The government has announced proposed changes to the Employment Relations Act that will set a $180,000 income cap for pursuing unjustified dismissal personal grievances - something we haven’t seen before in New Zealand!
The reform is part of the Employment Relations Amendment Bill that the coalition government aims to introduce to parliament next year. It comes alongside the proposal to remove remedies when an employee is found to have contributed to the personal grievance.
As the legislation hasn’t yet been introduced to the house, we don’t have the full scope of the details, so this is what’s been announced so far.
$180,000 income cap
Under the proposed changes, employees who earn more than $180,000 a year (excluding other income such as benefits and incentive payments) won’t be able to raise a personal grievance claim for unjustified dismissal.
Employers and these employees will be able to get around this if they choose, either by including unjustified dismissal protection in their employment agreement or negotiating their own dismissal procedures and severance terms.
Employees who earn more than the $180,000 threshold will still be able to raise other types of personal grievances, e.g. for unjustifiable disadvantage or discrimination.
Our government isn’t the first to do this - the amendment will bring New Zealand in line with Australia, which has a high-income cap/limit of AUD$175,000 for unfair dismissal claims.
In announcing the change, Workplace Relations and Safety Minister, Brooke van Velden said it would provide greater labour market flexibility and enable employers to get the best fit of skills and abilities in leadership and specialist roles.
“This policy allows employers to give workers a go in these high impact positions, without having to risk a costly and disruptive dismissal process if things don’t work out.”
The income threshold will be adjusted annually to match increases in average weekly earnings. However, the threshold will not be adjusted for part-time employment, meaning if your full-time equivalent salary is $190K per annum (over the cap) but you only work 30 hours a week earning $142,500 pro rata (under the cap), you won’t be affected by the $180K salary cap and will still be entitled to bring a personal grievance for unjustified dismissal.
My view
This proposed change would be the first time in 15 years (since 90-day trial periods were introduced in 2009) that a particular category of employee would be prevented from accessing their full range of legal entitlements under NZ employment law.
Personally, I think it’s a bit pointless. Approximately 3.4% of Kiwi employees earn above $180,000, so the change is only going to affect a relatively small portion of the workforce.
We also know that high-earning employees typically have more bargaining power than lower-paid workers, so many will be able to negotiate terms in their employment agreement to allow them to pursue personal grievance claims for unjustified dismissal anyway.
This leverage could also mean more amicable exit processes when things don’t work out, and fast-track chats around “golden handshake” arrangements, where both parties agree that, if the employee is dismissed under certain circumstances, they will be compensated appropriately.
This makes sure their reputation is protected (particularly important in NZ, where everyone knows everybody) and the person’s exit from the business is dignified.
There could be some labour market turbulence and an increase in turnover among high-income employees, but possibly only temporarily. We may also see an increase in personal grievance claims for unjustified disadvantage from $180K+ earners, where they are dismissed for reasons that they would otherwise have had a “right of reply” to.
We’ll be sure to keep a close eye on how the law change develops in 2025 and communicate the impacts for employers and business leaders.
