The Employment Law Review: New Zealand

Introduction

i Jurisdictional framework

Employment relationships in New Zealand are defined and governed by legislation, common law and the terms of employment agreements, which can be either individual or collective agreements. Legislation has substantially modified and regulated the employment relationship and should be considered the principal source of employment law in New Zealand.

The Employment Relations Act 2000 (ERA) sets out the core statutory framework for employment relationships, including imposing a mutual duty of good faith, requiring written employment agreements, confirming the rights of unions and governing industrial relations. It also establishes statutory bodies that have exclusive powers over employment matters.

There are a number of other statutes that contribute to the landscape of employment law, among which are the Minimum Wage Act 1983, the Human Rights Act 1993 (containing laws against discrimination on a range of protected characteristics), the Holidays Act 2003 and the Health and Safety at Work Act 2015.

New Zealand's common law system originated in England but has been developed separately by the New Zealand courts. The common law provides a body of principles, duties and implied terms that form part of the employment relationship.

New Zealand was a founding member of the International Labour Organization (ILO) and has ratified a significant number of ILO Conventions. The objects of the ERA include the promotion of observance of the principles underlying ILO Convention 87 on Freedom of Association, and Convention 98 on the Right to Organise and Bargain Collectively. However, these Conventions do not have direct application in New Zealand.

ii Relevant institutions

New Zealand has three dedicated institutions for the resolution of employment law problems. The Mediation Service (operated as part of the Ministry of Business, Innovation and Employment (MBIE)), the Employment Relations Authority (the Authority) and the Employment Court.

The preferred and generally mandatory initial problem-solving tool is mediation between the parties, with the MBIE providing a free mediation service. If the matter cannot be resolved through the use of mediation, it can then be examined by the Authority. The Authority is an investigative (rather than adversarial) body that has the power to resolve employment relationship issues. It is intended to be guided by equity and good conscience and not to be dominated by technicalities.

Decisions given by the Authority can be appealed to the Employment Court. The latter adopts an adversarial approach and more formal procedures than the Authority. Most appeals to the Employment Court are heard de novo. Decisions from the Employment Court can be appealed to New Zealand's Court of Appeal, and from the Court of Appeal to the Supreme Court, if the appeal is based on an important point of law.2

Year in review

The year 2020 has been momentous in terms of change for the labour market, given the impact of the covid-19 pandemic and the associated legal issues it has raised. In particular, employee entitlements during periods of government lockdown restrictions and in connection with the government's wage subsidy programme remain legally uncertain. Separately, there have been a significant number of cases setting precedents on key legal issues.

There has also been much more use of flexible and home working arrangements, leading to a range of issues concerning health and safety, hours of work and employee monitoring.

Basic changes made during the past year include a significant increase in the minimum wage to NZ$18.90 an hour and increasing paid parental leave from 22 weeks to 26 weeks.

The new Employment Relations (Triangular Employment) Amendment Act 2019 is now in force, providing that employees working for a third party other than their employer will be able to apply to bring legal claims directly against them. It also permits employers to join a controlling third party to personal grievance claims they may be facing.

To cap that, a general election in October resulting in an absolute majority for the Labour Party confirms that a range of heralded reforms will ensure that change remains a defining feature of New Zealand's employment law framework.

Significant cases

i Leota v. Parcel Express Ltd

Leota is a landmark case confirming the willingness of the Employment Court to find employment relationships to have been formed even when the parties have explicitly sought to characterise the relationship as being a principal–independent contractor relationship.

The Court determined that the true nature of the relationship between Mr Leota, a courier driver, and Parcel Express was one of employment, holding in particular that the level of control exercised over Mr Leota and his subordination to the business needs of Parcel Express demonstrated that he was not in business in his own right. It also placed great weight on his status as a vulnerable worker, for whom English was a second language and who had little understanding of the written contracts he was asked to sign.

The case explicitly calls into question independent contracting models in industries in which vulnerable workers may be engaged, particularly when there is a suspicion that the focus of the arrangements is to avoid the obligation to offer them the statutory protections extended to employees. The decision also aligns with potential statutory reforms signalled by the government designed to protect 'dependent contractors'.

ii Metropolitan Glass & Glazing Limited v. Labour Inspector

In this decision, the Employment Court considered whether payments made under a short-term incentive scheme constituted gross earnings for the purposes of calculating the level of holiday pay. Under the Holidays Act 2003, discretionary payments that the employer is not bound to make are excluded and, therefore, do not increase the value of holiday pay. However, any payments required to be made under the employment agreement are included.

The short-term incentive (STI) arrangements were contained in a separate document from the employment agreement, and Metropolitan Glass reserved the right to amend, revoke or discontinue the STI scheme at any time. However, the employees accepted an expansion of their restraint of trade clause in exchange for entry into the scheme, which the Employment Court held to be evidence that it was intended to have contractual force when it was in operation. The Court also explicitly recognised that discretion as to the level of the payment did not mean that the payment was not contractual. On this basis, payments made under the STI, which were a regular and expected feature of the employment, were held to be contractual and therefore gross earnings for the purposes of holiday pay calculations.

The decision confirms that generally any scheme that offers potential bonus payments in recognition of the level of performance or work done will be regarded as gross earnings for the purposes of holiday pay calculations, even if there is a discretion as to the level of the payment or as to whether the scheme continues.

iii Sandhu v. Gate Gourmet New Zealand Ltd

Gate Gourmet was classified as an essential service during the government's covid-19 lockdown, meaning that, unlike most businesses, it was permitted to continue to operate. However, because of reduced demand for services, some Gate Gourmet employees were not required to work during this period. Those employees were paid 80 per cent of their wages, in accordance with the terms of the government's wage subsidy scheme. However, this amount was less than the minimum legal wage.

The non-working employees challenged the decision, claiming they remained entitled to the minimum wage throughout the lockdown period notwithstanding that they were not actually working. A sitting of the full Employment Court reached a majority decision, holding that the minimum wage legislation only applies when employees are actually working and not simply when they are ready, willing and able to work.

The decision is a relief for the very many employers that offered non-working staff no pay or pay that was below the minimum wage level during the lockdown. However, given the split decision of the Employment Court (with the Chief Judge in dissent), an appeal is possible. At the same time, the separate but related key issue of whether employees in non-essential services who were prevented from working because of the lockdown restrictions are entitled to remuneration remains undecided. Many New Zealand employers will be concerned about significant back pay claims pending final clarification on these points.

Basics of entering into an employment relationship

i Employment relationship

Employment relationships are primarily governed by the ERA, which imposes a statutory duty of good faith, and parties are unable to contract out of the general rights and obligations it sets out. The ERA requires that the employer should provide the employee with a written employment agreement, of which a signed copy must be retained by the employer.

Employment agreements can be entered into between an employer and individual employees, or agreed collectively. Collective agreements are between an employer and a registered union.

Employment agreements must contain, as a minimum, the names of the parties, the hours of work expected, a description of the role of the employee, a description of where the work is to be performed, the wages or salary payable to the employee, and a plain language explanation of the services available for the resolution of employment relationship problems, including a reference to the 90-day limit for raising a personal grievance.3

Parties may agree to vary individual employment agreements. It is best practice for any variation to an individual employment agreement to be agreed in writing by the parties. For a collective agreement, any variation must be ratified in accordance with the ERA.

Employment agreements can take many forms, including full-time, permanent, part-time, fixed-term or casual. Fixed-term employment agreements are permissible provided that the employer has genuine business reasons based on reasonable grounds for the fixed term and that those reasons are communicated to the employee.4 If these requirements are not met, the employer will not be able to rely on the fixed-term provision to terminate the employee's employment.

Casual employment engagements can come to an end without formality and with less risk of claims of unjustified dismissal, but must be genuinely casual, meaning that the employee has no guaranteed hours of work, no regular pattern of work and no continuing expectation of employment.

ii Probationary periods and trial periods

Employment law in New Zealand provides for both statutory trial periods and probationary periods.

Trial periods allow an employer to dismiss an employee within the first 90 days of employment for any business or performance-related reason. The employee subject to a valid trial period will be prevented from raising a personal grievance (legal claim) in relation to the termination of employment. Trial periods are available only to employers with fewer than 20 employees and must be agreed in writing prior to the employee commencing employment.5

Probationary periods may be used by employers of any size and provide the framework for an employer to respond to performance concerns in respect of new employees or employees in a new role. Unlike with 90-day trial periods, if employment is terminated within a probationary period, the employee remains entitled to bring a personal grievance in relation to the termination.

iii Establishing a presence

There is no general bar against foreign entities employing staff in New Zealand. However, foreign employers are required to be registered on the Companies Office Overseas Register if they are carrying out business in New Zealand and intend to hire employees to carry out that business. The use of intermediary employment businesses is also permitted but may not avoid the need for registration, or individual employees having direct rights against their ultimate employer.

Additionally, there is no restriction on foreign entities engaging an independent contractor in New Zealand under a contract for services. Independent contractors will be responsible for their own tax obligations and not entitled to the protections provided by employment law.

Foreign companies need to be aware that activities in New Zealand could lead to their classification as a permanent establishment (PE). Having a PE in New Zealand requires the employer to meet business tax obligations relating to the income-earning activity.

Minimum entitlements are set by law in New Zealand for employees, which include:

  1. a minimum wage (see Section VI);
  2. a minimum of four weeks of paid holiday per year;
  3. 11 public holidays, each being a day off on full pay;
  4. five days of paid sick leave per year (expected to increase to 10 days later in 2021);
  5. on completion of six months of continuous employment, entitlement to bereavement leave and 10 days of family violence leave per year;
  6. paid parental leave; and
  7. certain procedural requirements that govern the employment relationship and its termination.

Employers must deduct income tax (pay as you earn) from employee source income and are responsible for reporting to New Zealand's Inland Revenue.

Restrictive covenants

Restrictive covenants are prima facie unlawful and employers must prove that a restrictive covenant is reasonably necessary to protect the employer's legitimate proprietary interests for it to be potentially enforceable. Confidential and commercially sensitive information, client relationships, and contacts and supplier relationships are examples of proprietary interests capable of protection.

A restraint of trade must only protect the employer's interests as far as reasonably necessary. This will involve consideration of the length of the restraint and the geographical area it covers. The reasonableness of a restraint will be assessed at the time the employment relationship was entered into and must be met with some form of consideration (employment can itself be consideration). There is no requirement for consideration to be offered or paid after termination of employment.

Any finding of the clause not being reasonably necessary to protect the legitimate proprietary interests of the employer will lead to a finding that the clause is unenforceable. However, where a restraint is found to be unreasonable, the Authority or Employment Court has a specific statutory power and discretion to reduce the scope of the clause to what it considers is reasonable.

An employment agreement may also contain provisions that protect the employer's interests in other ways. These commonly include confidentiality and intellectual property clauses that survive the termination of employment.

Wages

Wages are governed primarily by the Minimum Wage Act 1983 and the Wages Protection Act 1983. The minimum wage as of 1 April 2020 is NZ$18.90 per hour and will increase to NZ$20 per hour on 1 April 2021. A lower rate is offered to starts and trainees.

The Wages Protection Act provides for limited circumstances in which deductions can be made, how payments must be made and situations in which consent is needed to deduct wages.

i Working time

There is no maximum cap on the number of hours worked by employees in New Zealand. However, some limitations are prescribed for particular industries (such as commercial drivers). Further, the health and safety laws recognise fatigue as a hazard, which means that excessive hours worked must be monitored to mitigate the risk of fatigue.

The number of hours worked by an employee, whether greater or less than 40 hours a week, must be included in the employment agreement between the parties.

ii Overtime

There is no specific stand-alone requirement for an employer to pay compensation for overtime. Parties may agree to payment for overtime in the employment agreement, or it may be prescribed in company policy.

When waged employees are required to be available for overtime beyond their guaranteed hours of work, they must receive reasonable compensation for being available as well as receiving payment for any additional hours worked. For salaried employees, there can be an express provision in the employment agreement to provide that the salary includes reasonable compensation for availability as well as for payment of additional hours of work.6

Foreign workers

Employees who are not citizens or residents need a valid visa that allows them to work in New Zealand. It is the employer's responsibility to ensure that all its employees are legally entitled to work in New Zealand. A worker's visa may specify a number of requirements, including the type of work undertaken by the worker, who the worker's employer is and the length of time the worker is entitled to work in New Zealand.

There is no requirement for an employer to keep a register of foreign workers or to limit the number of foreign workers it hires, assuming that they all have a valid work visa. Foreign workers are generally subject to the same employment laws and tax laws as domestic workers.

Global policies

It is not compulsory for New Zealand businesses to have employment-related company policies. However, policies serve important purposes and are a useful tool for managing employment relationships and expectations. International companies may be able to apply certain global employment policies within New Zealand, but legal requirements can affect their interpretation and application locally. Others may need modification or supplements to be workable in the New Zealand context.

There is no requirement for policies to be filed with or approved by government authorities.

Although there are a number of relevant laws regarding anti-discrimination, health and safety requirements in relation to bullying and harassment, and minimum procedural requirements with respect to employment relationships, these are not required to be reflected through the implementation of a policy. However, it is useful to set expectations in policies as opposed to within employment agreements for matters such as disciplinary processes, drug and alcohol testing, whistle-blowing, health and safety, and bonus practices, as this enables an employer to amend and update policies without requiring changes to individual employment agreements or agreements with unions.

To comply with the statutory duty of good faith, employers should consult the affected employees or unions when new polices are introduced by the employer or when current policies are changed. Depending on the nature of the business, a range of policies may be appropriate. It is important that employees are aware of and understand all policies that apply to them and how to access them if they wish. It is best practice for employment agreements to contain a provision ensuring employees' compliance with any applicable company policies, while also expressly acknowledging that the policies are not contractual and may be changed at any time by the employer.

Parental leave

The Parental Leave and Employment Protection Act 1987 sets out the paid leave, unpaid leave and extra protections provided to employees who become parents.

Leave entitlements are separated into primary carer leave and secondary carer leave. An employee's entitlement to parental leave is not necessarily determined by gender or biological relationship. For example, any parent can be the primary carer if he or she is taking permanent primary responsibility of a child under the age of six years.

The amount of leave provided to employees is determined by the length of employment with their current employer. There are two service thresholds of more than six months or more than 12 months of service (with minimum hours per week). Employees on parental leave may also be entitled to government-funded payments.

Employment protection

Dismissal on the basis of pregnancy or parental leave is prohibited. There is a presumption that an employee's job will be kept open for the employee to return to after a period of parental leave. This presumption can be rebutted if the position is a key position (having regard to the size of the business, the nature of the role, whether any training is required and other considerations), or a redundancy situation arises.

If an employer is unable to keep a role open because the employee in question is a key employee, or the employer is having to make positions redundant, the employee enters a 26-week period of preference at the end of the parental leave. This means that if the employer has a job opening that is substantially similar to the role the employee performed previously, the employee must be offered this job before it is offered to anyone else.

Translation

Employment documents may be in any language, and do not need to be translated into the employee's native language. However, an employee needs to be aware of the terms of employment and if it is clear that this is not the case, it may give rise to a claim of unfair bargaining or may pose difficulties should the employer seek to rely on a term of an agreement to disadvantage the employee if it is clear that the employee did not understand that term. Translators may be used by the Authority or the Employment Court to assist with understanding or engagement.

Employee representation

Employees may form and join trade unions. A trade union is an organisation that supports collective rights for employees in the workplace as a collective advocate for those employees by consent. The union will represent and negotiate with employers the collective interests of its members. A union must have a minimum of 15 members to become incorporated and must register with the Registrar of Unions.

The ERA recognises the inherent power imbalance in the employment relationship and, therefore, actively promotes union activity and collective bargaining processes with employers.

Unions and their representatives are permitted to enter the workplace for purposes concerning union members' employment, union business, or health and safety purposes for non-union members if that person (or persons) has requested the assistance of the union.7 It is only when there is no active collective agreement in place or no collective bargaining that the union must first seek consent to enter the employer's premises, and then the employer must not unreasonably withhold consent.8

Union members are entitled to attend a minimum of two union meetings per year, which, if during normal working hours, they are entitled to attend without deduction of pay from the employer.

The ERA requires that, when a new employee is hired by an employer that is a party to a collective agreement and the role is covered by that agreement, the employee's terms and conditions for the first 30 days of employment must be those of the collective agreement that would bind the employee if he or she were a union member, and the employer must provide information about the union to the employee. The employer and employee may agree additional terms, but those terms must be no less favourable to the employee than those in the collective agreement.9 It is only following the first 30 days that the employer and the employee can enter into an individual employment agreement.

Data protection

i Requirements for registration

The main piece of legislation regulating personal information is the Privacy Act 2020 (updating an earlier 1993 statute), which governs the collection, storage and use of personal information. The Privacy Act is intended to protect individual privacy by providing protection for personal information which, under the Act, is defined as 'information about an identifiable individual'.

At the core of the Privacy Act are a number of information privacy principles (IPPs) that set out the restrictions and rules governing how personal information may be collected, stored and used. All employers are required to comply with the IPPs.

The IPPs require that information about employees can be collected only for a lawful purpose connected with a function or activity of the entity that is collecting the information, and the collection of the information must be necessary for that purpose. As a general principle, when an employer collects personal information about its employees, it must collect the information directly from the individual concerned. Further, when collecting that information, an employer must take such steps as are reasonable to ensure that the individual concerned is aware that, among other things, the information has been collected and why it has been collected.

An employer must ensure that employee data is protected by such security safeguards as are reasonable in the circumstances and that the information is not kept for longer than is necessary.

Employers are required to retain personal records of former employees for no longer than is reasonably necessary after the employment relationship has ended. However, there are specific employee records that must be kept for a statutory period (six years for employee wages, time records, holiday and leave records, from the date on which those records are created).

ii Cross-border data transfers

In light of the restrictions contained in the IPPs (set out in Section XII.i), it follows that an employer can share employee data with a related entity based overseas only if it has been communicated to employees that the information was collected for that purpose or the employees otherwise consent to the disclosure at the relevant time.

Arguably, it is implicit that a company with global operations or networks will share employee information with other entities within those operations or networks. However, this has not been confirmed by the courts. Good practice would generally be regarded as requiring employers to be explicit about the fact that employee data will be shared with related entities or third parties based overseas, articulate the reason for doing so and obtain express authorisation from employees to use employee data in the manner proposed.

Although there is no requirement for an employer to register with a data protection authority or enter into a joint-user agreement for the purposes of transferring employee information outside New Zealand to another state, New Zealand's Privacy Commissioner may prohibit transfers of employee information if satisfied that the information is likely to be transferred to a third state where privacy safeguards are less stringent than in New Zealand and if the transfer is likely to contravene the Organisation for Economic Co-operation and Development's Privacy Guidelines.

iii Sensitive data

There is no separate category of sensitive personal information in New Zealand law. However, some categories of information, such as medical and health records, are inherently more sensitive personal information, and the application of the IPPs to those categories will require particular care.

iv Background checks

The IPPs apply to background checks without modification or additional restriction. An employer is entitled to conduct tests and checks both before and during employment. Typically any offer of employment to prospective employees will be on the condition that the employer is satisfied with the outcome of the background check. An employer should obtain an employee's consent before undertaking a background check. Information obtained as part of a background check may include:

  1. credit history: employers may carry out credit checks if relevant to the employee's role (for example, the role carries with it significant financial responsibilities, such as dealing with accounts and financial administration);
  2. drug and alcohol testing: an employer may ask employees to agree to alcohol and drug tests if this is relevant to their role or workplace (for example, operating heavy machinery in safety sensitive areas);
  3. criminal history: employers can file a request with the Ministry of Justice for an employee's criminal history if the individual agrees in writing (although note that a 'clean slate' scheme applies to remove, and allow individuals not to disclose, certain old convictions); and
  4. references obtained regarding an employee's suitability to perform a job.

An employer cannot ask an employee to provide certain information (for example, any previous names the individual may have held) if this is not for a lawful purpose (for example, if the motive is to determine whether the individual is transgender, which would be discriminatory).

Discontinuing employment

i Dismissals

Employment cannot be terminated at will. Employers need to have a lawful reason to dismiss an employee and they must follow a fair and reasonable process in reaching the decision to dismiss.

If required to justify a termination of employment, the employer must be able to establish that its actions were those of a fair and reasonable employer taking into account all the circumstances at the time the dismissal or action occurred.10 This will typically require an employer to investigate any concerns it has, raise these with the employee involved, providing them with the opportunity to respond and genuinely considering their response prior to making any decision.

An employer must grant an employee the contractual notice period, unless the reason for the termination is serious misconduct, which can result in summary dismissal. Payment in lieu of notice, or not being required to attend work for the duration of a notice period, is acceptable, provided these terms have been agreed between the parties.

There is no requirement to notify any government agency, work council or trade union (unless it is part of a collective agreement) of the termination of employment. There is similarly no requirement for a social plan.

If the situation arises that an employee believes he or she has been unjustifiably dismissed, the employee may seek damages or the remedy of reinstatement by raising a personal grievance with his or her employer, and ultimately the Authority or the Employment Court.

ii Redundancies

To terminate employment for redundancy, there must be a genuine business reason for the restructuring that gives rise to the redundancy, and the employer must follow a full and fair process.

A fair process for a redundancy requires the employer to consult the affected employees regarding a proposed restructuring (including the business rationale), provide them with all relevant information and provide them with an opportunity to provide feedback on the proposal. An employer is required to genuinely consider any feedback prior to confirming any restructuring. An employer also has a positive obligation to consider redeployment opportunities for any affected employees prior to making them redundant.

There is no statutory requirement for redundancy compensation to be paid; however, there may be a contractual obligation, or employers may adopt a policy that provides for redundancy compensation.

Transfer of business

The ERA contains provisions that provide employees with protection when a business is being sold or transferred.

Under the ERA, all collective and individual employment agreements must contain an employee protection provision, setting out the process the employer will follow when the business is sold or transferred. There are minimum requirements for this provision, including information regarding how the employer will negotiate with the new employer about the transfer, what will be negotiated (including whether the employees will transfer on the same terms and conditions), and the process to be followed in determining what entitlements, if any, employees will receive if they do not transfer to the new employer. However, there is generally no requirement for the acquirer to offer employment (or otherwise accept the transfer of staff), whether on particular terms and conditions or at all.

There are specified categories of employees (referred to as vulnerable workers), in broad terms being those employees who carry out cleaning, catering, laundry and caretaking duties, who have additional protections. Under the ERA, vulnerable workers have an automatic right to transfer on existing terms and conditions to a new employer when the business is sold or transferred.

Outlook

The New Zealand Labour Party's absolute majority in Parliament over the next three years means that previously uncertain legal reforms debated during the term of the previous coalition government are likely to be implemented, with a shift overall towards greater rights for employees.

As mentioned above, the government is legislating to strengthen the position of workers by increasing the statutory minimum of sick days (from five to 10 days) and increasing the minimum wage (to NZ$20).

More significantly, the introduction of compulsory Fair Pay Agreements is planned, albeit only after a 12 month consultation period. These will provide for minimum worker pay and benefits for entire industry sectors or classifications of employees, similar to an award system. The indication is that initial Fair Pay Agreements will be targeted at specific vulnerable or low-paid employees, such as security guards, grocery workers and cleaners.

Protections for dependent contractors are another key focus of the government. Individuals who provide services as contractors but who may be forced to accept terms offered by a single dominant client may receive additional statutory rights akin to those of employees, or indeed be classified as employees.

The dated and unloved Holidays Act 2003, with its myriad complexities and uncertainties leading to a multitude of underpayment claims, is scheduled to be repealed and replaced with a new, simplified stature. Draft legislation has yet to be produced but is likely to be welcomed both by employers and employees if it indeed achieves the government's stated objectives.

Overall, the level of anticipated reform and change, the focus on employee rights and the continuing impact of covid-19 mean that employers face an uncertain and potentially difficult 2021. However, most might agree that it is a future that appears much brighter than might have been anticipated during the most difficult days in 2020.

Footnotes

1 Charlotte Parkhill and James Warren are partners at Dentons Kensington Swan.

2 Employment Relations Act 2000 [ERA], Sections 214 and 214A.

3 ERA, Section 65.

4 id., at Section 66.

5 id., at Section 67A.

6 id., at Section 67D. Note that employers must ensure that any additional hours worked do not result in the employer breaching the minimum wage requirements for low-salaried employees.

7 ERA, Section 20.

8 id., at Section 20A.

9 id., at Section 62.

10 id., at Section 103A.

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