Proposed law change to make it easier to dismiss staff

A private member’s bill introduced to parliament in November 2024 aims 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 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.

Changes proposed by select committee

In its review of the bill (including public submissions), the Education and Workforce Committee proposed changes that would improve the legislation's workability and add safeguards to ensure legal protections for employers and employees.

Key changes proposed are:

Pre-termination negotiations

Employers will have to make a formal written request to begin negotiations and employees have to agree before discussions can begin. Employers will have to inform employees that:

• They can decline to enter negotiations.
• They have the right to representation (and allow them reasonable time to obtain it).
• Employment can only end if a termination agreement is signed.

Employers will only be able to make one negotiation request to an employee every 6 months, unless there are “genuine reasons”.

Termination agreements

Agreements will have to be in writing, signed, and serve as a full and final settlement of all employment-related claims.

ERA remedies

If the Employment Relations Authority (ERA) finds termination negotiations are unfair, it could cancel a termination agreement and order remedies, including reinstatement, reimbursement of lost wages, and compensation for humiliation or injury to feelings.

Status of the Termination of Employment by Agreement Bill

The Bill passed its first reading in parliament in April 2025 and was referred to the Education and Workforce Committee for review. In October 2025, the select committee recommended that the bill be passed, with proposed changes.

The bill's second reading in parliament on 05 Aug 2026 was interrupted.Follow the bill's progress at parliament.govt.nz

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.

The changes proposed by the bill may seem like a dry, procedural point, but 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 procedures like repeated disciplinary action, restructures, 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.

The Labour Party and the Greens strongly oppose the bill (saying it "will allow employers to dismiss people without cause and without fair process"), and I imagine it will 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.

Watch this space.