"Personal grievance settings have tilted too far in favour of employees and are creating additional costs for employers”

Workplace Relations and Safety Minister, Brooke van Velden, has announced potential changes to the way in which the Employment Relations Authority (Authority) and Employment Court (Court) will award remedies for personal grievances. This proposed amendment to the Employment Relations Act 2000 (Act), expected to take effect in 2025 if passed through Parliament, follows the recent income threshold announcement made last week. Together, the proposed changes deliver on the Act-National coalition commitment to “strike a better balance and increase certainty for employers so they can focus on their businesses”. We consider these changes would result in a significant shake up to how disciplinary processes are conducted and assessed.

The current landscape

Currently, an Employment Court decision means the Authority may only reduce remedies by up to 50%, where an employee has contributed to the situation giving rise to the personal grievance. Despite this, the average reduction in remedies has become smaller in recent years, being around 40% in 2013 and only 22% in 2023. 

Against this, remedies granted to employees have significantly increased in size. Last year, the average remedy totalled around $25,000 per case. Specifically, the average amount awarded as compensation for hurt and humiliation has nearly tripled since 2014. 

All of which has led Minister Van Velden to conclude that there is “increasing uncertainty and potential costs for employers” which “has incentivised employees to try their luck at raising a personal grievance in the hope that they will get a financial pay out”. The changes aim to curb this behaviour.

Our thoughts

The proposed changes are likely to have a significant impact on New Zealand’s employment law landscape. Currently, reinstatement is the primary remedy under the Act. However, under the amendment, employees would no longer be entitled to reinstatement if their behaviour contributed to the issue in question. In our experience, this would capture many of the reinstatement applications we see. 

These suggested amendments will generally be welcomed by employers - anecdotally, we have observed the disruption within businesses and impact on existing staff that interim and permanent reinstatement causes. It is also frustrating for businesses when they consider there to be a very clear case of serious misconduct, but there are significant procedural hoops to jump through to justify a dismissal. 

That said, a number of questions remain around how these changes would operate in practice. If an employee is not entitled to remedies in cases of serious misconduct, will employers be able to simply ignore all of the procedural requirements set by the Act and existing case law? We anticipate that this change would lead to increased scrutiny over whether conduct, in fact, amounts to “serious misconduct”. In cases where a fair procedure is not followed, it may remain difficult to justify a finding of “serious misconduct” in all of the circumstances. However, overall, we consider these changes will support employers in taking a more robust approach during these processes. 

The exact threshold for ‘contributory conduct’, and how the Authority/Court will draw a line as to what conduct disentitles a claimant to remedies, remains unclear. However, the changes appear to be focussed on situations where an employer’s decision is substantively justified but there were errors in the process followed to reach a decision. Minister Van Velden has said that “the size of an employer’s procedural defect will no longer be a key focus of the court’s assessment - what matters is whether the employee has been treated unfairly. If they have not, the employer shouldn’t be penalised”. It will be interesting to see how the Bill is received when it is introduced into Parliament next year.

The announcement comes after Cabinet agreed last week to introduce an income threshold of $180,000 for raising a personal grievance for unjustified dismissal. Together, the changes are some of the most impactful that we have seen in recent time. They action Cabinet’s commitment to ‘evening the playing field’ in the employment sphere and removing some of the current perceived ‘red-tape’ that employers face. 

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Special thanks to Senior Associate, India Townsend, Solicitor, Matthew Maitland and Summer Clerk, Quinn Benson-Gamble for their assistance in preparing this article.