The Employment Relations Amendment Bill is the delivery of National's promise to make New Zealand's business settings more competitive by enhancing labour market flexibility, reducing compliance costs and balancing employer and employee interests. It is the most significant reform we've seen in employment law for nearly a decade.    

Will the reform deliver on its promises or is it window dressing? In our view, the reforms do little to rebalance New Zealand's highly protective employment regime, which applies regardless of employer size. Employers will still face having to settle vexatious or meritless personal grievances to avoid the prohibitively high cost of defending those claims, so it will remain difficult for small to medium enterprises (SMEs) to restructure or manage performance or conduct issues. To achieve meaningful change for SME employers, the rights of employees employed by SMEs to pursue an unjustified dismissal claim need to be changed and the cost of the disputes resolution process reduced.

This article provides a high-level overview of the Bill and is the first in our series of articles about the Government's employment law reforms. We discuss who the 'winners' of the Bill may be and explore the Bill's practical implications.  

The changes

The Bill introduces four key changes, aimed at making New Zealand's business settings 'more competitive', particularly for small to medium sized businesses. The changes are:

1. A gateway test to help businesses and workers distinguish between employees and contractors. A 'four factor' test that businesses can use to ensure a worker is classed as a contractor and not an employee will be implemented reducing the risk of status claims.
2. Removing eligibility for personal grievance remedies when the employee's behaviour has contributed to the grievance. Employees whose conduct amounts to serious misconduct will not be entitled to any remedies and employees who contribute to their personal grievance will not be entitled to compensation for hurt and humiliation or lost benefits (but will be able to seek lost wages).
3. Introducing a personal grievance income threshold of $180, 000. Employees who earn $180,000 or more per year will not be able to pursue a personal grievance for unjustified dismissal.  Employees in this income category currently represent around 3.4% of the workforce.
4. Removing the '30-day rule' at the beginning of employment. The '30-day rule' which currently requires employers to employ new employees on the same terms as a collective employment agreement for the first 30 days of their employment, if one is in force, will be removed.

The Select Committee Report is due in November and we anticipate that the Bill will pass at the end of this year or early next year.    

Impact of the proposed changes

The new contractor class will provide more flexibility and certainty for workers and employees as it will provide a clear way for parties to 'opt into' a definitive contractor arrangement without the risks associated with the contractor later claiming to be an employee. We are likely to see a decrease in litigation as seen in the Uber cases and more clarity for 'gig' worker arrangements in New Zealand. The proposed reform ensures that principals will not be able to contract out of employment protections without compromising on the level of control they exert over the worker. To meet the definitive contractor threshold, principals will have to agree to allow contractors to either work for others (including competitors), or to sub-contract.

The reduction in available remedies for personal grievance claims where serious misconduct has occurred or there has been contributory behaviour may deter some employees from pursuing a claim and remedies for successful claims are likely to be lower. However, we expect that the Authority and Court will interpret these provisions narrowly where they find that the dismissal was unjustified and employers will still be faced with the prohibitively high cost of defending a claim.

Larger employers are likely to be the main winners of the high-income earners (over $180k per annum) personal grievance 'cap' which will allow them to more easily exit these employees. However, we equally expect the Courts will place a narrow interpretation on these provisions and high income earners will likely pursue alternative claims such as bullying, harassment and discrimination claims instead.    

For employers who have collective agreements in force, the removal of the 30-day rule will bring more flexibility to initial onboarding negotiations although it may make it harder for large employers to offer new employees the same terms as the collective without breaching passing on provisions. The reforms do not remove 'union friendly' provisions of the Act introduced by past Labour governments, such as those that require employers to conclude collective bargaining. This is surprising from a National or 'right -wing' coalition government.

Do the changes go far enough? What is the real impact?

The motivation for the reform is to benefit SMEs by rebalancing employer/employee interests. SMEs (loosely defined as enterprises with less than 20 employees) make up approximately 97% of businesses in New Zealand but employ around 679, 000 people, representing 29.3% of all New Zealand employees. Employees employed by SMEs enjoy the same employment rights and protections as employees employed by larger organisations, resulting in a proportionally higher compliance cost for SMEs.  

At face value, the Bill appears to promise radical change, but in practice, is likely to deliver only limited change. Our view is that the Bill brings few practical changes, particularly for SMEs and does little to rebalance employer and employee interests.  

Employers of all sizes will still face personal grievance claims. While the changes will allow employers to take a stronger stance initially in defending claims, they will still likely be faced with the need to settle the claim to avoid the cost of defending it. Employers will find it equally difficult to terminate an employee's employment as the protection against unjustified dismissals will remain the same (even though remedies might be reduced). Employees earning over 180k will likely want to negotiate longer notice periods and redundancy or contract back into the unjustified dismissal protections and they will still be able to pursue alternative, and possibly more complicated, claims such as bullying harassment and human rights claims.

We expect to see a series of 'test cases' determining what it means for an employee to 'contribute' to a personal grievance under the new regime and whether there will be a different threshold an employee's conduct will need to meet to warrant the complete removal of some types of remedies. Employers will still need to prove that the employee's behaviour was serious misconduct, or that their behaviour contributed to the situation.

While some changes to the law are likely to be welcomed by employers, there is still a long way to go to reduce compliance costs for employers and increase labour market flexibility. To effect real change, reform could focus on a simpler disputes resolution process and the ability for smaller employers to more easily terminate employment where the relationship isn't working.

If you have any questions about the changes, and how they could affect you or your business, please reach out to Anne Wilson, Rebecca White for a confidential chat.  

The next article in our series on the reforms will explore the $180k personal grievance threshold, and protected discussions in more detail.

‍