Bringing employment to a mutually beneficial end when issues arise in an employment relationship can be a minefield for employers. However, a proposed law change before Parliament aims to give employers the right to commence exit negotiations with employees they would prefer to part ways with. If implemented, this change will represent a dramatic shift in the employment law landscape moving forward.
Status quo
Generally speaking, an employer cannot safely approach an employee to explore whether they would be willing to resign from employment in exchange for a financial settlement. The only exception to this is when there is a dispute on foot between the parties and an express agreement to discuss the matter on a without prejudice (off-the-record) basis.
If an employer attempts to initiate an exit proposal without the necessary pre-conditions for a without prejudice discussion, the employee may be able to use this in support of a personal grievance claim. Common examples of this include claims that an employer’s attempt to initiate an exit discussion means that any subsequent termination process is pre-determined, or where the employee resigns following the employer’s (unsuccessful) attempt to broker an agreed exit and then claims that they were constructively dismissed.
What are the proposed changes?
The Employment Relations (Termination of Employment by Agreement) Amendment Bill proposes to allow employers to make exit offers to employees without the requirement for a dispute to be on foot first. Any such offer would need to include a proposal to pay a specified sum in full and final settlement of any claim arising from the employment relationship.
These negotiations would be known as ‘protected negotiations’. The ‘protection’ in question is a prohibition on the negotiations, including any offers made by either party, being relied upon as evidence in a potential claim against the employer. Significantly, these protections would apply without the usual pre-conditions for a without prejudice discussion needing to be present. The removal of the requirement for there to be a ‘dispute’ in order to have a without prejudice conversation represents a major change in employment relationships.
If the protected negotiations result in an agreement to terminate the employment relationship, it will only be enforceable if it is in writing, signed by each party, and states the relevant legislation which applies to such settlement agreements. The employer must also advise the employee to seek independent advice on the proposed agreement and give the employee reasonable opportunity to obtain this independent advice.
The draft Bill also contains an exception where negotiations will not be protected if the communication was for a dishonest purpose or to enable anyone to commit an offence.
What does this mean?
While the introduction of ‘protected negotiations’ would represent a dramatic change to the status quo in New Zealand, the concept is not unheard of overseas. For example, the United Kingdom has a similar provision that has been in place since 2013.
Should the Bill become law, this will enable employers to have full and frank discussions with employees without the need to work through protracted employment processes. We might therefore see a downturn in the number of restructures, performance improvement plans and disciplinary processes that are commenced. It may also become more common for employees to negotiate exit payments into their terms of employment at the outset of employment, to front foot any protected negotiations.
What remains unclear at this stage is where the duty of good faith fits in, particularly the obligation to be active and constructive in establishing and maintaining a productive employment relationship. There is inherent tension between this obligation and the ability to commence an exit discussion with an employee without the typical performance, redundancy or disciplinary processes.
We expect that the devil will be in the detail and that the legislation will be interpreted very narrowly by the Employment Court and Employment Relations Authority, similarly to the 90-day trial legislation. With 90-day trials, we have seen the Court and Authority adopt a strict approach where any minor failure to execute the 90-day trial will render it ineffective, and we expect they may take a similar approach when applying the Bill. If the carve out for dishonest purposes remains in the legislation, this will provide the Court and Authority with an opening to apply the legislation very strictly, which aligns with their focus on the imbalance in power between employers and employees.
Conclusion
If the Bill passes and is made into law, it will be good news to many employers who struggle with the difficult dance that currently exists when trying to exit an employee from employment. It represents a shift in the favour of employers in our generally very employee-focused jurisdiction, and will give employers another tool in their toolbox when dealing with difficult employees.
The Bill is currently at Select Committee stage so it remains to be seen whether any substantive changes are made as part of this process.
Special thanks to Partner Alastair Espie and Senior Associate Erin Drew for preparing this article.
For now, the status quo continues. If you need any guidance on without prejudice conversations, please reach out to our employment team.
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.
