Proposed Employment Legislation - Employment Relations (Allowing Higher Earners to Contract Out of Personal Grievance Provisions) Amendment Bill

The Transport and Industrial Relations Select Committee has recently reported back on the Employment Relations (Allowing Higher Earners to Contract Out of Personal Grievance Provisions) Amendment Bill.

The purpose of the Bill as introduced was to allow employees earning over $150,000/annum to contract out of the personal grievance provisions in the Employment Relations Act 2000. A personal grievance is a type of legal action that employees can take against their employers for a wide range of things including dismissal, disadvantage in employment, and  sexual and racial harassment. In effect the original Bill allows a high-earning employee, as part of the give-and-take involved in negotiating their employment contract, to forgo their right to take such a personal grievance.

The Bill was designed to reflect the practical reality of terminating higher earners; they often negotiate a settlement sum without taking specific legal action. However, by contracting out of all the personal grievance provisions, the Bill in its original form was far reaching and included employees contracting out of basic human rights.

The Select Committee have made a number of changes to limit and clarify the scope of the Bill. So if it passes in its current form, what will it look like?

  • Employees can only contract out of the personal grievance provisions relating to unjustified dismissal, the rest of the personal grievances will still be open to them;
  • To contract out, employees must be earning $150,000 or more per year. This includes:
    • salary payments; and
    • any non-monetary benefits, providing the employee has an option to take the value instead (i.e. getting an extra payment to not have a work vehicle).

The $150,000 doesn’t include:

  • discretionary payments such as a bonus or commission, payments paid for expenses or employer contributions to a superannuation scheme;
  • If an employee has contracted out of an unjustified dismissal claim but is no longer earning over the income threshold at the time of termination, they can still make a claim for unjustified dismissal;
  • Parties can negotiate this term into an employment agreement at any time, not just at the start of the relationship;
  • An employee who has made a protected disclosure can still raise a personal grievance based on retaliation, even if they have contracted out previously;
  • Employers do not need to provide reasons for dismissal where an employee has contracted out of unjustified dismissal;
  • Employers do not need to consult with an employee who was contracted out about a decision to dismiss them;
  • Employees who are subject to a collective agreement can negotiate to include this term, providing it is not contrary to anything else in the collective agreement;
  • To contract out, employees must get independent legal advice from a lawyer about the effect of the provision. The lawyer must witness the employee’s signature and certify that they explained the effect of the provision.

Whether the Bill does pass in its current form could very much depend on the outcome of the upcoming election. The Bill won’t have its second reading until Parliament reconvenes post election. Both Labour and NZ First are opposed on grounds of principle.

If the Bill passes, implementation is likely to be something of a minefield (much like our beloved 90 day trial periods!) If you have any questions or would like further advice about this proposed legislation or any part of an employment agreement, please get in touch with us.