A private member’s bill introduced to parliament last month seeks to change the Employment Relations Act to allow employers to initiate negotiations with employees to end the employment relationship by mutual consent in return for a negotiated payout, without those discussions coming back to haunt them later.
In legal terms, the Employment Relations (Termination of Employment by Agreement) Amendment Bill would allow employers to open protected negotiations for the termination of an employment agreement without risking legal repercussions or admitting fault by either party.
What are protected negotiations?
Protected negotiations are commonly called ‘without prejudice’ discussions. They are not admissible in court as pre-determining the outcome of a later process, such as a restructure or disciplinary with termination as a potential outcome.
This is important because most employment procedures related to termination (restructuring, disciplinaries, probation period terminations, medical incapacity etc) require the employer to keep an open mind and consider the employee’s perspective and feedback before making a decision.
This ensures that the employee has a “right of reply” regarding the matter, and doesn’t have a decision made about their employment without their input being considered.
If the employer has already said to an employee: “Mate, the writing’s on the wall, it’s time for you to go”, then the employer has clearly pre-determined the outcome of any subsequent process, so how could they have an “open mind” to the employee’s side of the story?
Without prejudice discussions solve this problem. They are a locked room, in which employer and employee can speak frankly about the issue and discuss potential outcomes, which can’t come back to bite the employer (or employee, if they’ve admitted to wrongdoing!) later.
How the law change will work
Under the current law, a without prejudice discussion (typically with an offer for the employee to resign and be paid some “go away” money as part of that offer) can’t come out of the blue - it needs to be agreed to as an attempt to resolve a problem (e.g. a breakdown in employment relationship), an employer-led consultation process that the employee is challenging, or a problem like poor performance or misconduct that the employer is trying to solve.
The bill will change this requirement, so that protected negotiations can occur between the employer and employee to terminate employment in return for specified compensation without the risk that these negotiations could be admissible in court as pre-determining the outcome of a later process or decision to terminate.
In introducing the private member’s bill, ACT MP Laura Trask said: “A common fear for employers is costly and stressful personal grievances or unfair dismissal claims, even when the employer has adhered to due process.”
She says the bill will make it easier “for two adults to come to an agreement, shake hands, and move on to greener pastures before any dispute is escalated to the Employment Relations Authority.”
The United Kingdom already has similar legislation.
The bill is awaiting its first reading in parliament, where the house will debate and vote on it. From there, it will probably be referred to a select committee for review and public submissions.
My view
In the current environment, we typically see employers utilising without prejudice discussions conversations with an employee when other ways of resolving the situation haven’t been fruitful.
This change may seem like a dry, procedural point, this has the potential to significantly alter the employment landscape in New Zealand.
Employers with cash to burn will be more inclined to try and quickly move employees on rather than following lengthy consultation processes like restructures, disciplinary processes, or termination for medical incapacity, which can take weeks (sometimes months) to conclude.
This could look like your manager inviting you to a meeting out of the blue, where they say: “I’m making you an offer of $10,000 under section 101A to end your employment. This offer is confidential - you have the right to seek legal advice, so take some time to think about it.”
Of course, you wouldn’t have to accept the offer, but if you chose not to, or to negotiate, it’s pretty hard to forget that your boss wants you gone and carry on as usual!
It could also lead to employees who don’t agree to protected offers fighting harder during any subsequent termination process, or to get lawyers and advocates involved to ensure they get a good (read: financially valuable) outcome.
I also imagine it would be the first employment law any future Labour government would repeal, so we may end up with a ping-pong law, like legislation around 90-day trial periods.
This is a piece of legislation that I'll be watching closely in 2025.
