benefit to employers such as:
- Consistency of treatment and values across all employees, reducing internal inequity and perception risk;
- Retention and attracting talent where enhanced contractual certainty is offered;
- Reduced complexity from multiple dispute resolution processes.
In practice, employers should:
- Consider whether to apply the new framework at all, organisation wide or selectively;
- Review / redraft documentation to remove contradictions and ambiguity;
- Consider what terms may be sought from high income earners in exchange for forfeiting their right to raise a dismissal grievance. For example: enhanced payments on termination, extended notice periods, alternative processes;
- Review who might be captured by the threshold, and potential structuring of remuneration packages including timing of bonus payments and leave cash outs, given the threshold is calculated on a rolling 364 day period prior to the dismissal;
- Seek expert independent employment law advice.
Employers should be communicating proactively with high income earners about the fact of the threshold, what it means, the ability to negotiate during the transition period, and providing an opportunity to seek independent advice.
While the law does not create a ‘fire at will’ environment, it fundamentally shifts risk from process towards competitive contract negotiation and commercial judgment. In regional markets such as the Waikato, negotiations are likely to be particularly nuanced.
