The Employment Law Review: New Zealand
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 employment landscape in New Zealand continued to evolve in 2019. The government implemented a number of changes to employment legislation, including:
- a renewed focus on reinstatement as the primary remedy for employees who have been unjustifiably dismissed;
- the reinstatement of set meal and rest breaks, with a return to more regulation of the timing, frequency and duration of breaks;
- an increase in the statutory minimum adult hourly wage to NZ$17.70; a further increase, to NZ$18.90, takes effect from 1 April 2020;
- the use of 90-day trial periods (during which employers can dismiss employees with a much reduced risk of a legal claim) has been restricted to businesses with fewer than 20 employees;
- victims of family violence have been given additional protections and entitlements to leave and flexibility regarding working arrangements; and
- union rights and collective bargaining requirements have been strengthened.
Proposals for fair pay agreements are currently the subject of consultation, setting out a potential new framework for the negotiation and setting of minimum terms and conditions across entire sectors.
The potential exploitation of dependent contractors and the misuse of independent contractor agreements to avoid the protections and rights given to employees has received significant attention in 2019. The government has released a discussion paper calling for submissions on better protections for contractors and deterrence against the misclassification of workers as contractors.
There has also been a focus on holding individual directors and managers personally liable for employment law breaches. The MBIE took 19 cases to the Authority or the Employment Court, resulting in awards totalling more than NZ$250,000 in wage and holiday pay arrears and orders for penalties totalling NZ$475,000 to be paid.
Statistics demonstrate a continuing upward trend in the value of hurt and humiliation awards to employees in connection with personal grievance claims they have brought in the Authority and the Employment Court.3 Combined with the strengthened individual and collective rights enjoyed by employees, the general picture is of increasing compliance risk and costs for employers.
i Jacks Hardware and Timber Limited v. First Union Incorporated4
This case followed a protracted bargaining process between a major union and an employer, which had not resulted in a collective agreement. The union applied to the Authority to fix the remaining terms of the collective agreement, and the Authority allowed the application after concluding that the parties had exhausted all other reasonable alternative means of reaching agreement.
The employer appealed to the Employment Court, which found that the grounds for the union's application had been met and it was appropriate for the Authority to fix those provisions that the parties had been unable to agree between themselves.
This case is significant as it is the first instance of the Court endorsing the Authority's power to fix remuneration in a collective agreement, overriding the parties' ability to independently negotiate and settle an agreement through collective bargaining.
ii Morgan v. Tranzit Coachlines Wairarapa Limited5
This case involved a claim by a bus driver, who had been employed under a series of fixed-term employment agreements over a period of 18 years. The employee argued that the real nature of his employment was permanent on the basis that the reason for the fixed term was not a genuine reason based on reasonable grounds (a requirement for fixed-term employment under the ERA) and that he was entitled to back pay for entitlements that he had accrued as a permanent employee.
The employer claimed that the reason for the fixed term was the uncertainty regarding annual contract-based funding the employer received from a third party, and that this funding uncertainty meant it could not guarantee the employee's employment in the long term.
The Employment Court disagreed with the employer, finding that the risk of loss of funding was speculative and that the employer did not have genuine reasons based on reasonable grounds for the fixed-term employment agreement. The Court said that financial uncertainty is a normal business risk and not a sufficient reason to offer fixed-term employment.
iii Advanced Personnel Services Ltd v. Pitman6
This case focused on the effect of an indemnity clause in an employee's individual employment agreement and whether it was an unlawful attempt to contract out of the ERA.
The employer brought an action against a former employee alleging that he had breached his employment agreement by working for a competing business and using his former employer's confidential information and intellectual property for the benefit of his new employer. The Authority found in favour of the employer in relation to the breaches and awarded the employer special and general damages.
The Authority considered the indemnity clause and held that it was valid and enforceable and awarded the employer an additional NZ$46,000 in indemnity costs in accordance with the clause. This decision was appealed on the basis that the indemnity provision was an attempt to contract out of the ERA, but the original decision was upheld.
This case is significant, having regard to the potential scope to recover indemnity costs rather than the standard very modest costs typically awarded in the employment jurisdiction.
Two other cases of note are Chambers v. Peladon,7 in which it was held that compliance orders against employers can be extended to holding companies and individual directors (of relevance to international groups), and Postal Workers Union of Aotearoa Inc v. New Zealand Post Ltd,8 in which an employer's right to impose compulsory overtime on waged employees was held to be unenforceable unless separate consideration, in addition to the actual rate being paid, is provided to compensate for the employee having to be generally available.
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.9
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.10 If these requirements are not met, the employer will not be able to rely upon 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 only available to employers with fewer than 20 employees and must be agreed in writing prior to the employee commencing employment.11
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 independent contractors 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:
- a minimum wage of NZ$17.70 per hour (NZ$18.90 as of April 2020);
- a minimum of four weeks of paid holiday per year;
- 11 public holidays, each being a day off on full pay;
- five days of paid sick leave per year;
- on completion of six months of continuous employment, entitlement to bereavement leave and 10 days of family violence leave per year;
- paid parental leave; and
- 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 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 are governed primarily by the Minimum Wage Act 1983 and the Wages Protection Act 1983. The minimum wage is increasing on 1 April 2020 to NZ$18.90 per hour, from NZ$17.70. The minimum wage rate for starters and trainees is NZ$15.12 per hour (remaining at 80 per cent of the adult minimum wage).
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 for 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.
Hours worked by an employee, whether greater or less than 40 hours a week, must be included in the employment agreement between the parties.
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 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.12
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.
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 in New Zealand 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.
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.
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.
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 upon 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.
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 related to union members' employment, union business, or health and safety purposes for non-union members where that person (or persons) has requested the assistance of the union.13 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.14
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.15 It is only following the first 30 days that the employer and the employee can enter into an individual employment agreement.
Employee representation (protected concerted activity)
i Requirements for registration
The main piece of legislation in New Zealand regulating personal information is the Privacy Act 1993, 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 only be collected for a lawful purpose connected with a function or activity of the entity 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 and time records, and six years for 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 only share employee data with a related entity based overseas 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.
While 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:
- 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);
- 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);
- 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
- 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).
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.16 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.
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 affect 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.
The outlook for employment law is subject to the outcome of the general election scheduled in 2020. The current Labour-led coalition has driven a number of reforms that have sought to increase the power of unions and protection of employees, including the removal of trial periods for larger companies, increased obligations to provide rest and meal breaks, and increasing the minimum wage. A number of other proposed reforms are still on the current government's agenda, including fair pay agreements (which appear similar to the Australian award regime), and are likely to become law if the current government is appointed for another term.
A National-led coalition would be likely to seek to undo some of those recent reforms in favour of more employer-friendly amendments; however, a substantial overhaul of the ERA is very unlikely.
Irrespective of the outcome of the general election, it is very likely that the Holidays Act 2003 will be amended or replaced. The Act covers leave entitlements and how to calculate those entitlements. The complex requirements of the Act have led to inadvertent but substantial non-compliance by the majority of employers in New Zealand, which has resulted in substantial financial liability. Part of the aim of a current review is to provide clarity and transparency of the obligations and calculations required by the Holidays Act to prevent non-compliance in future.
1 Charlotte Parkhill and James Warren are partners at Dentons Kensington Swan.
2 Employment Relations Act 2000 [ERA], Sections 214 and 214A.
3 See Ministry of Business, Innovation and Employment website for reports on Levels of compensation awarded to employees by the Employment Relations Authority and Employment Court for January to June 2018 and January to June 2019 https://www.employment.govt.nz/about/employment-law/compensation-and-cost-award-tables/
4  NZEmpC 20.
5  NZEmpC 66.
6  NZEmpC 83.
7  NZEmpC 45.
8  NZEmpC 47.
9 ERA, Section 65.
10 id., at Section 66.
11 id., at Section 67A.
12 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.
13 ERA, Section 20.
14 id., at Section 20A.
15 id., at Section 62.
16 id., at Section 103A.