- within Employment and HR topic(s)
- with Senior Company Executives, HR and Finance and Tax Executives
- in United States
- with readers working within the Business & Consumer Services, Insurance and Healthcare industries
In Short
New Zealand’s Employment Relations Act reforms are now in force and change how you hire, manage contractors and handle personal grievances. You can offer individual agreements from day one, and a new gateway test provides clearer rules for contractor status. High earners on new agreements cannot bring unjustified dismissal claims, and employee misconduct must now reduce or remove certain remedies.
Tips for Businesses
Review your employment agreement templates and contractor contracts to ensure they meet the new requirements. Update onboarding processes so you provide correct information about collective agreements and union membership. Check your policies on conduct and disciplinary procedures, and plan ahead for the $200,000 threshold and the 12-month transition period for existing staff.
Summary
This article explains the recent Employment Relations Act reforms for business owners in New Zealand and outlines how the changes affect hiring, contractor arrangements and personal grievance claims. LegalVision’s business lawyers specialise in advising clients on employment law and provide guidance on complying with updated workplace obligations.
New Zealand’s employment laws have recently changed, with reforms to the Employment Relations Act now in effect. These changes aim to give businesses more flexibility, lower compliance costs, and adjust parts of the personal grievance system. You need to understand what has changed so you can manage your team properly and meet your legal obligations. This article explains the key reforms and how they affect your business.
Collective Agreements: More Flexibility in Hiring
One important change for employers is that the 30-day rule for collective agreements no longer applies. In the past, if a collective agreement covered a new employee’s role, you had to employ them on those terms for their first 30 days.
Under the new rules, you can now offer new employees an individual employment agreement from day one. Employees can still choose to join a collective agreement if they want to. This change gives you more flexibility when setting employment terms from the start and makes the onboarding process simpler.
You no longer have to give new employees an ‘active choice’ form. However, you must still provide enough information to help them make an informed decision about joining a union. If more than one collective agreement covers the employee’s work, new rules apply.
You need to understand which agreement applies in these situations.
Contractor Status: The New Gateway Test
Working out whether someone is a contractor or an employee has often been confusing and risky for businesses. The reforms introduce a new ‘gateway test’ to give you clearer guidance and more certainty when you hire workers. To qualify as a specified contractor under the gateway test, all of the following conditions must be satisfied:
- you must have a written contract that clearly identifies the worker as an independent contractor rather than an employee;
- the worker must be free to provide services to other businesses or clients;
- the arrangement must include either flexibility around working hours and days (with no minimum time requirements) or the ability for the worker to delegate or subcontract the work;
- you cannot end the contract simply because the worker declines to take on extra tasks or projects; and
- the worker must have been given a genuine opportunity to obtain independent legal or professional advice before signing the agreement
If your arrangement satisfies all these requirements, the worker will be recognised as a specified contractor. However, if even one criterion is not met, you will need to apply the traditional common law employment test to determine the worker’s status.
This change lets you set up working relationships with more confidence from the start. It reduces the risk of misclassification disputes and gives you more certainty when planning and budgeting. Make sure you meet all the criteria and clearly record them in your contractor agreements.
High Earners and Unjustified Dismissal Claims
The reforms also change how the personal grievance system applies to senior, high-earning employees. Under the new rules, employees who earn $200,000 or more a year under new employment agreements can no longer bring a personal grievance claim for unjustified dismissal (or unjustified disadvantage linked to the dismissal).
The starting threshold is $200,000 a year, and it will increase each year from 1 July 2027. This change can lower your risk of expensive and time-consuming personal grievance claims for senior employees. You can still agree in writing to keep dismissal protections if you choose to. This can be a useful negotiating tool when you recruit senior or highly skilled employees.
For employees on current agreements, there is a 12-month transition period before the threshold applies to them. This grace period gives you time to review and renegotiate employment agreements for affected staff members.
Employee Conduct and Personal Grievance Remedies
The reforms also bring tougher consequences if an employee’s behaviour contributed to their personal grievance. The Employment Relations Authority and the Employment Court must now reduce or remove certain remedies in these situations.
This change shifts the balance of the personal grievance system and may benefit you when an employee’s misconduct contributed to the issue. It requires decision-makers to properly consider the employee’s behaviour when deciding outcomes and remedies, which may reduce your liability in some cases.
Action Steps for Your Business
With these reforms now in effect, you should review several key areas of your business operations:
- review your employment agreement templates to ensure they reflect the new rules, particularly regarding collective agreements and the $200,000 threshold for high earners;
- update your hiring and onboarding processes, especially around providing information about collective agreements and union membership to new employees;
- revisit your workplace policies relating to conduct, performance, and disciplinary processes to ensure they align with the new personal grievance remedy rules; and
- assess your contractor engagement practices to take advantage of the new gateway test and ensure your arrangements meet all the required criteria, including written agreements, flexibility provisions, and opportunities for independent advice.
Key Takeaways
These reforms represent a substantial shift in New Zealand’s employment relations framework. You can now offer individual employment agreements from day one, and the new gateway test provides clearer guidance for contractor arrangements. High earners above $200,000 cannot bring unjustified dismissal claims under new agreements, with a 12-month transition period for existing employees. Employee conduct that contributes to a personal grievance will now result in reduced or removed remedies.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced employment lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee.
Frequently Asked Questions
Do I still need to follow a collective agreement when hiring new employees?
No. You can now offer an individual employment agreement from day one, even if a collective agreement covers the role. However, you must still give new employees enough information to help them decide whether they want to join a union or a collective agreement.
Can high-earning employees still bring an unjustified dismissal claim?
If a new employment agreement pays $200,000 or more per year, the employee cannot bring a personal grievance for unjustified dismissal. However, you can agree in writing to keep those protections, and a 12-month transition period applies to employees on existing agreements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]