Minister Brooke van Velden yesterday introduced the long-awaited Employment Relations Amendment Bill to Parliament. The Bill represents the culmination of several months of announcements from the Minister and has been highly anticipated by workers, employers and unions alike.
Our previous Insights on the proposed changes can be found on our website.
A "gateway" test for contractor status
One of the most highly anticipated reforms contained in the Bill is the proposed "gateway test" to determine whether a worker is an employee or a contractor. This reform comes following several high-profile contractor status cases, and represents a significant shift to the law in this area. Under the Bill, workers falling within the definition of a "specified contractor" would be excluded from the definition of an employee. A specified contractor is an individual who has entered into an arrangement to perform work for another party where:
- that arrangement includes a written agreement that specifies the individual is an independent contractor;
- the individual is not restricted from performing work for any other person, except while performing work for the organisation;
- either:
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- the individual is not required to perform, or be available to perform, work for the organisation at a specified time or on a specified day or for a minimum period; or
- the individual is allowed to sub-contract the work for the organisation to another person (who may be required to undergo vetting by the organisation to ensure compliance with any relevant statutory requirements before being sub-contracted);
- the arrangement does not terminate if the individual declines work offered to them by the organisation that is additional to the work that the individual agreed to perform under the arrangement; and
- the individual had a reasonable opportunity to seek independent advice before entering into the arrangement.
If an individual does not fall within the definition of a specified contractor, the existing "real nature of the relationship" test would apply.
We envisage that it might be challenging in practice for some organisations to satisfy the specified requirements for contractor workforces. However, it would be worthwhile starting to look at contractor agreements with a view to assessing what changes would be necessary to fall within the specified contractor definition.
Reduction of remedies for personal grievances
The Bill also proposes a number of changes which will materially impact the way that personal grievance remedies are awarded. The proposed changes are:
- the removal of remedies for a personal grievance where any action of the employee contributed to the situation that gave rise to the personal grievance and that action amounts to serious misconduct;
- the removal of reinstatement and compensation for hurt and humiliation or the loss of a benefit if the employee contributed to the situation that gave rise to the personal grievance (but serious misconduct has not occurred); and
- confirming that the Employment Relations Authority and the Employment Court would be able to reduce remedies by up to 100% where the actions of the employee contributed towards the situation that gave rise to the personal grievance.
What would be sufficient to constitute "contribution" is likely to be an ongoing area of challenge. However, examples previously provided by Minister van Velden include unproductive behaviour, repeated instances of lateness, misuse of company resources, underperformance, violence, theft and fraud.
In addition, we envisage that whether an employee's actions constitute serious misconduct will become a crucial point for both employers in determining their approach to risk and employees in assessing the likelihood of potential remedies.
Salary threshold for unjustified dismissal
The Bill contains a carve out for employees earning above $180,000 NZD per annum so that:
- an employer does not need to comply with applicable good faith requirements in relation to termination of employment; and
- the employee is unable to bring a personal grievance or legal proceedings in respect of the dismissal.
The employee would however be able to bring other claims including, for example, a claim of discrimination.
This change would bring New Zealand in line with Australia, which has a high-income threshold for unfair dismissal cases. The Bill clarifies that "income" in New Zealand would be limited to the employee's base salary, excluding variable pay components. The Bill also sets out a formula by which the threshold would increase in July each year in line with the Quarterly Employment Survey published by Statistics New Zealand.
The Bill provides for a transitional period whereby the new provisions would not apply to existing employees for 12 months after the passing of the Bill. Employers and employees would therefore have 12 months in which to negotiate any additional terms and conditions (such as opting back in to unjustified dismissal protection). We expect that most employers would be reluctant to opt back in to the statutory protections but the parties may look to agree other arrangements such as bespoke processes or termination payments.
Justification test
A slightly less significant proposal is the proposed change to section 103A of the Employment Relations Act, which sets out the test of whether a dismissal or an action by an employer is justifiable. This will be amended to include a consideration of whether the employer was obstructed by the employee from taking any required action. The changes also provide that the Employment Relations Authority or Employment Court must not determine a dismissal or an action to be unjustifiable solely because of defects in the process followed by the employer which did not result in the employee being treated unfairly.
While a relatively minor change, we anticipate this will be helpful for employers in many scenarios when required to establish justification.
Removal of 30-day rule
A proposed amendment that will likely come as a relief to many employers is the removal of the requirement to employ new employees on terms and conditions based on an applicable collective agreement for the first 30 days. Instead, employers will need to provide certain information to applicable employees about the union and collective agreement including providing a copy of the agreement and notifying the union about the new employee (with the employee's consent).
Minister van Velden noted that removing the 30 day rule means employees and employers are free to agree on a wider range of employment terms from the beginning of employment including those that might differ from the collective agreement such as trial periods.
Where to from here
The stated aim of the Bill is to help to make New Zealand's business settings more competitive by enhancing labour market flexibility, reducing compliance costs and re-tilting the personal grievance system to better balance employer and employee interests and discourage poor behaviour. There will no doubt be varying views as to the extent to which the Bill has hit the mark.
The Bill will need to work through the parliamentary process including being open for public submissions at Select Committee stage. We will be following this process with interest.
The changes certainly signal a shift to a more employer friendly approach to employment. Many have expressed concern about the potential eroding of employee rights and we can expect some strong views to be put forward in public submissions on all sides.
If you require any assistance or further information regarding the Bill, please get in touch with one of our experts.