The Employment Relations Amendment Bill explained – shifting New Zealand’s law in employers’ favour

On 17 June 2025, Workplace Relations and Safety Minister Brooke van Velden introduced the Employment Relations Amendment Bill to Parliament. The Bill and is designed to reduce compliance costs, enhance labour market flexibility, and provide greater certainty for employers. The Bill signals a significant shift in the country’s employment law framework.

The Bill proposes four key changes to the Employment Relations Act, each aimed at ‘rebalancing’ the relationship between employers and employees. In this article, DTI Lawyers’ Director and specialist employment lawyer Andrea Twaddle, summarises the key changes in the Amendment Bill, together with their potential implications.

A New Gateway Test for Independent Contractors

What does the Bill propose?

The Bill proposes to introduce an amendment to the definition of “employee” in the Employment Relations Act (the Act). This would mean that any worker who performs work arrangements that meet a specified set of criteria would be a “specified contractor”, and they would be excluded from the definition of “employee” that currently applies under the Act.

The current definition requires consideration of “all relevant matters”, to determine the “real nature of the relationship”. Under this definition, where a worker challenges their status or classification as an independent contractor (i.e. asserting they are in fact an employee), this requires consideration of a wide range of factors and circumstances, including the terms of the parties’ contract, how the relationship operates in practice, considerations such as control, dependence, integration, and the financial reality of the working arrangement.

The Bill provides that a person who works for another will be a specified contractor if they meet the following five criteria:

• There must be a written agreement that explicitly states the worker is an independent contractor.
• The worker must not be restricted from performing work for others.
• The worker must not be required to accept additional work.
• The worker must not be required to be available to work on specific times of day or days, or for a minimum period. Or, the worker can subcontract the work.
• The worker must have a reasonable opportunity to seek independent advice before entering into the arrangement.

If any of these criteria are not met, the worker’s status will be considered under the current test set out in section 6 of the Employment Relations Act; in which the Employment Relations Authority or Court will assess the “real nature of the relationship” between the parties.

The requirement for the worker to have a reasonable opportunity to seek independent advice is new and did not feature previously in Government announcements.

Potential Implications

The Minister and the Regulatory Impact Statement indicate the basis for the new test is to provide greater certainty for all parties and allow for more innovative business models. 

Whether the Bill will achieve its intentions remains to be seen. In practice, the definition is likely to apply to a relatively small group of businesses that contract workers at a distance, with little control from the principal over the work of the contractor. It is unlikely the required criteria within the definition of “specified contractors” would apply to most contractor arrangements presently in place. In part, this arises from constraints in the ability to work for others which is common in many contracting arrangements, requirements around when work is undertaken, and limitations on the ability to sub-contract the work. Accordingly, a re-evaluation of existing contractor arrangements would be needed if the Bill is passed into law, for parties to comply and rely on the new specified contractor definition.

The timing of the Bill’s introduction is interesting, given the Supreme Court is hearing the case of Raiser Operations BV, Uber et all v E Tū Inc. This is the claim regarding whether the appellant Uber drivers hold employee or contractor status. Arguably, this decision should provide clarity regarding the legal tests to determine worker status. However, the proposed introduction of new legislation consistent with other Act Party policy which appears to increase explicit guidance within legislation and reduce reliance on judicial interpretation.

Repeal of the 30-Day Rule for Collective Agreements

What does the Bill propose?

The Bill proposes to repeal the ‘30-day rule’, which currently requires that new employees in a workplace with a collective agreement (who fall within the applicable coverage) be employed on terms and conditions consistent with that agreement for their first 30 days.

Under the proposed changes, employers may offer (and an employee negotiate) individual terms of employment from the commencement of employment, even where a collective agreement exists.

In addition, the Bill changes (effectively reducing) the requirements on employers regarding information relating to union membership.

Potential implications

In unionised workplaces, this change is likely to be welcomed by employers seeking greater flexibility in recruitment and remuneration. It will reduce administrative and compliance obligations on employers at the outset of employment. However, its effect is to potentially weaken the influence of unions and union membership and accordingly, will be contentious as it progresses through the legislative process.  

High-Income Threshold for Unjustified Dismissal Claims

What does the Bill propose?

The Bill proposes that employees earning $180,000 or more in base salary annually (excluding allowances, bonuses, overtime, superannuation and other benefits) will no longer be covered by protections for unjustified dismissal under the Act, unless they explicitly opt in as a term of their employment agreement.

The Bill would mean that:

• If, at the time of dismissal, an employee’s annual salary meets or exceeds the specified threshold; and
• The employer and employee have not agreed to “opt into” the standard protections under the Employment Relations Act for unjustified dismissal claims; then
• The employer is not required to undertake a process in accordance with section 4(1A)(c) of the Act (which sets out good faith consultation obligations on an employer); and
• The employee may not bring a personal grievance or legal proceeding in respect of the dismissal, including alleging unjustified dismissal or disadvantage. 

Employees may still bring grievances for other areas, such as for discrimination.

The “specified wages and salary threshold” of $180,000 may be updated annually on 1 July, based on increases in average weekly earnings measured by Statistics New Zealand.

The Bill proposes a 12-month transition period to allow employees and employers to seek to negotiate terms and conditions. 

What’s behind the change?

While income thresholds are present in overseas jurisdictions, a ‘carve out’ for high income earners would be a significant change in New Zealand’s employment law. The Regulatory Impact Statement highlights that the benefits of unjustified dismissal settings are to ensure that an employer has a genuine reason to take action regarding an employee, and to follow fair process in doing so. These are intended to ensure that decisions are fair and reasonable, in situations that could lead to the loss of employment. The underlying basis for the proposed change is that poorly performing managers have a significant impact on productivity, and New Zealand features poorly on international measures of management quality.

The premise is that higher income earners have higher bargaining power and could negotiate provision for themselves, together with a greater ability to weather the impact of a job loss. The intention is to reduce the risk and cost of litigation for employers managing senior employees.

While unenforceable (section 238 of the Act prohibits contracting out of the Act’s obligations), there are some executive agreements that already provide for a severance arrangement for a ‘no fault dismissal’. Such arrangements usually include a compensation payment and ‘leaving with dignity’ provisions, which may cover a range of matters including communications around the exit and transitional arrangements.

Potential implications

There is likely to be a difference between middle and senior leaders opting into the regime, and differences in sectors. Those employees in thin labour markets, including where there are few employers, or in small New Zealand markets, may consider closely the potential impacts of a job loss and whether to opt in or not. The certainty tempted by an ‘opt in arrangement’ is likely to be weighed alongside reinstatement remaining the primary remedy for unjustified dismissals under the Act, and the new provisions being proposed regarding reduced remedies where employee contribution is alleged.

There are challenges to resolve for some workplaces in implementing the proposed Bill, for example, addressing arrangements such as highly-paid non-managers on collective agreements, who do not have sufficient bargaining power to negotiate better individual conditions may have less ability to negotiate beneficial contracting out arrangements. 

For employers seeking to opt in and having greater certainty around possible exit costs, they may look favourably on the introduction of enhanced notice periods, severance payments, amendments to restraint of trade provisions, and other arrangements to mitigate what could otherwise be an abrupt termination process and the disruption that could potentially follow.

We also anticipate creative claims may be raised and litigated, given there is still the ability to pursue other claims such as unlawful discrimination or claims relating to issues such as the unlawful restriction on secondary employment or availability requirements.

Reforming the assessment of remedies for personal grievances

What is proposed?

The Bill also proposes changes to how remedies for personal grievances are awarded. The Bill proposes:

• an employee whose actions contributed to the situation giving rise to the personal grievance; and whose actions amounted to “serious misconduct”, will be ineligible for any remedies;
• an employee who contributed to the situation giving rise to the personal grievance but has not committed “serious misconduct” will not be eligible for the remedies of:
• reinstatement, or 
• compensation for either (a) humiliation, loss of dignity, or injury to feelings, or (b) the loss of any benefit, whether or not monetary, that the employee might reasonably have been expected to obtain if the personal grievance had not arisen, and (in such circumstances, other remedies (such as lost wages) may still be available),
• where an employee has contributed to the situation giving rise to the personal grievance (but has not committed “serious misconduct”), any remedies awarded (e.g., lost wages) may be reduced by up to 100 percent.

It is unusual presently, for the Authority or Court to reduce remedies by more than 50 percent, even where an employee is found to have contributed to the situation giving rise to their personal grievance. 

Did the employee obstruct the process?

Alongside this proposal, the Bill also amends the test for justification set out in the Act. In assessing whether an employer’s action or dismissal was justified, the Employment Relations Authority or Court:

• will be required to consider whether the employer was obstructed by the employee from conducting the required process steps required within the justification test; and
• must not determine a dismissal or action to be unjustifiable solely because of defects in the process followed by the employer, if the defects did not result in the employee being treated unfairly.

The Act currently requires that the Authority or Court must not determine a dismissal or action to be unjustified solely because of defects in the process, if the defects of the employer were minor and did not result in the employee being treated unfairly.

Potential Implications

If passed, these changes are likely to have significant impact on how employers undertake employment processes. 

An employer that is confident that an employee’s conduct constitutes “serious misconduct” is likely to take a firm stance and adopt a brief employment process, given that if challenged, no personal grievance remedies would be available to the employee for the serious misconduct.

“Serious misconduct” is not defined in the Bill, therefore the ambiguity will create significant uncertainty as to whether the threshold has been met, which may lend to creative drafting by employers in employment documentation.

Good faith claims are still available, which may increase.

What Comes Next?

The Bill is currently at the first reading stage and will be subject to the usual Select Committee process, including public submissions.

If passed, it will represent a significant in the balance of employment relations, with the pendulum swinging primarily in favour of employer flexibility and the reduction in cost. 

The Bill is expected to be challenged by unions and employee advocates, given the potential the changes may erode protections that are enshrined within the Act. Without doubt, the changes would create a different assessment of risk for employers managing employment relationships and challenges within these.   

The reduction in potential remedies available for personal grievances (unjustified dismissals) may reduce the enthusiasm for what is perceived to be an increase over time in unmeritorious claims, on the basis that the cost and resources involved in defending litigation makes an employer more likely to enter into a pragmatic settlement, regardless of merit.

Negotiations at the outset of employment are also likely to become more protracted, particularly for high-income earners.

If passed into law, the amendments will come into force on the day after Royal Assent. The Minister has consistently indicated an intention for reforms to be enacted later this year. Significant debate is likely before then.

Updates

We will keep you updated. In the meantime, if you have any questions about employment law matters, the specialist employment law team at DTI Lawyers can assist. You can contact us by email at [email protected] or phone 07 2820174.