The new employment-law landscape

May 14, 2025 Jessie Lapthorne

With a number of significant employment law reforms on the horizon, here are the key changes to prepare for:

 

Excluding unjustified dismissal claims for high-income earners

 

The New Zealand Government has confirmed plans to prevent an employee who has an annual income of more than $180,000 (excluding benefits or incentive payments) from bringing an unjustified dismissal claim. This will apply to all new employment agreements once it is passed into law, then to existing employees after 12 months. High-income employees will still have a contractual notice period and will be able to raise other types of personal grievances, as well as other non-grievance claims. They may also opt back into the unjustified dismissal regime, with the agreement of their employer.

 

Practically, this change means employers can avoid lengthy termination processes for higher-paid employees. There will be a two-tier employment law framework, whereby lower-paid employees 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 in mind when offering employment or providing salary increases. Some employees may not want to receive a small salary increase if it means losing statutory protection from unfair dismissal. It is also likely that higher paid and executive employees will start negotiating alternative protections to mitigate the effect of an abrupt dismissal, including longer notice periods, pre-agreed termination payments or bespoke dispute-resolution mechanisms.

 

Employee remedies

 

Upcoming changes will place more weight on an employee’s behaviour (including unproductive behaviour, continued poor performance, or more serious concerns, such as violence or theft) when considering appropriate remedies for a personal grievance. Changes include:

 

• Removing all remedies for employees who are dismissed for serious misconduct
• Removing an employee’s eligibility for reinstatement and compensation for hurt and humiliation when their behaviour has contributed to the issue
• Allowing remedies to be reduced up to 100% for contributory conduct
• Being less critical of an employer’s procedural deficiencies.

 

The aim of these updates is to limit payouts to employees who have contributed to their own downfall. These changes could significantly lessen the financial incentive for employees to pursue personal grievance claims, particularly where they rely largely on procedural deficiencies or where the employee acted in a blameworthy way.

 

Contractor arrangements vs employment relationships

 

A new test for determining whether a worker is a contractor or employee has been proposed. This follows recent decisions in the Employment Court and Court of Appeal, where four Uber drivers were found to be employees (a decision which is currently under appeal to the Supreme Court). The proposed ‘gateway’ test is:

 

• There must be a written agreement specifying that the worker is an independent contractor
• The business cannot restrict the worker from working elsewhere
• The business cannot require the worker to be available to work at specific times (unless the worker can sub-contract the work)
• The business cannot terminate the contract if the worker does not accept an additional task or engagement.

 

If all four criteria are satisfied, a worker will be deemed a contractor and cannot challenge that status. If a worker does not satisfy the gateway test, their status will be assessed under the existing legal tests for determining employee/contractor status (ie, the principles set out in the Uber case).

 

Pay deductions for partial strikes

 

The Government is also looking to reintroduce pay deductions where employees engage in partial strike action, after this was repealed by the previous Labour Government.

 

Currently, 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 have often seen partial strikes as a more attractive bargaining tactic, given there is often no financial downside for employees.

 

Employers would be given the option of either reducing an employee’s pay by a proportionate amount, based on the work that the employee will not be performing, or deducting 10% of their wages for the partial strike period.

 

Holidays Act reform

 

There has long been a bipartisan consensus that the Holidays Act 2003 is not fit for purpose and needs to be overhauled. In 2019, a government taskforce made 22 recommendations for potential reforms. Unfortunately, implementing them has proved much easier said than done.

 

Feedback on the latest draft Bill was heavily critical, with many submitters suggesting that the proposed changes were too complicated. As a result, the Government has gone back to the drawing board. It is now unlikely we’ll see any legislative updates for at least a year.

 

Protected negotiations for ending employment

 

The ACT Party has introduced a Members’ Bill to allow employers to commence ‘protected’ negotiations with employees. Specifically, employers could 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 employee could not rely on the negotiations or 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. Getting this wrong can 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 for these types of claim.

 

 

For specialist advice on any employment issues, please contact Jessie Lapthorne, employment partner at Duncan Cotterill, via jessie.lapthorne@duncancotterill.com