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Pendulum shift in favour of employers – the employment law landscape for 2025
Heading into the new Government’s second year, a number of significant reforms are on the horizon which are likely to swing the employment law pendulum more in favour of employers. We’ve set out below a summary of the key changes to look out and prepare for.
Excluding unjustified dismissal claims for high income earners
The Government has confirmed plans to introduce a law change that will prevent an employee who has an annual income of more than $180,000 NZD from bringing an unjustified dismissal claim.
The income threshold will be determined by an employee’s ‘base salary’ and will exclude alternative forms of remuneration such as benefits or incentive payments. The threshold will not be adjusted for part-time employment.
Employees who earn over the proposed threshold will still have a contractual notice period and will continue to be able to raise other types of personal grievances, as well as other non-grievance claims. While the proposed law does allow for higher paid employees to opt back into the unjustified dismissal regime, this will require the agreement of their employer.
The Government’s intention is for this change to apply to all new employment agreements once it is passed into law. In the case of existing employees, there will be a 12 month grace period for employers and employees to renegotiate their agreements. If no changes are agreed, the new law will automatically apply to those employees who earn above the income threshold.
Practically speaking, this change will mean that employers will not necessarily need to go through lengthy termination processes (e.g. redundancy, disciplinary or performance management) for higher-paid employees unless the employment agreement states otherwise. This will mean a two tier employment law framework whereby lower paid employees will have access to the full suite of protections, including being able to raise claims for unjustified dismissal, while higher paid employees will be employed on an ‘at will’ basis.
Employers will need to keep this change in mind when offering employment to senior staff members or providing salary increases. Some employees may not want to take on a small salary increase if it means they lose their statutory protection from unfair dismissal. It is also likely that higher paid and executive employees will start actively negotiating for alternative protections which mitigate the impact of an abrupt dismissal, including longer notice periods, pre-agreed termination payments or bespoke dispute resolution mechanisms.
Employee remedies
The Government is proposing to make changes which would place more weight on an employee’s behaviour when considering appropriate remedies for a personal grievance. In particular, the Government intends to:
- remove all remedies for employees who are dismissed for serious misconduct;
- remove an employee’s eligibility for reinstatement and compensation for hurt and humiliation when their behaviour has contributed to the issue. Contributory conduct may include unproductive behaviour, continued poor performance, or more serious concerns such as violence or theft;
- allowing remedies to be reduced up to 100% for contributory conduct;
- requiring the Employment Relations Authority and the Employment Court to consider if the employee’s behaviour obstructed the employer’s ability to meet certain obligations; and
- raising the threshold for ‘procedural error’ (i.e. being less critical of procedural deficiencies) where the employer’s actions against the employee have been fair in all the circumstances.
In essence, the Government wants to limit financial payouts to employees who have contributed to their own downfall. While the Authority and Employment Court are already required to take contributory conduct into account when assessing remedies for personal grievance, most reductions for contribution are relatively modest. These changes therefore have the potential to significantly lessen the financial incentive for employees to pursue personal grievance (and in particular unjustified dismissal) claims to the Authority – particularly where they rely largely on procedural deficiencies or where the employee has acted in a blameworthy way.
Contractor arrangements vs employment relationships
Another far-reaching change that has been announced by the Government is the proposed introduction of a new test for determining whether a worker is a contractor or employee. This follows recent decisions in the Employment Court and Court of Appeal where four Uber drivers were found to be employees.
The proposed new ‘gateway’ test is as follows:
- There must be a written agreement with a worker, specifying that they are an independent contractor;
- The business cannot restrict the worker from working for another business (including competitors);
- The business cannot require the worker to be available to work on specific times of the day or days, or for a minimum number of hours; OR the worker can sub-contract the work; and
- The business does not terminate the contract if the worker does not accept an additional task or engagement.
If all four criteria are satisfied, a worker will be a contractor, and they cannot challenge their status. If a worker does not satisfy the gateway test, then their status will be assessed under the existing legal tests for determining employee/contractor status (i.e. the principles set out in the Uber case).
Pay deductions for partial strikes
The Government is also looking to reintroduce partial pay deductions where employees engage in partial strike action.
As the law currently stands, an employee who engages in a partial strike – for example, where they reduce their output and only perform some of their role – is entitled to full pay. This contrasts with full strikes where an employee completely ceases working and has no entitlement to pay. As a result, Unions and their members have often seen partial strikes as a more attractive bargaining tactic given there is often no financial downside to the employees who participate.
The ability to make pay reductions for partial strike action was something the last National-led Government introduced, before the subsequent Labour-led Government repealed it. It seems that this is very much a case of back to the future as the proposal largely mirrors the old law. Specifically, employers would be given the option of either:
- reducing an employee’s pay by a proportionate amount for any period of partial strike action, calculated in accordance with a specified method that is based on the work that the employee will not be performing due to the strike, or
- deduct 10 percent of their wages for the partial strike period.
Holidays Act reform
There has long been a bipartisan consensus that the current Holidays Act 2003 is not fit for purpose and needs to be overhauled. Unfortunately, that task has proven, and continues to prove, much easier said than done.
In 2019, a Government Taskforce made 22 recommendations for potential reforms, and it was anticipated that a new Holidays Act would be introduced and passed into law by the previous Labour-led Government. Ultimately this work was not completed before the change to the current National-led Government.
In June 2024, the current Government commenced a new draft law which incorporated many of the Taskforce’s recommendations along with other proposed changes. This draft law was released for targeted consultation in September 2024. Unfortunately, feedback on the draft Bill was heavily critical with many submitters suggesting that the proposed changes were too complicated and would not result in a more simplified regime.
As a result, the Government has decided to scrape the draft law and has gone back to the drawing board. It is now unlikely we’ll see any legislative updates for at least a year so the wait for a new Holidays Act will continue for some time yet.
Protected negotiations for ending employment
A further potential change is a Private Members Bill which proposes to allow employers to commence “protected” negotiations with employees. Specifically, the proposed law change would allow employers to propose mutual termination of an employment relationship, in return for a financial settlement to the employee. While an employee would be under no obligation to accept such an offer, or to negotiate further, the law would preclude the employee from relying on the negotiations and any offers made to support a claim against the employer.
Under existing law, it can be risky for employers to attempt to commence exit discussions with an employee, unless there is a clear dispute and the employee agrees to speak on a ‘without prejudice’ basis. There are plenty of cautionary tales of employers getting this wrong, only for it to lead to costly allegations of pre-determination, unjustified disadvantage or even constructive dismissal. With some exceptions, the proposed law change would significantly reduce the risks to employers of these types of claims being made.
Although the Bill has been submitted by a member of the Act Party, it is not official Government policy. It therefore remains to be seen whether the Government will choose to support the bill and how long it may take to progress through Parliament.
For more information on any of these proposed changes, or for specialist advice on any employment issues, please contact a member of our Employment Law team.
