Cross-Border Catch-Up: Key Employment Law Reforms in New Zealand

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Patty Shapiro: Hi, and welcome to the Cross-Border Catch-Up, the podcast for global employers who want to stay in the know about cutting-edge employment issues worldwide. My name is Patty Shapiro, and I am here with my colleague, Goli Rahimi. We are cross-border attorneys here at Ogletree, and today we’re discussing recent developments in New Zealand employment law and what they mean for employers. If you operate or manage teams in New Zealand, these updates are important for compliance, risk management, and day-to-day HR practices. The major driver behind these changes is the Employment Relations Amendment Bill, which as of this recording, is expected to receive Royal assent and come into force very soon. At a high level, this bill reflects a broader policy shift. It’s aimed at increasing certainty for businesses, reducing employment litigation in certain areas, and recalibrating some of the balance between employer and employee rights.

Goli Rahimi: That’s right, Patty. There are quite a few changes in the bill, but today what we’re going to do is focus on four of the most significant changes. The first is the new contractor gateway test. Then we’ll move on to the wage threshold for unjustified dismissal claims, followed by a brand-new reform of remedies in employment litigation. And then we’ll wrap up with the removal of the so-called 30-day rule.

Patty Shapiro: Let’s take them one at a time, starting with the new gateway test, which seems to be one of the most anticipated changes under the bill.

Goli Rahimi: This is a major development. So, the gateway test is designed to give more certainty to the question of whether a worker is an independent contractor or an employee. Under the current version of the law, classification is determined using a multifactor test that looks at the quote, “real nature of the relationship.” This test can be very unpredictable, highly fact specific, and not consistent. What the bill does is introduce a statutory gateway framework. So, if certain defined criteria are satisfied under this new framework, that individual will be treated as a specified contractor. And it effectively ends the inquiry there.

Patty Shapiro: The gateway test will provide a much clearer statutory pathway. Specifically, four criteria must be met. One, there must be a written agreement specifying that the worker is an independent contractor. Two, the worker must be free to perform work for others. Three, the worker must either not be required to be available to work certain times, days, or for a minimum period, or be permitted to subcontract the work. And four, the business must not terminate the arrangement simply because the worker does not accept an additional task. In addition, the courts must be satisfied that the worker had a reasonable opportunity to seek independent legal advice before entering into the arrangement. If all of these criteria are met, the worker will be deemed a contractor. If any are not met, the matter falls back to the traditional multifactor real nature of the relationship test. The clear policy intent here is to give greater weight to the party’s written agreement and stated intentions, provided certain minimum safeguards are present.

Goli Rahimi: Another significant change is the introduction of a wage threshold for unjustified dismissal claims. This is a notable shift, because under the bill, employees that earn more than 200,000 New Zealand dollars per year in total compensation will actually not be eligible to bring an unjustified dismissal claim. Now, this threshold is going to adjust every year to account for inflation. Additionally, there will be a 12-month transition period for existing employees who make more than this threshold, as it will give them time to renegotiate their employment terms if necessary.

There is also an opt-in mechanism. Employers and employees can jointly agree, either at the outset or during the employment relationship, that unjustified dismissal protections will still apply despite the fact that the employee earns above this threshold. So, in essence, there still remains flexibility for parties who wish to preserve that protection. Importantly, this does not mean that high earners will lose all employment protections. They can absolutely still bring personal grievance claims on other grounds, such as discrimination, harassment, or retaliation. The limitation here under the bill applies only to unjustified dismissal claims.

Patty Shapiro: Let’s talk a bit about the reform on remedies. Currently, when an employee succeeds in a personal grievance claim, the Employment Relations Authority, or the ERA, or the court can award reinstatement, lost wages, and compensation, including damages for humiliation and distress. The bill changes this framework by placing a greater focus on the employee’s own conduct. Going forward, the ERA or the court must assess not only the employer’s actions, but also whether the employee’s conduct obstructed the employer’s ability to meet its legal obligation. If the employee’s conduct amounts to serious misconduct and contributed to the situation giving rise to the grievance, the employee may be barred from receiving any remedies at all. If the conduct does not rise to the level of serious misconduct, but the employee nevertheless contributed to the circumstances, the only available remedy will be lost wages. And even that can be reduced potentially by up to 100%, depending on the employee’s level of contribution. This is a significant recalibration of the available remedies and is intended to discourage employees from engaging in misconduct while still pursuing claims.

Goli Rahimi: And that brings us to the last change under the bill that we’re going to cover today, the removal of the 30-day rule. Currently, the 30-day rule says that if a new employee is hired into a role covered by a collective employment agreement, even if they’re not a union member, that person must still be employed on terms that are consistent with that collective agreement and for a period of 30 days. In effect, these individuals are treated as though they are covered by a collective agreement for the first 30 days of their employment. Now, the bill completely eliminates this requirement. What does that mean? That means employers will now be able to negotiate individual employment terms with new hires from day one, even if a collective agreement otherwise covers the role.

Patty Shapiro: Taken together, these reforms signal a meaningful shift in several foundational areas of New Zealand employment law. While the practical impact will depend on how courts interpret and apply these provisions, employers may want to start reviewing their contractor arrangements, senior executive contracts, disciplinary processes, and onboarding practices to ensure they’re prepared for the changes once the bill comes into force, which may have even happened by the time this podcast airs.

Goli Rahimi: Thanks, Patty. And that is all the time that we have for today. Thank you to everyone who joined us for today’s Cross-Border Catch-Up. Please follow us to stay in the know about cutting-edge employment issues worldwide.

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