Employment law reform - September 2024 update

New Zealand employment law continues to be reviewed at pace under the current Government. This employment law update provides a snapshot of laws presently under review, reform proposed and those employment related Bills terminated (or likely to be).

Holidays Act – Consultation on proposed reform

Employers have long called for reform of the Holidays Act, seeking legislation that is easily applied, understood and not complex. In August 2024, the Minister for Workplace Relations and Safety, Brooke van Velden ("the Minister") proposed reform of the Holidays Act which is promised to increase certainty, workability and simplicity – features missing from the current legislation. 

An exposure draft Bill is presently under consultation with targeted stakeholders. The Government will consider whether any further changes are required before introducing a Bill to Parliament from which public consultation will be sought. 

Key features summarised by the Ministry of Business, Innovation and Employment (MBIE) in the exposure draft Bill are:

• Pro-rating sick leave: The exposure Bill proposes pro-rating sick leave (based on how much an employee works). Under the current Holidays Act, all eligible employees (whether part-time or full-time) receive 10 days’ sick leave in each entitlement year, i.e. this entitlement is not currently pro-rated. On the one hand, a move to entitlement which is proportionate to the days worked is asserted by the Government to create a more fair system. On the other hand, employee representatives and unions argue that any reduction is more likely to affect those who work part time, i.e. Māori and Pasifika people, women, mothers and people living with disabilities.
• Annual holidays: Annual holidays would move from an “entitlement system” to an “accrual system”. Currently, annual holidays do not “accrue”. Eligible employees only become “entitled” to annual holidays after reaching their anniversary date (and each 12-month period thereafter). From a payroll perspective, the current entitlement system can be problematic because many payroll software systems use an accrual process. From a practical perspective, many employers consent to accrued leave being taken in advance of entitlement, in part to minimise accrued leave liability.
• Calculating leave: Easier methodologies for calculating leave that do not require payroll systems to rely on data regarding an employee’s daily hours of work.
• Gross earnings - Pay-as-you-go: “Objective criteria” for using pay-as-you-go annual holidays. Broadly, this involves paying an employee 8% of their gross earnings along with their regular pay instead of providing that employee with an annual holiday entitlement. Currently, an employer can only apply the pay-as-you-go approach in limited circumstances (including if the employee is truly “casual” or for employees who are employed on a fixed-term basis for less than 12 months, subject to other specific criteria).
• Pay periods: A clarification that only “full pay periods” are to be included in a proposed new 13-week reference period (which would be used for calculating “average weekly pay” for annual holiday calculations).

We will keep you updated with progress regarding this significant reform. It remains to be seen whether the promised reform will meet high expectations, and whether the optimistic timeframes of a Bill being introduced for the legislative process by December 2024 are achievable.

Changes proposed to the Employment Relations Act - ‘the Gateway test’ for assessing contractor or employee status

The Government has announced proposed changes intended to provide greater certainty for independent contractors and businesses. This is through signalling the introduction of a “gateway test” that businesses can use when responding to a claim that a worker is an employee and not a contractor.[1] 

If the working arrangement meets all of the four factors set out in the test, then the worker is considered to be a contractor. If one of more of these factors are not met, then the existing tests (control, independent, economic reality, integration and fundamental tests – in order to assess the “real nature of the relationship” under the Employment Relations Act) will apply.

The proposed criteria for the gateway test are:

1. A written agreement with the worker, specifying they are an independent contractor; and
2. The business does not restrict the worker from working for another business (including competitors); and
3. The business does not require the worker to be available to work on the specific times of day or days or for a minimum number of hours, or, the worker can sub-contract the work; and
4. The business does not terminate the contract if the worker does not accept an additional task or engagement.

The Minister has indicated the intention to introduce a draft Bill into Parliament in 2025 to implement this change, including how the above criteria are to be measured or proven.

Health and safety systems review

On the basis that the Health and Safety at Work Act 2015 is now nearly 10 years old, the Government has announced a review of the Act to assess how well the system is working.  

What’s behind the review?

• Significant time and money is spent trying to comply with rules and regulations, yet New Zealand’s workplace fatality rate remains alarmingly high in comparison with countries like Australia and the UK.
• New Zealand’s health and safety laws are adapted from Australian law but our health and safety record remains worse and has been slow to improve.
• This approach does not appear to achieve the results most New Zealanders would expect.
• We need a clear, sensible, proportionate, and effective system.
• Steps businesses and workers take to protect health and safety should be appropriate and meaningful, not a 'tick-box' exercise.

The Government also notes that the system should be clear, effective, flexible and durable, proportionate to the risks, and balances risks with costs.

Consultation process

• Feedback is being sought on New Zealand’s workplace health and safety system - how it is working now, and what should change.

Areas of focus are:

1. Businesses are best placed to understand and manage their risks – how do organisations make decisions, the reasons behind these and how are overlapping duties managed?
2. Balance of flexibility and certainty – Does the law strike the right balance between business risk and activity and regulatory compliance, so that there is appropriate flexibility for businesses to take actions that are proportionate to the risks? 
3. Worker engagement and participation – how do organisations engage with workers, how workers participate in health and safety, and what impact does this have on health and safety?
4. Effective regulators – As primary regulator, WorkSafe covers a range of hazards and risks across different businesses activities, and sectors/industries. What are the experiences with our health and safety regulator?
5. Is the current health and safety regulatory system meeting the objective of protecting people from harm, in a way that is clear, effective, flexible and durable, proportionate to the risks, and balances risks with costs?

Feedback on New Zealand's health and safety system and how well it is current working is sought by 31 October 2024. Should you wish to contribute to that consultation or have any questions, we can assist you with this.

The Employment Relations (Termination of Employment by Agreement) Bill

The Coalition Agreement set out the Government’s intention to progress several key changes purported to “simplify” personal grievances. MBIE has been undertaking consultation on these, which included:

1. Removing an employee’s eligibility for remedies (which would include financial compensation) where the employee is at fault.
2. Setting a threshold to limit personal grievance claims; meaning that, if an employee meets that threshold (e.g. by earning over a certain amount), they will be barred from being able to raise a personal grievance.

Despite that consultation, the Coalition ACTs Small Business spokesperson recently introduced a Private Members Bill which provides for the mutually agreed end of employment. 

The Employment Relations (Termination of Employment by Agreement) Bill allows for “protected” negotiations to occur between an employer and employee to end the employment. In particular, it provides for an employer to make an offer to an employee to terminate the relationship and as part of that agreement, to pay to the employee a specified sum in full and final settlement of all matters.

The fact of making this offer can not give rise to a personal grievance and there does not need to be an employment relationship problem in existence before it occurs, thereby shielding employers from potential personal grievances by removing the need for a serious employment relationship problem.

The Bill proposes:

1. Employers can initiate “without prejudice” discussions without any existing “serious employment relationship problem”;
2. Negotiations that meet the criterial are protected from personal grievances or being used in Court;
3. Employees must consent to a negotiated settlement and would need to receive compensation.

The stated benefit is that employers will gain certainty in negotiating settlements that can’t be used against them in litigation; a streamlined process to resolving employment issues; reduced legal costs by avoiding protracted disputes; and favourable terms including confidentiality and non-disparaging comments.

However, while this could streamline an exit process for employers, the Bill has significant potential implications for employees. While the Bill contains provisions purported to protect employee rights, including the right to seek legal advice before agreeing to a settlement, the Bill as currently drafted does not include any limitation on when an employer can engage in an “off the record” discussion with an employee. There is serious risk of the Bill being misused by employers seeking to engage in “protected” discussions, and an employee having little bargaining power in this situation. 

The Bill lacks fair checks and balances and risks creating unfettered ability for an employer to present an employee with a fait accompli, under the guise of a protected conversation, which is likely to result in unjust outcomes. We expect significant opposition to it.

Employment Relations (Restraint of Trade) Amendment Bill - unlikely to proceed

The Employment Relations (Restraint of Trade) Amendment Bill was introduced by Labour MP Helen White under the previous Government. It would prevent the use of restraint of trade clauses for low and middle-income earners and impose some restrictions on the use of restraints in other situations.  

As expected, in May 2024 the Education and Workforce Select Committee reported its consideration of the Bill and recommended by majority that it not proceed.

Crimes (Theft by Employer) Amendment Bill - unlikely to proceed

The Crimes (Theft by Employer) Amendment Bill, introduced by Labour MP Ibrahim Omer, would amend the Crimes Act to provide that not paying an employee their wage is theft.

As expected, the Bill has been heard by the Education and Workforce Select Committee, and in its report the majority recommended that it not proceed. [3]

Employment Relations (Protection for KiwiSaver Members) Amendment Bill – terminated

The intention of the Employment Relations (Protection for KiwiSaver Members) Amendment Bill, introduced under the previous Government, was to ensure that workers enrolled in KiwiSaver (or complying KiwiSaver scheme) are not ‘discriminated against’ for being a KiwiSaver member. It sought to prevent employers from offsetting pay increases against workers KiwiSaver contributions. 

In practice, a loophole allows employers to avoid paying their compulsory KiwiSaver contribution. The practice has been the subject of contention. It is generally either viewed as a means of ensuring equal benefits for all employees regardless of participation in KiwiSaver; or, the contrary view is that total remuneration clauses effectively result in employees paying their KiwiSaver contributions twice – once for themselves and once for their employer. 

The Bill sought to close the loophole by establishing a clear obligation for employers to contribute a minimum of 3% pay if the employee is signed up and making their own contributions to KiwiSaver. It also removed the option for employees to agree to the employer contribution coming out of their remuneration package, ensuring that the employer bears responsibility for the contribution. 

As expected, the Bill was considered by the Select Committee and terminated at its second reading. There will be no change to the current legislation.

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.