A key change under the Employment Relations Amendment Act 2026 is the new remuneration threshold, which prevents employees 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 threshold applies to any employee commencing employment after 21 February 2026 and who earns $200,000 or more. For existing employees, there is a 12-month transition period. The transition period creates a window for both parties: on the employee side, to negotiate changes to their employment agreements; and on the employer side, to agree to ‘opt out’ – preserving the employee’s ability to raise a personal grievance relating to their dismissal – or to agree other arrangements. If no changes are agreed within the transition period, the threshold will automatically apply to those employees who earn $200,000 or more from 21 February 2027.
With time running for this transition period, employers need to think strategically about their approach.
Whether to opt out?
We anticipate that many (if not most) employers will appreciate the greater flexibility and control over who they have in their high-earning roles, and will therefore be hesitant to opt out of the threshold. However, some may see merit in continuing to provide their high-earning employees with the ability to raise a personal grievance in the event of their dismissal. Whilst this may appear counterproductive, there are potential benefits, including:
- Promoting the employer’s values and consistency of treatment among employees;
- Supporting talent attraction and retention;
- Avoiding the potential complexity of having different dispute resolution processes, in favour of retaining the existing personal grievance regime.
Anticipating employee response
For employers who choose to apply the threshold, we anticipate that high earners will seek to negotiate alternative protections in lieu of the right to raise a personal grievance relating to termination. These could include:
- A contractual termination process in the employment agreement. This will mean if the process is not followed, the employee can pursue a claim for breach of contract;
- The right to challenge a dismissal for cause, requiring employers to follow a fair process when dismissing for misconduct or poor performance;
- A “no fault termination” clause that requires an enhanced payment on termination;
- A longer notice period that will apply if the employer proposes to terminate.
We predict that a wide range of different arrangements will emerge in employment agreements, as employers balance their commercial interests with employee demands for greater job security. This will especially be the case for high earning employees with strong bargaining power or in competitive recruitment markets. Any such arrangements will need careful drafting.
Approach to implementation
Employers will need to consider how to communicate about the threshold. In our view, the duty of good faith requires employers to inform employees who currently meet the threshold about the fact of the threshold, what it means for them, and to negotiate in good faith during the transition period.
Where employers are considering increases to remuneration that would result in employees meeting the threshold, we consider that the duty of good faith requires the employer to inform affected employees of the impact. This will ensure employees have a reasonable opportunity to negotiate changes to their employment agreement considering the remuneration increase.
Employers will then need to consider the changes that should be made to their employment agreements and policies, including termination and employment relationship problem clauses. A careful review will be needed to ensure there is no ambiguity over whether the employer has elected to opt out of the threshold or not.
Impact on claims
It is also important for employers to keep in mind that the threshold will not necessarily result in fewer claims.
To this end, it is interesting to consider the similar threshold that exists in Australia, which largely inspired the change in New Zealand. In Australia, applicants who exceed the remuneration threshold more commonly bring proceedings relating to general protections under their Fair Work Act, anti-discrimination, whistleblower protections, or breach of contract.
We predict the same trend will emerge in New Zealand – the threshold will not result in fewer claims, but instead different claims, including breach of contract, discrimination and whistleblowing.
Looking forward
The threshold provides employers with a new level of flexibility, but it also requires careful strategic planning. Over the next year, employers should be considering:
- whether to opt out of the threshold;
- if they are not going to opt out of the threshold, what alternative protections will they be willing to agree to with their affected employees;
- whether their approach to the threshold and/or any alternative protections will be applied business-wide (i.e. to all affected employees) or will be agreed on a case-by-case basis;
- what changes need to be made to employment agreements and polices; and
- communications about the change to their affected employees, taking into account good faith obligations.
For further advice on the impact of the remuneration threshold, please contact one of our employment team.
Special thanks to Partner Alastair Espie, Special Counsel Matt Harrop and Solicitor Nicole Meech for preparing this article.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
