New Zealand employers are well-used to the constant evolution of employment and workplace health and safety (WHS) law: in that regard, it could be said that 2025 will bring “more of the same”.
However, in our view:
- the number of changes under active consideration; and
- the potential practical impact of those changes for employers,
are more far-reaching than we have seen in recent years. The changes could have a significant impact across a range of employment relations issues, including the administration of holidays and leave, employer responses to partial strikes, potential clarification regarding contractor status, and improved flexibility in relation to certain dismissals.
While the details of the proposed reforms are not yet finalised, we summarise below what we know about the key employment and WHS reforms that are under consideration, and what these changes might mean for employers if they become law.
“Fixing” the Holidays Act1
Most employers have experienced the challenge of complying with the Holidays Act 2003, and several have been subject to specific enforcement action by the Labour Inspectorate (particularly over the last ten years). The current Act is particularly difficult to apply to employees with variable hours and/or variable remuneration arrangements. The complexity of the Act means that there is constant risk of unintentional non-compliance, which causes concern for employers and employees alike.
In 2024, the Government undertook targeted consultation regarding the current Act, the previous Government’s reform proposals, and an “exposure draft Bill” which set out a potential new Holidays Act. In short, stakeholder feedback indicated that the exposure draft Bill was unlikely to be workable, was overly complex, and that the changes “did not go far enough” to address the issues with the current Act.
The Government has therefore asked that officials “go back to the drawing board”,2 to develop an entirely new direction, in which:
- simplicity is prioritised;
- compliance costs are reduced; and
- an hours-based accrual system for annual leave entitlements is applied as the preferred model.
What does it mean for employers?
In short, the Holidays Act 2003 is here to stay for the foreseeable future, and employers must continue to process holidays and leave under this framework. However, if changes are made, it appears that these will be significant and not just incremental amendments to the current Act.
When might it happen?
The Minister has indicated that her ambition is to pass a new Holidays Act before the end of the current Government’s term. However, once enacted it is likely that there would be a transitional period before any such new Holidays Act took effect, to allow employers and employees to prepare for the changes.
Partial pay deductions for partial strikes
Partial strikes are strikes which do not involve a total withdrawal of labour. In short, employees continue to perform some of their work, but not all of it. This might include performing only a proportion of their normal work hours, attending work for their normal hours but not performing certain specific tasks or not complying with various other aspects of their employment agreement (e.g., a “social media” strike).
Previously, the Employment Relations Act 2000 (ERA) allowed an employer to make partial deductions from the pay of employees who were participating in a partial strike. The relevant provisions were repealed in 2018. This repeal significantly limited the options for an employer whose employees were participating in partial strikes - essentially, the employer’s choice was to (a) continue to pay the employees in full (even though they were not performing all of their normal duties); b) suspend the employees in full (in which case the employees would not perform any duties and would also not be paid); or (c) lock out employees (which involves preventing employees from entering the workplace or working and not paying them).
In recent years, partial strikes have become increasingly common, perhaps demonstrating union awareness of the pressure that these strikes can create for an employer (with the benefit of no financial impact to the union members).
In December 2024, the Government introduced a Bill to allow employers to reduce an employee’s pay where the employee is participating in a partial strike. The Bill states that it “largely returns the settings around partial strikes” to those that were in the ERA in 2018, and that it aims to incentivise parties engaged in industrial action to reach agreement sooner, “by providing employers with a specific response to partial strikes.”3
The Bill includes two options for how an employer can determine the amount of a partial pay deduction during a partial strike, being (a) a reduction that is proportionate to the reduction in the employee’s work as a result of the partial strike activity (based on specific methodology within the Bill); or (b) a deduction of 10 per cent of the employee’s pay. There are also specific obligations regarding notifying employees about the intended deduction.
What does it mean for employers?
Employers with employees under collective agreements are likely to welcome this proposed change. Being able to make a partial pay deduction, in response to a partial strike, is likely to create a greater sense of balance for employers during contentious collective bargaining situations.
That said, we anticipate that employers may find it complex to calculate the specific proportion by which pay ought to be reduced for partial strikes, particularly where the nature of the strike is a reduction in the performance of certain duties, but not a reduction in total work hours. This may result in most employers defaulting to the proposed 10 per cent deduction option, as it is more straight-forward and less likely to result in dispute. However, employers may perceive that a 10 per cent deduction is not sufficient to achieve the Government’s objective of restoring balance, in circumstances of a highly disruptive partial strike.
When might it happen?
The Bill was introduced on 9 December 2024 and is now before a select committee, with the select committee due to report back on 22 April 2025. We would expect the legislation to be enacted at some point during the current Government term.
Changes to the personal grievance regime
The Government is proposing several changes to the current personal grievance regime, all of which would strengthen the position of employers when it comes to defending such claims.
The proposed changes include:
- introducing an income threshold for unjustified dismissal personal grievances; and
- changes to personal grievance remedies.
Proposed income threshold
This change would mean that employees earning over the income threshold could not raise an unjustified dismissal personal grievance claim, unless the employer and employee specifically “opt back in” to that regime in the relevant employment agreement.
The proposed income threshold for unjustified dismissal personal grievances is NZ$180,000 per annum of base pay, with the threshold to be updated annually based on Stats NZ data. The Government has advised that currently around 3.4 per cent of the workforce earns above this threshold.4
Base pay would include normal salary or wages, but not incentive payments or other benefits. It is not proposed that this threshold would be pro-rated for part-time employment.
In practice, we expect that employees who earn over the high income threshold will seek to negotiate contractual protections for themselves, to guard against the risk of an abrupt termination by their employer. This might include seeking longer notice periods, redundancy compensation, and increased use of “no fault termination” clauses (which typically provide for an enhanced payment on termination). Employees in stronger bargaining positions may also seek to agree to “opt in” to the unjustified dismissal protections.
We expect that unions representing higher paid employees (or those earning close to this threshold) will seek to ensure that collective agreements include clauses which specifically refer to the protections of the current unjustified dismissal regime, so that these continue to apply to all members regardless of their income.
Employers who wish to maximise the protection that this income threshold offers may wish to review their remuneration frameworks for higher paid employees, potentially resulting in some “at risk” payments being converted to base pay (increasing the employee’s guaranteed income, but also increasing the employer’s protection against claims).
Changes to remedies
The Government is also proposing changes to how personal grievance remedies are determined to strengthen consideration of, and accountability for, the employee’s behaviour. This would be achieved through a proposed three-step process, in which the courts would be required to take an employee’s behaviour into account in relation to:
- assessing whether a personal grievance was established;
- deciding whether to award remedies; and
- deciding whether to reduce remedies.
Some of the most material proposed changes include that:
- an employee whose behaviour was found to amount to serious misconduct would not be eligible for any remedies;
- if an employee’s behaviour was found to have contributed to the issue that gave rise to the personal grievance in any way, the employee could not be reinstated to their role or receive any compensation for injury to feelings; and
- in every case, the courts would be required to assess whether an employee’s behaviour obstructed the employer’s ability to meet its obligations to act as a fair and reasonable employer.
These changes could have significant implications for how employers conduct formal employment processes, particularly in relation to any allegation of potential serious misconduct. Arguably, the proposed changes mean that if an employer was confident in its assessment that serious misconduct had occurred, that employer could elect not to conduct a fair process before dismissing that employee. This would be a major departure from the established natural justice and good faith rules that are currently a key feature of New Zealand employment law.
When might it happen?
The Government has indicated that it aims to introduce a further Amendment Bill in 2025 addressing these changes. Any Amendment Bill would be subject to the normal parliamentary process before it was enacted.
In relation to the income threshold for raising an unjustified dismissal personal grievance, the Minister announced on 12 February 2025 that the income threshold will apply to:
- all new employment agreements (being employment agreements with a new employer, or where the employee moves to a new role with the same employer other than as a result of a restructure), once the Bill is passed into law; and
- all existing employment agreements 12 months after the Bill is passed. This “transition period” is intended to allow employers and high-income employees time to amend their employment agreements if they wish to do so (for example, by specifically opting in to the unjustified dismissal regime, or adding additional protections for the employee).
Increasing certainty for contractors5
Businesses that engage independent contractors will be familiar with the risk that any such independent contractor may claim that they are or were, as a matter of law, an “employee” (and seek all of the protections that come with employment status). There are numerous examples of cases in which questions of employment status have been tested, across a wide variety of industry sectors (including courier drivers, locum doctors, and tradespeople). The possibility of such claims creates significant uncertainty, and potentially substantial liability for a business that is found to have incorrectly treated a person as an independent contractor.
The Government intends to propose amendments to the ERA to include a “gateway test” that businesses can use when responding to a claim that a person is an employee and not an independent contractor. If the working arrangement satisfies all four criteria set out in the test, then the person is deemed to be a contractor and no further inquiry is required. If the working arrangement does not satisfy the four criteria, then the current test for determining employment status (which is based on an assessment of “the real nature of the relationship”) would apply. For more details on the gateway test see Bell Gully’s publication: Clarification of employee v contractor status on the (immediate) horizon?
What does it mean for employers?
The four criteria in the gateway test appear to primarily target workers who are involved in the “gig economy”, as they focus on whether the worker has flexibility as to: who they perform work for; when they perform work; and declining any task or engagement offered to them. In our experience, many common independent contractor arrangements would not satisfy the four criteria, even though they are genuine principal / contractor relationships. As such, it may be that many current independent contractor arrangements will remain subject to the test that currently applies under the ERA – and therefore, will still be subject to the same risk and uncertainty that the gateway test is intending to avoid.
When might it happen?
It is intended that these changes will be included in the same Amendment Bill that is discussed above (in relation to the personal grievance regime).
Improving New Zealand’s health and safety system6
In 2024, the Government undertook consultation with a view to developing options to improve the work health and safety system so that it is: clear, effective, flexible and durable, proportionate to the risks, and balancing risks with costs.
That consultation closed in late 2024, and the Government is now considering options for improvements to the current regulatory framework.
Currently, there are few details known about specific changes that the Government might propose as part of its reforms. However, it is clear that the entire work health and safety regulatory system is under review, which includes the Health and Safety at Work Act 2015 and all supporting regulations, the regulators that implement WHS law, and the organisations that are authorised to certify or license businesses for high risk work.
Other changes
Beyond the Government’s proposed reforms, there are other reforms proposed as part of Member’s Bills, which are currently working their way through the parliamentary process.7
These Bills include:
- the Employment Relations (Termination of Employment by Agreement) Amendment Bill, which would provide employers with an ability to make an offer of an exit settlement to an employee, with the employee not being able to pursue any personal grievance in relation to such an offer; and
- the Employment Relations (Employee Remuneration Disclosure) Amendment Bill, which would mean that employers could no longer include “pay secrecy” clauses in employment agreements that prohibit employees from discussing their pay with others.
These Bills could also, if enacted, have real practical impact on employment relations within New Zealand businesses. In particular, the proposed “Termination of Employment by Agreement” amendments could radically change how New Zealand employers navigate potential dismissal situations.
Finally, the Government has confirmed that the minimum wage will increase by 1.5 per cent to NZ$23.50 an hour (from NZ$23.15 an hour) from 1 April 2025.
Next steps
Other than the change to the minimum wage, none of the employment and WHS law reforms discussed above have been enacted at this stage. However, if this ambitious reform agenda is realised, New Zealand employment and WHS law could look significantly different by the end of this Government term.
There is therefore an element of “wait and see” for all employers. In the meantime, some practical steps that employers might want to consider include:
- reviewing employment agreement templates against the proposed changes – for example, to ensure that they do not automatically confer unjustified dismissal rights on any employees (so that there is flexibility to utilise any high-income threshold exception that is enacted), and to anticipate possible changes to the Holidays Act regime;
- reviewing independent contractor templates against the proposed “gateway test” criteria – for example, to assess if these templates meet all four criteria, or if not, to consider whether the business considers it commercially feasible to amend its templates so that the four criteria are satisfied; and
- considering the business’ current stance regarding pay secrecy clauses, negotiated exit conversations, and serious misconduct investigations, and assessing how the business might respond if the currently proposed reforms become reality.
Bell Gully’s employment and workplace health and safety team frequently advise clients on the potential law reforms discussed in this article. If you have any questions about this article, please get in touch with the contacts listed or your usual Bell Gully adviser.
[1] Milestone reached for fixing the Holidays Act 2003 | Beehive.govt.nz[2] Speech to Employment and Manufacturers Association on Holidays Act | Beehive.govt.nz[3] Employment Relations (Pay Deductions for Partial Strikes) Amendment Bill 104-1 (2024), Government Bill Explanatory note – New Zealand Legislation[4] More flexible dismissal process for high-income employees | Beehive.govt.nz[5] Increased certainty for contractors coming | Beehive.govt.nz[6] Feedback will improve health and safety system and grow the economy | Beehive.govt.nz[7] While outside the scope of this article, there have also been several immigration law changes enacted or proposed in the last 12 months.