Some significant changes to employment regulations are on the horizon now the coalition government has introduced the Employment Relations Act Amendment Bill to parliament.
The Bill consists of four proposed amendments to the Employment Relations Act 2000, all of which have previously been announced or hinted at:
- Changing the way that personal grievance remedies are assessed.
- Introducing a high income threshold for unjustified dismissal claims.
- Clarifying the distinction between employment and principal/contractor arrangements.
- Removing the “30-day rule” for workplaces with collective employment agreements.
Workplace Relations and Safety Minister, Brooke van Velden, says the changes are aimed at improving labour market flexibility and helping businesses to grow, innovate, and employ with confidence and certainty.
Let’s have a look at the details of what’s being proposed:
Personal grievance changes
Increased scrutiny of employee conduct
These changes are all about giving more consideration to an employee’s behaviour when awarding remedies for personal grievance claims.
Currently, if a personal grievance is established the Employment Relations Authority or Employment Court can award remedies, including reinstatement into a role, and compensation for hurt and humiliation, even if the employee’s behaviour amounts to serious misconduct or contributed to the situation.
Under the new rules:
- Employees whose behaviour amounts to serious misconduct will be ineligible for any remedies.
- Employees who contributed to the situation that led to the personal grievance (but didn’t commit “serious misconduct”) will be ineligible for reinstatement to a role, or compensation for hurt and humiliation or loss of any benefit.
- The Employment Relations Authority and the Employment Court will be required to consider whether the employee’s behaviour obstructed the employer’s ability to act in a fair and reasonable way.
- The Employment Relations Authority and the Employment Court will have the full spectrum of remedy reductions (up to 100%) available to them.
- The threshold for procedural error will focus solely on whether any errors in the employer’s process resulted in the employee being treated unfairly.
Potential impacts of the changes
Brooke van Velden says the changes “will reduce rewards for bad behaviour and reduce costs for businesses”.
In clear cases of serious misconduct, employers may feel they can shortcut investigation or termination processes, however, what constitutes “serious misconduct” is not defined in legislation, so employers will still need to be able to prove the threshold has been met.
Similarly, how much an employee’s behaviour contributed to a situation (or obstructed the employer) hasn’t been specified, so we may see this clarified during the parliamentary process, or by court rulings.
Our previous post discusses the implications of these changes.
Income cap for unjustified dismissal claims
The bill introduces an income threshold of $180,000 for personal grievance claims for:
- Unjustified dismissal.
- Unjustified disadvantage where the unjustified disadvantage relates to dismissal (but not to other personal grievance grounds).
Employees earning more than the threshold (annual base salary or wages) will no longer be able to file a claim, however, they will still be able to raise other claims, e.g. for discrimination.
Employers and employees will be able to contract back into unjustified dismissal protection or to agree their own terms and conditions relating to dismissals.
The bill includes a 12-month transitional period during which employees on existing employment agreements will be able to raise an unjustified dismissal personal grievance, unless they agree to vary their employment agreement and have the threshold apply early.
The threshold will also be able to be increased annually, based on average weekly earnings.
Potential impacts
The government says introducing the income threshold will provide greater labour market flexibility, allowing employers to try out workers in “high impact positions”, without having to risk a costly and disruptive dismissal process if things don’t work out.
Employers will no longer be required to comply with good faith obligations when dismissing employees above the threshold.
We don’t see this change having a massive impact, as only 3.4% of Kiwis earn more than $180,000 a year. High-income employees may also be able to negotiate terms instead of the unjustified dismissal protections - e.g. termination payments, longer notice periods - or to structure their compensation packages so they fall below the income threshold.
Read our post for more detail about these changes.
Contractor arrangements
The bill aims to provide greater certainty for contracting parties by excluding specified contractors from being considered employees (under the “gateway test” of employment in the Employment Relations Act).
A worker will be classified as a “specified contractor” when:
- There is a written agreement that specifies they are an independent contractor.
- The worker isn’t restricted from working for others.
- The worker is either:
- not required to be available to work certain times or days or for a minimum period; or
- able to sub-contract the work.
- The business does not terminate the arrangement for not accepting an additional task.
- The worker is permitted reasonable time to seek independent advice prior to entering the agreement.
If the working arrangement meets these five tests, then the worker will be considered a contractor and will not be able to challenge this in the Employment Relations Authority. If one or more of the factors is not met, then the worker will be able to proceed with an employment misclassification claim.
The bill also introduces an employer obligation to give workers a reasonable opportunity to seek independent advice on a contracting agreement before they sign it.
Potential impacts
The government says the new gateway test “will provide greater clarity for businesses and workers around the distinction between employment and contracting arrangements”, leading to “more innovative business models”.
It remains unclear how this will play out in practice, as many current independent contractor relationships may not meet the definition of a “specified contractor”, especially around the contractor being able to work for other people or sub-contract work to third parties.
Removing the “30-day rule”
The final amendment removes the current employer obligation to employ new workers under the same terms as any existing collective employment agreement for the first 30 days.
The bill also removes requirements for employers to provide and return to the union an active choice form to indicate whether the employee plans to join the union. Unions will no longer be able to specify the information that an employer must give to the employee about the union.
Potential impacts
Brooke van Velden says removing the '30-day rule' will cut compliance costs at the beginning of employment, freeing up employers and employees “to negotiate mutually beneficial terms and conditions”.
Unions are strongly opposed to the changes, which they say undermine their existence and the protections of union membership, and we may see them seek to bind employers to the current 30-day process by enshrining it in collective agreements.
What’s next?
The Employment Relations Act Amendment Bill has passed its first reading in parliament and now heads to the select committee stage, where the public will have a chance to submit feedback on the proposed changes.
Follow the bill’s progress at the parliament website.
