Workplace Relations and Safety Minister Brooke van Velden has announced that Cabinet has approved the introduction of an income threshold for unjustified dismissal personal grievances. Under the proposed changes, employees earning $180,000 per year or more will no longer be able to file personal grievance claims for unjustified dismissal.

This amendment to the Employment Relations Act, expected to take effect in 2025, delivers on a commitment in the ACT-National coalition agreement. It aligns New Zealand with the approach taken in Australia, which has implemented similar restrictions on unjustified dismissal claims for high-income earners.

Minister van Velden explained the change will help employers secure the right leaders in senior and specialist roles, while providing employees with more flexibility in negotiations. Employers and employees can choose to voluntarily "opt back in" to unjustified dismissal protection.

Past attempt to bar high-income claimants

A similar amendment was previously tabled by the then-National Government in 2017. Under that proposed Bill, which did not pass its first reading, employees earning over $150,000 annually could waive their right to pursue personal grievances, including claims related to disadvantage, dismissal, discrimination and harassment. The rationale was that highly skilled, high-income employees were less vulnerable and better equipped to negotiate fair terms of employment, including their own exit arrangements.

A key change in Minister van Velden's proposed approach is to preserve the ability to raise other types of personal grievances. This reflects the approach in Australia, which, anecdotally, appears to see more discrimination claims or other legal action brought by high income earners, in order to circumvent the threshold. We expect a similar shift in the nature of the claims brought forward in New Zealand, even within the scope of the new amendment.

What is included in the high-income threshold?

The proposed threshold will only factor in regular base salary, excluding other forms of income such as incentive payments and benefits. Additionally, it will not be adjusted for part-time employment.

Australia has seen extensive litigation over what payments should be included in calculations. This has highlighted the complexity of assessing total remuneration. For instance, benefits such as a company vehicle primarily used for private purposes and guaranteed overtime have been ruled to count towards the threshold. In contrast, discretionary bonuses and travel allowances for work-related travel have been excluded.

As the proposed amendment is said to only refer to base salary, New Zealand will hopefully avoid the litigation we have seen in Australia where income straddles the threshold for bringing a claim.

Concluding thoughts

In our experience, no-fault termination clauses are commonly used for many senior and specialist employees already. While these clauses don’t outright prevent employees from pursuing an unjustified dismissal claim, they often serve as a starting point for negotiated exit arrangements.

The proposed approach could strengthen this practice and encourage an increased focus on upfront negotiation, leading to greater clarity and certainty around the contractual terms for high-come earners. By addressing key terms early, such arrangements could help prevent misunderstandings and create a more structured framework for both employees and employers, ultimately fostering a more transparent employment relationship. However, drawing upon overseas experience, it is possible senior executives may simply reframe their claims, bringing forward alternative grievances or disputes to challenge their dismissal.

This highlights the need for employers to ensure robust contractual provisions are in place for senior employees to best negotiate dispute resolution mechanisms and exit frameworks in advance. Given ‘high income’ employees generally have good bargaining power, and will have the opportunity to contractually ‘opt back in’ to the unjustified dismissal regime, we consider that contractual terms would need to be attractive to secure their agreement to ‘give up’ their right to bring a claim for unjustified dismissal.

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Special thanks to Senior Associate, Jessica Greenheld and Solicitor, Gioja Buckleton for their assistance in preparing this article.