The Employment Relations Amendment Bill: What It Means for NZ Employers
The Employment Relations Amendment Bill passed its third reading on 17 February and will take effect the day after Royal Assent (we anticipate this could be within the next two weeks).
The reforms introduce significant changes to contractor status, unjustified dismissal protections, remedies, trial periods and onboarding obligations. For employers, the impact is immediate. The framework for assessing employment risk shifts, as does the level of certainty available when making hiring, restructuring and exit decisions.
Specified Contractor - Gateway Test
The Bill introduces a statutory gateway test and the new term ‘Specified Contractor’.
Where the gateway criteria are met, the individual will be considered to be a ‘Specified Contractor” and not an employee.
To qualify as a Specified Contractor, the arrangement must include:
The arrangement includes a written agreement stating the person is an independent contractor or is not an employee.
No restriction on performing work for any other person (other than while performing work under the arrangement).
The contractor must be allowed flexibility around hours or the ability to subcontract that work.
If subcontracting is permitted, any vetting must be limited to statutory requirements (for example, registration, certification or security clearances).
The arrangement cannot be terminated because the contractor declines additional work beyond what was agreed.
The contractor must have had a reasonable opportunity to seek independent advice before entering into the arrangement.
If any element of the Gateway test is not met, the arrangement remains subject to the “real nature of the relationship” test as set out in the Employment Relations Act.
High Income Threshold - Unjustified Dismissal Claims
A high-income threshold will apply to unjustified dismissal claims.
Where an employee’s annual remuneration is NZ $200,000 or more, they will not be able to raise a personal grievance in respect of their dismissal.
“Remuneration” includes salary, bonuses, commission and benefits
The threshold applies from commencement for new employees
Existing employees have a 12-month transition period
The threshold can be updated annually as per the Act (not before 1 July 2027)
This does not remove all risk. Process is still required and decisions will remain open to scrutiny. We anticipate that high-income earners may pursue alternative claims, including unjustified disadvantage, discrimination or breach of contract (as is more common in Australia).
Justification Test
The Bill also refines the justification test. A dismissal cannot be found unjustifiable solely because of procedural defects that did not result in unfair treatment, and decision makers must consider whether the employee obstructed the employer.
Personal Grievances - Changes to Remedies
The Bill changes how remedies are awarded where an employee has contributed to the situation that led to their personal grievance.
If there is contributing behaviour, remedies including reinstatement, compensation and loss of wages may be reduced by up to 100 per cent. In the case of serious misconduct where the authority or the court determines that the employee’s behaviour amounts to serious misconduct, no remedies will be awarded.
For employers who are partway through a process at the time the Act takes effect, the new remedies regime will apply to any actions taken after commencement.
Broader Trial Period Protections for Employers
Where an employee is dismissed under a compliant trial period, the employee cannot bring a personal grievance for unjustified dismissal. The legislation has now been expanded so that the employee also cannot bring a personal grievance for unjustified disadvantage arising from or relating to that dismissal.
To be clear the requirements to ensure compliance with the trial period remain unchanged and include:
The requirement for an employer to ensure the employee is aware that any offer of employment is subject to a 90-day trial period; and
The trial period must be set out in writing in the employment agreement and comply with section 67A of the Act; and
The employee must not have been previously employed by the employer; and
The employment agreement must be signed by both parties before the employee starts work.
Collective Agreements Terms - First 30 days
Employers will no longer be required to apply collective agreement terms to new employees for their first 30 days.
Employers must still inform new employees about any relevant collective agreement and provide union contact details when entering into an individual agreement.
Existing collective agreements that stipulate compliance with the 30-day rule will continue to apply for the term of the collective agreement.
Next Steps
These reforms take effect the day following Royal Assent (we anticipate this could be within the next two weeks). Now is an appropriate time to review employment agreements and policies to ensure compliance and confirm they remain fit for purpose for your business, and in light of these legislative changes.
Knowhow will work closely with you to ensure your business is ready for these legislative changes. We’ll review and update your agreements, align your policies, ensure you communicate changes with clarity and manage practical implementation, ensuring compliance and minimising risk.
We strongly recommend a comprehensive review of your contractor documentation now. Getting this right protects your business from costly reclassification risks, penalties, and disputes, and gives you confidence that your arrangements will stand up if ever tested.
Contact Knowhow to start the process and put the right protections in place