Workplace restructuring: what employers need to know

A recent Employment Relations Authority determination provides a useful reminder that an employer’s obligations cannot be separated into neat compartments. Payroll compliance, workplace conduct and disciplinary decision-making may arise from different events, but each can influence whether the employer’s actions are ultimately found to be fair and reasonable. In April v Coatrite Fire Ltd, the Authority upheld an employee’s personal grievances for unjustified disadvantage and unjustified dismissal. It also found that the employer had underpaid the employee, made unlawful deductions from his wages and failed to comply with its statutory record-keeping and holiday pay obligations. The employer was ordered to pay the employee compensation, lost wages, wage and holiday pay arrears, reimbursement of unlawful deductions, interest and a penalty. The case illustrates the significant financial and legal consequences that may arise when payroll concerns are not promptly addressed and a disciplinary process does not provide an employee with sufficient information or a meaningful opportunity to respond. Background Duane April was employed by Coatrite Fire Limited as an industrial/intumescent spray painter from January 2023 until his dismissal in May 2024. He had moved to New Zealand to work for Coatrite under an accredited employer work visa. Mr April’s individual employment agreement provided for a gross hourly rate of $38 and a minimum of 40 hours’ work each week. However, he was paid $35 per hour throughout his employment. Coatrite accepted that the incorrect rate had been entered into its payroll system and that $7,790.40 in gross wage arrears remained owing. Mr April’s wages were also subject to deductions totalling $968 for company expenses, fines and equipment. Although the employment agreement contained a deductions provision, it required written notice and authorisation. Coatrite had not followed that process. The Authority found that the underpayment and deductions breached Mr April’s employment conditions and caused him unjustified disadvantage. Payroll errors and workload pressures did not justify Coatrite’s failure to pay the agreed rate or comply with the contractual and statutory requirements applying to deductions. Workplace conduct and the unjustified warning The Authority also considered comments made during discussions about the condition of Mr April’s work vehicle. It found, on the balance of probabilities, that Coatrite’s managing director had made a racialised comment to Mr April. Although offence may not have been intended, the Authority accepted that Mr April understood the comment as racialised and felt offended and demeaned. This breached the employment agreement, which expressly provided for a workplace free from racial harassment, bullying and intimidation, and caused Mr April unjustified disadvantage. Coatrite had also emailed Mr April directing him to treat the correspondence as a “verbal warning” for mistreating company property. The Authority found that this was a disciplinary sanction. Because Coatrite could not demonstrate that the warning was substantively or procedurally justified, Mr April established a further personal grievance. Why the dismissal was unjustified Coatrite later invited Mr April to a disciplinary meeting concerning allegations relating to his attendance, breaks, work quality, treatment of company property and honesty. The invitation warned that dismissal was a possible outcome but did not include supporting information. The Authority identified several fundamental defects in the process: The allegations lacked sufficient detail and supporting evidence to enable Mr April to respond meaningfully. Information later relied on by Coatrite had not been disclosed during the disciplinary process. The concern about the vehicle was broadened from a single incident to an alleged consistent failure, despite the earlier warning having already addressed the issue. Mr April was unfairly denied the opportunity to have his father participate as his support person by video call. Relevant context, including the wage underpayment, deductions and concerns about workplace treatment, was not properly considered. The disciplinary meeting reasonably left Mr April with the impression that the parties would work towards getting the employment relationship back on track. Coatrite then unfairly relied on Mr April’s failure to provide further information after the meeting. The ultimate decision-maker did not attend the disciplinary meeting. The Authority concluded that these were not minor or technical defects. They were central to the process and meant Coatrite did not have a reasonable and justified basis to dismiss Mr April. Employer unable to offset most alleged losses Coatrite sought to offset amounts it said Mr April owed for vehicle infringements, damaged spray equipment and remedial work. Only five parking infringement notices totalling $200 were established. The remaining claims failed because they were stale and Coatrite could not sufficiently prove Mr April’s responsibility. Outcome Coatrite was ordered to pay Mr April: $28,000 compensation for humiliation, loss of dignity and injury to feelings; $18,240 gross for lost wages; $7,790.40 gross in wage arrears; $623.23 gross in holiday pay arrears; $968 for unlawful deductions; interest on the total arrears; and a $4,000 penalty, half payable to Mr April and half to the Crown. Mr April was ordered to reimburse Coatrite $200 for the established parking infringements. Costs were reserved. Lessons for employers This determination provides several practical reminders: Employment agreements must be accurately reflected in payroll systems. Underpayment concerns should be investigated and corrected promptly. A general deductions clause is not authority to deduct any disputed amount. Disciplinary allegations must be particularised and supported by relevant information. Employers must not broaden allegations without giving the employee a further opportunity to respond. Reasonable requests for representation/support persons, including remote participation, should be accommodated. Employee explanations and relevant surrounding concerns must be genuinely considered. The decision-maker must remain open-minded until the process is complete. Getting employment processes right This case is a reminder that employment issues rarely arise in isolation. Payroll compliance, workplace conduct and disciplinary processes can all affect whether an employer’s actions are ultimately considered fair and reasonable. If you need advice on a disciplinary process, personal grievance or other employment issue, contact our employment law team.

The enactment of the Employment Leave Act 2026 (“Act”) marks the most substantial redesign of New Zealand’s statutory leave framework in more than two decades. The Act received Royal Assent on 6 August 2026. It will come into force on 6 August 2028, when it will repeal and replace the Holidays Act 2003. The new rules will apply from the beginning of each employee’s first pay period starting on or after that date. The two-year lead-in period is intended to give employers, payroll providers and employees time to prepare for the transition. A few sections come into effect prior to 6 August 2026, including the regulations for remediation processes and the pre-commencement consultation remediation process regulations which came into force on 7 August 2026. The definition of ordinary weekly pay, the amount of parental leave payment, the information relating to employees that must be provided, and other incidental provisions come into force on 1 July 2027. Importantly, the Holidays Act 2003 continues to govern leave until the new legislation takes effect. Employers cannot move employees onto the new statutory rules before 6 August 2028, even if their payroll systems are ready. Existing obligations to identify and remediate historical Holidays Act underpayments also remain. A new focus on working hours At the centre of the new framework is a distinction between three categories of hours: Standard hours, being hours the employee is required to work pursuant to the employment agreement and for which the employer is required to pay them; Additional hours, being qualifying hours worked by an employee in addition to their standard hours, including hours worked under an availability provision. Where the hours are not worked under an availability provision, they must be hours the employer is not required to offer, which the employee is entitled to refuse, and for which the employee receives an additional payment. Casual hours, being hours worked under a genuinely casual arrangement where the employer is not required to offer work and the employee is not required to accept it. These classifications will determine whether an employee accrues annual and sick leave or instead receives a leave compensation payment. Annual leave will accrue in hours The present system, under which an employee becomes entitled to four weeks’ annual holidays after 12 months’ continuous employment, will be replaced with continuous accrual in hours. Employees with standard hours will accrue annual leave from their first day of employment at a minimum rate of 0.0769 hours for each standard hour. This is intended to produce the equivalent of four weeks’ annual leave each year where the employee’s standard hours remain consistent. Leave will be recorded and taken in hours, rather than being held as an entitlement expressed in weeks. Annual leave will also accrue during specified periods when the employee is not actually working, including paid statutory leave, parental leave, volunteer leave and jury service. It will not accrue during unpaid leave or periods when the employee is receiving accident compensation and is not working. Employees will also be able to request that up to 25% of the relevant annual leave balance be cashed up. An employer may decline a request and may adopt a policy that it will not agree to cashing up annual leave. Employers cannot require or pressure employees to make such a request. Sick leave will become proportionate Sick leave will also accrue in hours from the employee’s first day of employment. The minimum accrual rate will be 0.0385 hours for each standard hour or part of a standard hour, subject to a maximum accumulated balance of 160 hours. This represents an important change for employees as the employee’s entitlement will accrue in proportion to their standard hours. Employees will also be able to take only the hours of sick leave required, rather than necessarily using a full day for a shorter absence. Leave compensation for casual and additional hours Employees who work qualifying casual or additional hours will receive a leave compensation payment of 12.5% of the employee’s ordinary hourly rate for those hours. Annual leave and sick leave will not accrue on the same hours. This is broader than the current 8% pay-as-you-go holiday pay model. The increased percentage reflects that the payment compensates for both annual and sick leave that would otherwise accrue. The payment will need to be correctly identified and paid with the relevant wages. A single hourly approach to leave payments The Act replaces several of the Holidays Act’s payment concepts with a more consistent hourly leave payment model. Every hour of statutory leave taken will be paid using an hourly leave pay rate determined under the new rules. Fixed contractual allowances that do not vary in value will generally continue to be paid in full during leave. Annual leave taken after parental leave will also be paid using the ordinary leave payment methodology. This removes the present possibility that annual holidays taken after returning from parental leave are paid at a reduced average rate because of the period of unpaid or lower-paid absence. Bereavement and family violence leave from day one Bereavement leave and family violence leave will be available from the employee’s first day of employment. The underlying entitlements will remain expressed in days, but employees will be able to take the leave in whole or part days. This removes the current six-month eligibility threshold. Employers will need to update onboarding information, leave policies and payroll settings so that eligible employees are not incorrectly prevented from accessing these forms of leave early in their employment. Public holidays and alternative leave The Act introduces a more prescriptive approach to determining whether a public holiday is an “otherwise working day”. Under the new Act, the starting point is the employee’s agreed working arrangement. If the employment agreement specifies the days the employee works, or establishes a clear pattern of working days, a public holiday falling on one of those days will generally be an otherwise working day. A statutory look-back test may be required where the employee’s working days are not specified, or where the employee has worked additional days outside the days or pattern recorded in their agreement. The employer must examine the corresponding day of the week during the relevant 13-week period. If the employee worked, or was on paid or unpaid leave, on at least half of those corresponding days (over the previous 13 week period), the public holiday will be treated as an otherwise working day. For example, if a public holiday falls on a Monday and the employee does not have Mondays recorded as an agreed working day, the employer will look at the Mondays in the relevant 13-week period. If the employee worked, or was on leave, on at least 50% of those Mondays, the public holiday will be an otherwise working day. If the threshold is not met, it will not be an otherwise working day under that test. Alternative leave will also be recorded in hours. Where an employee works on a public holiday that is otherwise a working day, the employee will generally accrue one hour of alternative leave for each qualifying hour worked or spent on call under the statutory rules. Alternative leave may be taken on a day the employee could have worked and may be cashed up by agreement. Preparing for the Employment Leave Act While the new leave rules do not take effect until August 2028, the scale of the changes means employers should start preparing well in advance. Employment agreements, leave policies and payroll systems will all need to be reviewed to ensure they are ready for the new framework. If you have questions about how the Employment Leave Act will affect your workplace or would like advice on preparing for the changes, contact our employment law team.

New Zealand’s employment law framework has undergone significant reform, with the introduction of the Employment Relations Amendment Act 2026 (“Act”). Section 2 of the Employment Relations Amendment Act 2026 confirms that the Act came into force on 21 February 2026, and has reshaped how businesses manage contractor relationships, senior employees, and employment processes. Central to these developments is a new approach to determining employment status, alongside broader updates that affect grievances and remedies. Contractor Gateway Test The Act implements a new five-pronged \"gateway test\" to clearly distinguish contractors from employees. This means that contractors that satisfy the gateway test will be expressly excluded from claiming they are an employee. The Gateway test, under section 4(7) of the Act requires (now section 6(7) of the Employment Relations Act 2000): A written agreement stating that the worker is an independent contractor; No restrictions on the worker’s ability to work for other businesses; Flexibility on the worker’s ability to subcontract and on how and when the work is completed; and No penalties imposed on the worker for declining additional tasks or further engagements. They had a reasonable opportunity to seek advice before signing. If the contractor satisfies the five-pronged test, they will be deemed an independent contractor. If the worker does not satisfy the five-pronged test, they can still be deemed a contractor; however, the test turns to the “real nature of the relationship” under section 6 of the ERA. This test was recently reaffirmed by the Supreme Court in the Uber Decision.[1] In doing so, the Supreme Court reaffirmed that contractor labels, such as defining the worker as an independent contractor pursuant to an independent contractor agreement does not determine the worker’s status if that label is inconsistent with what occurs in practice. This means that if the worker is defined as an independent contractor pursuant to an independent contractor agreement but in practice the company exercises significant control over the worker and the worker is integrated into the company’s business as opposed to operating in it, then that worker will be deemed a employee, despite the labels stating otherwise. As a result, the five-pronged test presents an opportunity to update independent contractor agreements to reflect the wording pursuant to section 4(7) of the Act. However, it is then crucial that the five-pronged test is replicated in practice. If your business cannot abide by all five of the requirements (which is not uncommon for certain industries), then the independent contractor agreements should be reviewed and advice provided to sufficiently protect the business from not meeting the default position of the “real nature of the relationship test”, which opens the gate for potential claims for minimum wage, holiday pay, sick leave, and other minimum entitlements that would be owing for the mislabel. The Act also prohibits contractors who have signed a contracting arrangement from challenging employment status. Personal Grievances The Act also introduces new rules for high earning employees. Anyone earning $200,000 or more in total annual remuneration, which includes salary, bonuses and allowances, can no longer bring an unjustified dismissal claim unless their employment agreement specifically allows it. In practice this means that: The employer is not required to comply with good faith obligations when deciding to end the senior employee’s employment. The employer is not required to give reasons for that senior employee’s dismissal. A 12 month transition period applies to current senior employees under their existing employment agreement who exceed the remuneration threshold. New senior hires will be covered immediately (unless negotiated or provided for otherwise under the employment agreement). This new rule does not exclude a senior employee from raising a personal grievance on other grounds (e.g., discrimination, sexual harassment, etc); it simply prohibits the employee from raising a personal grievance related to the dismissal. Employees are now expressly protected when discussing, disclosing, or asking about their pay, and employers cannot discipline them for doing so. A new personal grievance ground—“adverse conduct for a remuneration disclosure reason”—allows employees to challenge any disadvantage linked to pay discussions, with employers bearing the onus to prove otherwise. Pay secrecy clauses are no longer enforceable for penalising such conduct. Remedies If an employee brings a personal grievance claim for unjustified dismissal, the Act allows the Employment Relations Authority (“Authority”) or Employment Court (“Court”) to: Remove the employee’s eligibility for remedies such as compensation and reinstatement where the employee is at fault. Reduce any remedy by up to 100% if the employee’s conduct was serious misconduct and if the employee contributed to the situation giving rise to the personal grievance. Blocks claims from employees under a 90-day trial period from raising unjustified disadvantage and unjustified dismissal relating to the dismissal. As a result of this new approach to personal grievances and remedies, it means: Employers will have greater protection as they will have a stronger defence against personal grievance claims involving serious misconduct by the employee. However, it is recommended that legal advice is sought, as there is a risk of mishandling processes by acting in reliance on serious misconduct or employee contribution to avoid liability; As serious misconduct is not defined under the Act, we suspect that there will likely be increased scrutiny on what constitutes “serious misconduct” by the Employment Relations Authority and the Employment Court. For advice on what the changes mean for your business, or assistance reviewing your agreements, contact our employment law team. [1] Rasier Operations BV v E TŪ Incorporated [2025] NZSC 162 (Uber Decision).