Big changes for employment law – Employment Relations Amendment Bill

This article was published for the Bay of Plenty Times, 7 July 2025.

Significant changes to employment law are one step closer, with the Government introducing the Employment Relations Amendment Bill to Parliament on 17 June 2025.

This Bill sets out the changes flagged by the Government earlier this year, and provides further detail as to how those changes will work.  The Bill still needs to go through the Select Committee stage and various readings in Parliament before it becomes law, so there is potential for some details to change, but the core aspects are likely to remain the same.  If passed, the Bill would significantly rebalance key areas of employment law in favour of employers.

The proposed “contractor gateway” test would introduce a new test for determining whether a worker is an employee or a contractor.

A number of criteria will need to be met, and if they are, then the worker will be automatically deemed to be a contractor.  However, it is unclear whether many businesses who engage contractors will be able to meet these criteria.  In particular, the relevant contractor cannot be restricted from working for other businesses, except while performing work for the principal business.  It is common for businesses to want to restrict working for others where a conflict of interest could arise, e.g. the contractor providing services for a competitor at the same time.  Further, the business can’t require the contractor to work particular hours, unless it permits the contractor to sub-contract the work.  Where businesses have engaged a particular individual to perform the work, they are likely to be reluctant to allow another individual to step into the contractor’s shoes.  If only a limited number of businesses can meet the test, then the changes may do little to achieve the Government’s goal of greater certainty around contractor status.  If a business can’t meet the new test, the current “real nature of the relationship” test will apply, which is very fact-specific and involves a greater degree of subjectivity.

The Bill also targets remedies for personal grievances, aiming to reduce or even remove remedies where the employee has themselves behaved poorly.

If an employee’s behaviour has contributed to the situation then they will not be eligible for reinstatement or distress compensation, but other remedies, e.g. reimbursement of lost wages, may still be available.  However, any remedies may be reduced by up to 100% depending on how bad the behaviour was.  If the behaviour rises to the level of serious misconduct the employee will not be entitled to any remedies at all.  This latter position could have unintended consequences, as it may incentivise employers to dispense with complying with their fair process obligations prior to dismissal where the employer is comfortable the employee has committed serious misconduct.  A penalty may be available for breach of the good faith duty in such circumstances, but penalties tend to be at a far lower level than other remedies.  We may also see an increase in creative claims seeking damages for breach of implied terms of employment agreements, in lieu of personal grievance remedies being available.

The annual income threshold above which an employee will lose the statutory right to raise an unjustified dismissal personal grievance has also been confirmed to be $180,000, although this will be adjusted yearly in line with changes to average earnings.

This figure includes the employee’s base salary/wages, but does not include any other forms of remuneration such as bonus payments.  Employers and employees may agree to opt back into the statutory dismissal grievance regime, or alternatively can agree their own arrangements around termination of employment.  The Bill has clarified that by default an employee would also not be able to bring any “other legal proceedings” in respect of a dismissal, meaning alternative claims e.g. an unjustified disadvantage personal grievance, or breach of employment agreement claim, would also be barred.  If the Bill is passed, the change will apply to new employment agreements, but employees on existing employment agreements will have a 12-month transition period to allow them to negotiate with their employer regarding the arrangements around termination of employment.  We expect that most employers will not want to opt back into the statutory dismissal grievance regime, but in return senior employees are likely to want greater contractual protections against the impacts of a sudden dismissal, e.g. pre-agreed severance payments, longer notice periods, etc.

Finally, the Bill contains a number of other more minor changes, including to the way that the Employment Relations Authority or court approach the “test of justification”, which is the central test in determining whether an employee has a valid personal grievance.  A key change is that in applying the test, the Authority or court will be required to consider whether the employee obstructed the employer from following a fair process prior to taking an action (e.g. dismissal).

Businesses, employees and contractors should keep an eye on the Bill’s progress, and if the changes are passed, seek advice on the implications for their employment or contractor relationships.