This country-specific Q&A provides an overview to employment and labour law in New Zealand.
It will cover termination of employment, procedures, protection for workers, compensation as well as insight and opinion on the most common difficulties employers face and any upcoming legal changes planned..
This Q&A is part of the global guide to Employment & Labour. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/employment-labour-law/
Does an employer need a reason in order to lawfully terminate an employment relationship? If so, describe what reasons are lawful?
No, within the first 90 days of employment if the employment agreement contains a valid trial period.
In all other circumstances an employer must have a justifiable reason to lawfully terminate the employment relationship. The employer must also follow a fair and reasonable process in doing so.
Termination may be without notice (summary dismissal) if the employee commits serious misconduct. Generally, serious misconduct is an act or omission which destroys or significantly undermines the trust and confidence which underpins the employment relationship. Serious misconduct may include dishonesty (e.g. theft or fraud), violence, gross negligence or gross insubordination.
Where the employee’s action or omission involves a lesser level of misconduct, or poor performance then the employer must follow a formal warning or performance management process before termination can occur.
Other grounds for the termination of employment include abandonment, medical incapacity, incompatibility, redundancy and frustration of contract.
The question of whether a dismissal or other disciplinary matter action was justified is determined by reference to section 103A of the Employment Relations Act 2000. The test requires consideration of whether an employer’s actions, and how the employer acted were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal occurred. The employer must be able to show that it had both substantive grounds for the decision to dismiss and have followed a fair process to arrive at its decision to satisfy the test.
What, if any, additional considerations apply if large numbers of dismissals (redundancies) are planned?
The term “redundancy” is not defined in the Employment Relations Act 2000. The courts have defined a redundancy as a situation where an employee’s position becomes surplus to the needs of the employer.
The law applicable to termination for cause also applies to no-fault termination for redundancy. A redundancy must be substantively justified. The business decision underpinning the redundancy has to be measured against what a fair and reasonable employer could have decided to do in the circumstances.
A redundancy must be carried out in a way that is procedurally fair. Any process agreed to in an employee’s employment agreement (if any) must be strictly followed. Employees must be informed of their jobs being in jeopardy and be consulted, and the employer must consider any alternatives to redundancy before a final decision is made. Selection of an employee for redundancy must be carried out using fair criteria and the employer must be able to show that it has considered any possibility of redeploying the employee.
Once a final decision has been made to implement redundancy:
- An employee’s agreement may provide for compensation upon redundancy, but otherwise there is no statutory entitlement to redundancy compensation.
- Notice of termination must be given to an employee who is being made redundant. A notice period of termination for redundancy is usually specified in the employee’s employment agreement. If there are no provisions relating to notice, reasonable notice must be given.
A well-resourced employer should consider what assistance it can provide to redundant employees including matters such as providing a reference, support in searching for alternative employment, curriculum vitae development or access to counselling.
What, if any, additional considerations apply if a worker’s employment is terminated in the context of a business sale?
Every employment agreement must contain an ‘employee protection provision’ clause to protect the employment of an affected employee in the event of a restructuring, which includes the sale or part or all of an employer’s business.
The vendor employer (along with the purchaser) will need to consider whether there are any employees are entitled to transfer from the vendor to purchaser as of right. The Employment Relations Act 2000 specifies certain groups of workers (often referred to as ‘vulnerable workers’) including those who perform cleaning, catering, laundry and caretaking work in particular industry sectors. These workers may have special rights, including the right to transfer to the purchaser employer on their existing terms and conditions, or bargain for alternative entitlements.
In regard to those employees who are not ‘vulnerable workers’, the employer must follow the process set out in the employees’ protection provisions which, at bare minimum, will involve consultation with the affected employees, and determination of what entitlements (if any) are available to employees, negotiations with the purchaser employer about whether employees will transfer, who do not transfer to the purchaser's new employer.
What, if any, is the minimum notice period to terminate employment?
There is no statutory minimum.
Most employment agreements contain a notice provision. Notice for waged staff is typically one to two weeks. Salaried staff in supervising and management positions often have notice of four weeks or one calendar month. Senior, management and executive staff can expect notice anywhere from three to 12 months (or longer). Most employment agreements also require notice to be given in writing to avoid any doubt as to an employer’s or an employee’s intention
If an employment agreement does not specify a notice period, then reasonable notice must be provided having regard to seniority/salary level, the nature of the role, length of service, company or industry practice and personal factors such as age, qualifications, and job mobility. The reasonableness of the notice period is determined at the time that notice is given, not at the time the employment agreement was entered into.
Is it possible to pay monies out to a worker to end the employment relationship instead of giving notice?
An employment agreement may allow an employer to pay an amount instead of notice: this is commonly referred to as paying in lieu of notice.
In these circumstances an employer exercising that right will terminate employment prior to the expiry of the notice period by making such payment, i.e. it is in lieu or ‘instead’ of actual notice. An employer is only able to pay in lieu if the employment agreement provides for it, or if the employer and employee agree.
If there is no contractual ability to make a payment in lieu of notice, and an employer gives less than the required amount of notice, then it has not given notice at all: notice has not been legally effected and can only be remedied by giving new notice for the correct period.
Where the employer is wishing to end the employment relationship, any ability to terminate on notice or pay instead of notice does not absolve an employer of the requirement to provide reasons and justify a termination (see question 1).
Can an employer require a worker to be on garden leave, that is, continue to employ and pay a worker during his notice period but require him to say at home and not participate in any work?
A period of garden leave can only be imposed for part or all of the notice period if the employee has agreed. An employee’s agreement is commonly given in an express provision of an employment agreement. During a period of garden leave, the employee continues to be bound by the terms and conditions of employment (including the employee’s duty of fidelity).
If an employee’s employment agreement does not include a garden leave clause, and the employee refuses to provide consent to remain away from the work place, an employer cannot force the employee to do so.
Does an employer have to follow a prescribed procedure to achieve an effective termination of the employment relationship? If yes, describe the requirements of that procedure or procedures.
In addition to substantive cause, the Employment Relations Act 2000 requires that an employer follow a fair process prior to termination. A fair process requires that prior to terminating employment the employer must, at a minimum:
- Investigate allegations against the employee sufficiently (as appropriate);
- Raise any concerns with the employee;
- Give the employee a reasonable opportunity to respond to the employer’s concerns; and
- Consider the employee’s explanation in relation to the allegations.
The process is underpinned by a statutory duty of good faith which requires an employer who is proposing to make a decision that will, or is likely to have an adverse effect on the continuation of employment to provide any affected employee with information relevant to the continuation of employment, and provide the affected employee with the opportunity to comment on the information before making a final decision.
An employment agreement or employer's policy may contain additional procedural requirements or consultation obligations which must be complied with prior to terminating employment.
An employee is entitled to be represented throughout a termination process by a union or other representative.
If the employer does not follow any prescribed procedure as described in response to question 7, what are the consequences for the employer?
The employee may raise a personal grievance in respect of the termination of employment, claiming unjustifiable dismissal on the basis of procedural fairness/due process.
The personal grievance is determined in the first instance by a specialist employment tribunal, the Employment Relations Authority (Authority). The Authority is an investigative body that is tasked under the Act to resolve employment relationship problems by establishing facts, and making a determination according to the merits without regard to technicalities.
The consequences for the employer can include reinstatement of the employee, an award for loss of earnings, compensation for loss of benefits and compensation for injury to feelings.
The Authority is required to consider whether it should direct the parties to mediation or further mediation unless there are good reasons not to do so. Mediation is arranged through the Ministry of Business Innovation and Employment’s confidential and free Mediation Service. The majority of employment relationship problems are required to go to through the mediation process prior to the Authority’s investigation meeting (if required).
If a party is dissatisfied with all or part of a determination of the Authority, it may elect to have the matter heard by the Employment Court either by way of a full rehearing of the entire matter, or a challenge based on a question or error of law or fact.
Where any party to a proceeding before the Employment Court is dissatisfied with the decision, the party may apply for leave to appeal to the Court of Appeal.
How, if at all, are collective agreements relevant to the termination of employment?
A collective agreement must comply with certain statutory requirements, including by being in writing, being executed by the employer(s) and union(s) that are parties to the collective agreement, and have a ‘coverage clause’ stating the work that the collective agreement covers. Other than the statutory requirements, the parties decide what is included in the collective agreement (unless the Employment Relations Authority is requested to, and agrees to fix the terms of collective agreement). A collective agreement will usually contain a provision which includes the process to be followed prior to the termination of employment.
There are no additional statutory protections or statutory requirements relevant to collective agreements.
Does the employer have to obtain the permission of or inform a third party (eg local labour authorities or court) before being able to validly terminate the employment relationship? If yes, what are the sanctions for breach of this requirement?
No. The validity of the termination of the employment is subject to the test of justification contained in s103A of the Employment Relations Act 2000.
What protection from discrimination or harassment are workers entitled to in respect of the termination of employment?
The Employment Relations Act 2000 and the Human Rights Act 1993 prohibit discrimination on the basis of:
- race or colour;
- ethnicity or national origins;
- sex (including pregnancy or childbirth);
- sexual orientation;
- religious or ethical belief;
- marital or family status;
- employment status;
- political opinion; and
- involvement in union activities, including claiming or helping others to claim a benefit under an employment agreement, or taking or intending to take employment relations education leave.
What are the possible consequences for the employer if a worker has suffered discrimination or harassment in the context of termination of employment?
An employee who considers that he or she has been unlawfully discriminated against during employment (including where this culminates in the termination of employment) can either:
- Raise a personal grievance and resolve this via mediation, the Authority process or the Employment Court process; or
- Make a complaint to the Human Rights Commissioner (who will attempt to resolve the compliant by a confidential and free mediation service) or a complaint can be made to the Director of the office of Human Rights Proceedings in the Human Rights Review Tribunal.
The consequences for the employer can include reinstatement of the employee, an award for loss of earnings, compensation for loss of benefits and compensation for injury to feelings.
Are any categories of worker (for example, fixed-term workers or workers on family leave) entitled to specific protection, other than protection from discrimination or harassment, on the termination of employment?
The following categories of employees have some additional protection:
With very limited exceptions, an employer may not terminate employment of any employee by reason of pregnancy or state of health during pregnancy.
An employer cannot terminate employment by reason of the employee indicating the he or she wishes to take parental leave under the Parental Leave and Employment Protection Act 1987.
Limited to certain special defences, an employer cannot terminate employment on the basis of the employee’s absence on parental leave or during the period of 26 weeks commencing with the day after the date of which period of parental leave ends.
Termination of employment for cause is not affected by the Parental Leave and Employment Protection Act 1987.
Fixed term employment
Employers can offer fixed-term employment if there are genuine reasons based on reasonable grounds for the fixed term, which may include, for example, seasonal work, project work, or where the employee is covering another employee’s parental leave. The employer must, in the employment agreement, advise the employee of when and how his or her employment will end and the reasons for his or her employment ending in that way.
If the employment agreement does not comply with these requirements, the employer may not rely on any fixed term to end the employee’s employment or to justify termination of employment, where the employee elects, at any time, to treat that term as ineffective.
Employees involved in cleaning services and food and catering in any workplace; and caretaking or laundry in the education sector; and orderly or laundry in the health sector and aged-related residential care sectors are entitled to transfer their employment if their work is replaced with contractors, contracted out or their business or part of the business is sold.
Public Health Sector
There is a code of good faith for public health sector that provides some additional protection to employees in the public health sector including employees of employers that provide services to the public health sector. This includes employees of employers who contract services to the public health sector being entitled to transfer to a new employer if the service provider is changed.
Are workers who have made disclosures in the public interest (whistleblowers) entitled to any special protection from termination of employment?
The Protected Disclosures Act 2000 provides statutory protection to government employees who complain about serious wrongdoing. Serious wrongdoing includes unlawful, corrupt or irregular use of public money or resources, any criminal offence or gross negligence by public officials.
If the disclosure of information is made in accordance with the Protected Disclosures Act 2000, no civil, criminal, or disciplinary proceedings can be taken against a person for making the protected disclosure.
An employee who suffers retaliatory action by their employer for making a protected disclosure can take personal grievance proceedings under the Employment Relations Act 2000. It is also unlawful under the Human Rights Act 1993 to treat whistle-blowers or potential whistle-blowers less favorably than others in the same or similar circumstances.
What financial compensation is required under law or custom to terminate the employment relationship? How do employers usually decide how much compensation is to be paid?
There is no statutory requirement for an employer to pay redundancy or any other ‘severance’ pay on termination.
Redundancy compensation or severance pay may be provided for in an individual or collective employment agreement.
Rarely, an employer may have a custom or practice of making such payments, or may choose to make an ex gratia payment.
Compensation may be awarded by the Employment Relations Authority or Employment Court if it finds that the termination of an employment relationship was unjustified.
Can an employer reach agreement with a worker on the termination of employment in which the employee validly waives his rights in return for a payment? If yes, describe any limitations that apply.
Yes, subject to limitations. An employee can partly or fully settle issues arising from a personal grievance or breach of contract and forbear from or forego enforcement of his or her rights at law in consideration for payment or other benefits. There must be some form of employment relationship problem that needs to be resolved.
A settlement agreement, however, may not compromise an employee’s minimum entitlements under minimum entitlement legislation including the Minimum Wage Act 1983, the Holidays Act 2003, the Home and Community Support (Payment for Travel Between Clients) Settlement Act 2016, or the Care and Support Workers (Pay Equity) Settlement Act 2017.
Is it possible to restrict a worker from working for competitors after the termination of employment? If yes, describe any relevant requirements or limitations.
Restraint of trade covenants are not illegal under the illegal contracts provisions of the Contract and Commercial Law Act 2017, but are prima facie unenforceable at common law for public policy reasons.
The courts, however, have previously signalled that restraint of trade covenants are to be taken seriously by the parties that have expressly entered into them. Such covenants are amenable to enforcement by injunction to the extent that they are reasonable and otherwise lawful. Both the Employment Relations Authority and Employment Court have the power to issue interim and interlocutory injunctions to prevent breaches of restraint of trade covenants.
Restraint of trade covenants typically take two forms: ‘non-competition’ and ‘non-solicitation’.
A non-competition restraint will generally seek to prevent direct or indirect competition (to varying degrees) with the employer’s business for a specified period, and often in respect of a specified geographical area. Such restraint will only be enforced to the extent that it is necessary to protect an employer’s legitimate proprietary business interest, commonly a trade secret, client lists or financial information. A restraint will not be allowed to operate to protect an employer against mere competition.
A non-solicitation restraint will generally seek to prevent canvassing, soliciting or accepting business or work from customers/clients or suppliers of the employer with whom the ex-employee had dealings, or from soliciting or enticing an employee of the employer to cease employment.
Consideration is required for a restraint. Where the restraint is entered into at the same time as the employment relationship the remuneration is not necessary that any consideration over and above the remuneration for the underlying agreement be provided.
In determining whether a provision is enforceable, the courts will consider a number of factors including the nature of the proprietary interest that is sought to be protected, the reasonableness of duration and the geographic scope of the restraint, and considering the context of the employment agreement, and background and circumstances that existed when the clause was entered into.
Non-solicitation clauses are, generally, more likely to be upheld than non-competition clauses on the basis that that they are less restrictive. The enforceability of a non-competition or non-solicitation clause increases with the employee’s seniority, among with factors that increase the access which an employee has to the employer’s confidential information, clients or other proprietary interests.
Can an employer require a worker to keep information relating to the employer confidential after the termination of employment?
Yes. Most written employment agreements contain a clause expressly setting out the obligations of an employee in respect of confidential information following termination.
In the absence of a contractual provision, an implied duty not to disclose confidential information survives the termination of an employment agreement, but in a restricted form. Information which is of a sufficiently high degree of confidentiality as to amount to a trade secret will be subject to an ongoing duty not to use or disclose the information.
The determination of what constitutes a trade secret is determined on a case-by-case basis having regard to the nature of the employment, the nature of the information, whether the employer impressed upon the employee the confidential nature of the information; and whether the relevant information is easily isolated from other information which the employee is free to use.
Are employers obliged to provide references to new employers if these are requested?
There is no legal requirement to provide an employee a written work reference unless it is provided for in the employee’s employment agreement.
Under the Privacy Act 1993 an employer can only release personal information about an employee, including a work reference, to a third party if authorised by the employee to do so.
The courts have held that an employer must provide a record of the types of work carried out by an employee, if required.
What, in your opinion, are the most common difficulties faced by employers when terminating employment and how do you consider employers can mitigate these?
The most common difficulties arises around the natural justice/fair process requirements. The requirements of good faith, and procedural fairness require the employer to:
- fully investigate the concerns;
- raise their concerns with the employee;
- give the employee a reasonable opportunity to respond; and
- genuinely consider the employee’s explanations (if provided).
Failing to satisfactorily meet these requirements is the most common reason terminations are found unjustified.
To mitigate and minimise procedural errors, the employer should:
- ensure a full, independent investigation, taking into account any additional information provided by the employee;
- ensure the decision maker is as impartial as possible;
- advise the employee to seek independent advice at the start of the process;
- advise the employee to have a representative or support person at any disciplinary meetings;
- not make the decision on what action to take until after considering the employee’s response to the proposed course of action;
- take into account any similar situations that have occurred previously;
- carefully consider all options before making a final decision.
Are any legal changes planned that are likely to impact on the way employers approach termination of employment? If so, please describe what impact you foresee from such changes and how employers can prepare for them?
90 day trial periods: legislation has been introduced to restrict 90 day trial periods (the ability to terminate employment on notice for any reason in the first 90 days of employment) to small medium enterprises (SME) employers (fewer than 20 employees).
Reinstatement: reinstatement while remaining a remedy, was removed as the primary remedy for termination in 2011. This is likely to be restored in 2018. The change is likely to be used by employees as a negotiation point in post-termination disputes.
Statutory redundancy compensation: the Labour-led coalition government formed in late 2017 have signalled that it intends to consult on minimum redundancy protection for workers affected by restructuring.