Yes, an employer must have a justifiable reason to lawfully terminate an employment relationship. Employers must also follow a fair and reasonable process in doing so. The only exception is if the employment agreement contains a valid trial period provision, and the termination is effected in accordance with this provision and the applicable legislation. Termination may be without notice (summary dismissal) if the employee commits serious misconduct. Generally, serious misconduct is an act or omission that destroys or significantly undermines the trust and confidence that underpins the employment relationship. Some examples of serious misconduct that may erode trust and confidence include dishonesty (e.g. theft or fraud), violence, gross negligence or gross insubordination. A summary dismissal will (except in the rarest of circumstances) require a process to be followed prior to termination.

Where the employee’s action or omission involves a lesser level of misconduct or poor performance the employer would generally be expected to follow a formal warning or performance management process first. Performance management processes in particular can be intensive and take a long time. Termination could be a consequence of repeated or continued misconduct or poor performance in a subsequent or additional process.

Other grounds for the termination of employment include abandonment of employment, medical incapacity, incompatibility, redundancy and (very rarely) frustration of contract.

The Employment Relations Act 2000 and the Human Rights Act 1993 prohibit an employer discriminating against employees, including by way of terminating employment on a number of prohibited grounds of discrimination. This includes a prohibition on forced retirement for employees, except in limited industries/roles.

There are three types of employment in New Zealand: permanent, fixed-term, and casual. A permanent employment relationship continues indefinitely, until either the employee resigns, retires, or dies, or the employment relationship is terminated for some other reason as outlined above. Fixed-term and casual employment relationships can also be terminated for the reasons outlined above. Unlike permanent employment relationships they can also be ended on the expiry of the agreed engagement for casual employees, or on the expiry of a fixed-term employment agreement or when the specified terminating event or circumstance occurs for fixed-term employees.

The question of whether a dismissal or other disciplinary action is 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 or other action occurred. To satisfy the test, the employer must be able to show that it had both substantive grounds for the decision to dismiss and followed a fair process to arrive at its decision. Employees whose annual remuneration meets or exceeds a specified remuneration threshold may not pursue a personal grievance in respect of the dismissal.

There are no specific or additional provisions for redundancies that affect a large number of employees. The considerations set out below apply irrespective of the number of employees potentially affected by redundancy.

The term “redundancy” is not defined in the Employment Relations Act 2000. The courts have defined a redundancy as a situation where employment is terminated due to an employee’s position becoming surplus to the needs of the employer.

Although redundancy is classed as a no-fault termination, the law applicable to termination for cause applies. Termination on the basis of redundancy must be substantively justified. The business decision underpinning the redundancy must be measured against what a fair and reasonable employer could have done in the circumstances.

A redundancy must also be carried out in a way that is procedurally fair. Any process agreed to in an employee’s employment agreement must be strictly followed, as well as any specific considerations which may be captured by internal policies. Employees must be informed that their jobs are in jeopardy, be consulted about the reasons for the proposed change, be provided with all relevant information, and allowed to provide their feedback to and have it considered by the decision maker, before any decision is made to disestablish their role. The employer must also consult with the employee about and consider any alternatives to redundancy before a final decision is made to terminate employment.

Where head count reduction of the same role/s is contemplated, the selection of an employee for redundancy must be carried out using fair and objective criteria, and those criteria must be the subject of consultation with the potentially affected employees. The employer must be able to show that it has considered any possibility of redeploying the employee to any vacant roles within the organisation that are reasonably within an employee’s capability (even if some training may be required). It is important that employers do not presume an employee’s interest in or ability to perform vacant roles and instead consult with the employee about any redeployment opportunities.

Once a final decision has been made to implement redundancy:

• an employee’s employment 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.

The employer should consider what assistance it can provide to redundant employees, such as providing a reference, support in searching for alternative employment, curriculum vitae development, and access to counselling.

Every employment agreement must contain an employee protection provision. The purpose of an employee protection provision is to provide protection for the employment of employees affected by a restructuring. In this context, a restructure is defined in the Employment Relations Act 2000 as contracting out, selling or transferring the employer’s business (or part of it) to another person.

An employee protection provision must include:

• a process that the vendor employer must follow in negotiating with a potential purchaser about the restructuring, to the extent that it relates to potentially affected employees; and
• the matters relating to the affected employees’ employment that the vendor employer will negotiate with the purchaser, including whether the affected employees will transfer to the purchaser on the same terms and conditions of employment; and
• the process to be followed at the time of the restructuring to determine what entitlements, if any, are available for employees who do not transfer to the purchaser.

Under the Employment Relations Act 2000 there is also a specified category of employees, commonly referred to as ‘vulnerable employees’. They are afforded a higher level of statutory protection in the event of a restructure.

The specified categories of employees are set out in Schedule 1A of the Employment Relations Act 2000 and are employees who provide specified services in the specified sectors, facilities, or places of work. Specified services include: cleaning services, food catering services, caretaking, laundry services or orderly service. Specified sectors include: education sector, health sector, age-related residential care sector, public service or local Government sector and services in relation to any airport facility or for the aviation sector. Employees who carry out cleaning services or food catering services in relation to any workplace are also included. These workers may have special rights, including the right to certain information about the restructure, the right to elect to transfer to the purchaser employer on their existing terms and conditions, or bargain for alternative entitlements.

In relation to those employees who are not ‘vulnerable employees’, the employer must follow the process set out in the employees’ protection provisions which, at a bare minimum, will involve consultation with the affected employees, and determination of what entitlements (if any) are available to them, negotiations with the purchaser employer about whether employees will transfer, and considering how to deal with employees who do not transfer to the purchaser employer.

There is no statutory minimum period of service which provides benefits to employees upon termination.

An employee’s employment agreement or an employer’s policies may provide servicerelated benefits that are payable on termination. These provisions are typically utilised to acknowledge and recognise an employee’s tenure and can be common in certain industries and professions.

An example of these service-related benefits is redundancy compensation provisions that provide for a specified payment to be made to an employee where their employment is terminated for redundancy. Redundancy compensation can be a set figure, or it can increase over time, for example where it involves a calculation based on the number of years the employee has been employed by the same employer. However, it is not uncommon for the compensation to be capped at a maximum amount.

Long service leave provisions provide employees with additional leave entitlements after an employee has remained employed for a prescribed amount of time. Some long service leave provisions are treated by employers as an extension of an employee’s annual leave entitlement, which means that it may be payable upon termination. However, this will always be dependent on the provision in the employment agreement and any relevant policy.

An employee will also be entitled to their notice period if their employment is terminated. The notice period will usually be contained in an employee’s employment agreement. If the employment agreement does not specify the employee’s notice period, they will be entitled to reasonable notice. Employers often have a contractual ability to direct employees to perform different duties in their notice period, to not attend the workplace, or to pay the employee in lieu of notice.

There is no minimum notice period to terminate an employee’s employment in New Zealand, but the notice period must be reasonable. What is reasonable will depend on the specific circumstances.

While there is no minimum notice period, employees in senior positions, such as a Chief Executive Officer, or other Senior Executive, tend to have longer notice periods. This is to allow employers more time to recruit employees to fill these positions. The market for such candidates tends to be smaller and more competitive, meaning that the longer duration employers have to search for new employees to fill these roles, the better.

Notice must still be given but an employment agreement may give the employer the right and ability to pay an amount equivalent to the notice period instead of an employee working out some or all of the notice period: 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 of or ‘instead’ of the employee working out all or part of the notice period. 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 ends the employment relationship by giving less than the required amount of notice, then it has not given notice at all and will likely be in breach of the employment agreement provisions.

This 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 its good faith obligations or the requirement to provide reasons and justify a termination under section 103A of the Employment Relations Act 2000, except where the employee meets the specified remuneration threshold under new amendments to the Employment Relations Act 2000.

An employee and employer could mutually agree to end the employment relationship under a s 149 settlement agreement if the parties have an employment relationship problem. Apart from contracting out of certain minimum statutory entitlements, employees and employers are free to agree to whatever terms they see fit. This could include, for example, bringing the employment relationship to an end before the end of the notice period in exchange for specified consideration.

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 common law duty of fidelity, and the duty of good faith under the Employment Relations Act 2000).

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 workplace, an employer cannot force the employee to do so.

In addition to substantive justification, the Employment Relations Act 2000 requires that an employer follow a fair process prior to termination. A fair process requires that before 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 before making a decision.

Part of conducting a fair process involves ensuring that an employee has an opportunity to provide their responses to the relevant decision-maker, and for that decision-maker to consider the feedback before making their decision. This means that a decision-maker should be actively involved in any employment process.

While an employer may hold a particular view prior to or during an employment process, a decision should not have been predetermined i.e. made before the process has run its course.

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 access to 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.

There may be other relevant fairness considerations, for example, allowing an employee to provide their feedback verbally or in writing depending on their preference, or allowing an employee an extension to provide their feedback where the employee is seeking independent advice.

An employment agreement or an employer’s policy may contain additional procedural requirements or consultation obligations which must be complied with prior to terminating employment, in order for the termination to be considered fair and reasonable in accordance with the statutory s 103A test.
An employee is entitled to be represented throughout a termination process by a union or other representative. An employee is also entitled to bring a support person to any meeting.

An employee may raise a claim with their employer in respect of their dismissal, including, for example, a personal grievance for either unjustified disadvantage and/or dismissal, as well as a contractual claim. Subject to the claims having been raised with the employer within the requisite timeframe, an employee is able to pursue their claims in the Employment Relations Authority (Authority), which is a specialist employment tribunal. In select circumstances, parties to a claim can bypass the Authority and proceed directly to the Employment Court. Parties may also appeal any Authority determination to the Employment Court, and any decision of the Employment Court to the Court of Appeal. It is also possible for matters to be appealed from the Court of Appeal to the Supreme Court, although this is highly unusual in the employment jurisdiction.

As above, note that an employee whose annual remuneration meets the specified remuneration threshold may not pursue a personal grievance in relation to unjustified dismissal, even where the employer has not complied with the requirements of s 103A or other process requirements.

Employees (other than those whose annual remuneration meets or exceeds the specified remuneration threshold) may raise a personal grievance in respect of the termination of employment, claiming unjustifiable disadvantage and/or dismissal on the basis of a failure to comply with procedural fairness/due process. The employee could also allege a breach of the statutory duty of good faith, which commonly occurs where the employer has not provided the employee with all the relevant information during an employment process. It is also possible for the employee to bring a contractual claim for any breach of their employment agreement if applicable.
The personal grievance is generally determined in the first instance by the Authority. The Authority is an investigative body that is tasked under the Employment Relations Act 2000 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 to their employment (which is the primary remedy), an award for loss of earnings, compensation for loss of benefits and compensation for injury to feelings (or a combination of those remedies). Reinstatement must be provided wherever practicable and reasonable; however, it is rarely requested in practice, and even more rarely awarded.

Before investigating a matter, 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. Most employment relationship problems are required to go through the mediation process.

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.

A collective agreement must comply with certain statutory requirements, including:

• being in writing;
• being executed by the employer(s) and union(s) that are parties to the collective agreement;
• having a ‘coverage clause’ stating the work that the collective agreement covers;
• having the rates of wage or salary payable to the employees; and
• a plain language explanation of the services available for the resolution of employment relationship problems.

Other than the statutory requirements, the parties decide what is included in the collective agreement (unless the Authority is requested to, and agrees to, fix the terms of the collective agreement in the event that bargaining has broken down).  A collective agreement will often contain provisions that include the process to be followed prior to the termination of employment.  This process may be over and above the minimum requirements for a fair process that an employer would be required to follow under the Employment Relations Act 2000.

There are no additional statutory protections or statutory requirements relating to termination where this takes place under a collective agreement. The same requirements around good faith and both substantive and procedural fairness apply irrespective of whether the employee is employed under a collective or individual employment agreement.

No. The validity of the termination of the employment is subject to the test of justification contained in section 103A of the Employment Relations Act 2000.

The Employment Relations Act 2000 and the Human Rights Act 1993 prohibit discrimination on the basis of:

• age;
• race or colour;
• ethnic or national origins;
• sex (including pregnancy or childbirth);
• sexual orientation;
• disability;
• religious or ethical belief;
• marital or family status;
• employment status;
• political opinion;
• an employee’s union membership status or 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.

Sexual harassment, adverse treatment in the employment of people affected by family violence, and racial harassment are further prohibited by the Employment Relations Act 2000 and the Human Rights Act 1993.

It is relevant to note that a trial period does not preclude a claim for discrimination or harassment of any kind.  During a trial period, an employer cannot take action (including terminating employment) on the basis of the aforementioned grounds.

Those employees whose annual remuneration meets or exceeds the specified remuneration threshold may not raise a personal grievance in relation to dismissal, except where they have been sexually or racially harassed, discriminated against or adversely treated on account of either being suspected, assumed or believed to be a person affected by family violence.

An employee who considers that he or she has suffered unlawful discrimination or harassment during employment (including where this results in the termination of employment) can either:

a. Raise a personal grievance and resolve this via mediation, the Employment

Relations Authority, or the Employment Court; or

b. Make a complaint to the Human Rights Commissioner (who will attempt to resolve the complaint by a confidential and free mediation service). If it is not resolved, the complaint can then be referred to the Director of the Office of Human Rights Proceedings in the Human Rights Review Tribunal.

An employer who is found to have engaged in discrimination or harassment against their worker can be subject to, among other things, an order for reinstatement of a dismissed employee, an award for loss of earnings, compensation for loss of benefits and compensation for injury to feelings (or a combination of any of those remedies).

While there must be a substantive reason, and a fair process and good faith obligations must be maintained in relation to the termination of any worker’s employment, there are categories of employees that have additional protection.

a. Parental Leave

With very limited exceptions, an employer may not terminate employment of any employee by reason of pregnancy or state of health during pregnancy.  It is unlawful to dismiss or disadvantage an employee on the basis of pregnancy or parental leave.  Where an employee has indicated that he or she wishes to take parental leave, they are protected from termination under the Parental Leave and Employment Protection Act 1987.

Subject to certain special defences, an employer cannot terminate employment based on the employee’s absence on parental leave or during the period of 26 weeks commencing with the day after the date on which the employee’s parental leave ended.

Termination of employment for cause (namely, termination for a satisfactory reason), is not affected by the Parental Leave and Employment Protection Act 1987.

The employment of an employee who is on parental leave could still be terminated by way of redundancy, but there are additional protections in place for those employees which the employer would be required to meet to justify termination.

b. Employees Affected by Family Violence

Employees who are affected by family violence are entitled to up to 10 days’ paid leave per annum, once employees have been employed continuously for six months.  Family violence leave can be taken in advance by agreement with the employer, but it is not cumulative and is not paid out at the end of employment.

Employees who are affected by family violence can also request short term changes to their working conditions, including work location, duties, contact details that the employee gives to the employer, or any other term of the employment agreement.

Section 108A of the Employment Relations Act 2000 makes it unlawful for an employer to adversely treat an employee on the grounds that the employee is, or is suspected, assumed or believed to be, a person affected by family violence.  Adverse treatment includes: dismissal, or refusal or omitting to offer or afford an employee the same terms of employment, conditions of work, fringe benefits, opportunities or training and promotion, made available for other employees with the same or substantially the same qualifications, experience or skills, and employed in the same or substantially similar circumstances.

c. 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 absence.  The employer must, in the employment agreement, advise the employee of when and how their 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.

d. ‘Vulnerable’ Employees

Employees providing the Specified Services listed in Schedule 1A Employment Relations Act 2000 have additional protections in certain circumstances i.e. those involved in: cleaning services and food catering services in any workplace; caretaking or laundry services in the education sector; orderly or laundry services in the health sector and aged-related residential care sectors.  These employees are entitled to transfer their employment and any minimum entitlements if their work is replaced with contractors, contracted out, or their business or part of the business is sold.

e. Public Health Sector

There is a code of good faith for the public health sector that provides some additional protection to employees in the 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.

The Protected Disclosures (Protection of Whistleblowers) Act 2022 provides statutory protection to employees who complain about serious wrongdoing. Serious wrongdoing includes (but is not limited to) any act, omission or course of conduct that is any of the following: unlawful, corrupt, or irregular use of public money or resources; a criminal offence; a serious risk to public health, public safety, the health and safety of an individual, or the environment; or gross negligence by public officials.

No civil, criminal, or disciplinary proceedings can be taken against a person for making a protected disclosure. This legislation seeks to enhance protection for these employees within the workplace and to ensure that the confidentiality of the person who has made the disclosure is also protected.

An employee who suffers retaliatory action or victimisation by their employer for making or indicating an intention to make 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 whistleblowers or potential whistleblowers less favourably than others in the same or similar circumstances.

In the event of financial difficulties, an employer may be able to justify terminating employment for redundancy. As with other types of termination, the employer will need to meet the requirements of section 103A Employment Relations Act 2000, including having a substantive reason for dismissal and following a fair process (noting that employees whose annual remuneration meets or exceeds the income threshold test are not able to raise a personal grievance in relation to their dismissal).

If financial difficulties mean that an employer is proposing to disestablish an employee’s position, the employer must be able to justify why that particular position is affected (as opposed to any other position or positions) and to show that the employer has taken other steps to deal with the financial difficulties (for example, cost savings in other areas, or endeavours to increase revenue).

In terms of process, the employer must consult with the potentially affected employee or employees, provide information about what is proposed (for example, the disestablishment of the employee’s position) and the rationale for this – e.g. the financial difficulties, and why the employee’s position is the one proposed for disestablishment. With limited exceptions, the statutory duty of good faith provides that the employee is entitled to all information relevant to the proposal. The employer must provide financial information if this is relevant to the rationale. The employee must then be given a real opportunity to comment on the proposal and suggest alternatives. The employer must genuinely consider the employee’s feedback before making a decision. Where an employer decides to disestablish an employee’s position, there is an obligation to consider alternatives to termination for that employee – for example, redeployment into a vacant role, the possibility of creating a part time role, etc.

If an employer is proposing to reduce the number of the same or similar positions, it must propose and consult about both the reduction (and the rationale for it) and the proposed selection criteria. This will allow the employer to determine who retains the remaining roles.

An employer could potentially propose disestablishing a role, and creating another role that is paid less, works fewer hours, or has less responsibility. However, the justifiability of this would depend on the ‘new’ role being substantially different from the old role. It is very unlikely to be lawful if the role does not change, and the employee is expected to do the same role, for less remuneration.

Some employment processes are being increasingly automated through the use of artificial intelligence (AI). Examples include filtering and shortlisting candidates during the recruitment process and developing software that predicts which employees are likely to leave the company. AI is likely to play an increasing role in the management of employment processes.

As yet, there has been very little specific formal regulation on the use of AI in New Zealand.  Currently, there are no Employment Court or Employment Relations Authority decisions that have considered the use of AI in relation to termination of employment.

Possible legal risks that an employer should be cognisant of include privacy concerns (if employees’ or candidates’ personal information is uploaded into the AI programme), indirect bias or discrimination (if the algorithm favours or discounts employees or candidates based on prohibited grounds) and lack of transparency as to how decisions are made. This is particularly pertinent given New Zealand’s legal framework which requires good faith and the disclosure of information.  Two of these areas are discussed in more detail below.

a. Recruitment

Section 22 of the Human Rights Act 1993 makes it unlawful for employers to make decisions in an employment context on the basis of prohibited grounds. There are also corresponding provisions in the Employment Relations Act 2000. This includes employing, promoting or dismissing on the basis of prohibited grounds (sex (which includes pregnancy and childbirth), sexual orientation, marital or family status, religious and ethical beliefs, political opinion, race, colour, ethnicity or national origins, disability, age and employment status).  There is a risk that AI may base its decision on one or more of these unlawful grounds.  This can occur when automated rejections of candidates are based on prejudicial data that is inputted into the automated programme, such as data modelled on former or existing employees who represent, for example, a majority of one gender or ethnicity.  When using AI in recruitment, employers should proceed with caution by ensuring that the data inputted is not biased, and human reviews take place regularly to assess diversity and ensure that any indirect or inadvertent discrimination is identified and corrected.

b. Termination

It is difficult to see how AI could assist employers with a decision that would result in a lawful termination.  As above, any termination must be for justifiable reasons, and can only take place following a fair and reasonable process.  If AI is being used to assist with selection decisions in a redundancy situation, for example, the criteria for selection need to be transparent and non-discriminatory.  In the case of a redundancy, selection must be carried out in a way that is procedurally fair and substantively justified.  Risks of using AI to make or assist with termination decisions may arise if an employer is not able to justify how the software came to its decision on who to terminate.  Use of AI may also restrict or remove an employee’s ability to comment on the information as to why their role is proposed for disestablishment (if the information simply does not exist), which is likely to render the employer’s decision unjustified.  If AI technology assists a human decision, the decisionmaker needs to be able to substantiate and justify its decision, in line with its duty of good faith as an employer.

There is no statutory requirement for an employer to pay redundancy compensation or any other ‘severance’ pay on termination.  However, employees are entitled to a reasonable notice period, which they may work out, or salary to be paid in lieu of notice, if there is a provision in the employee’s employment agreement.  Employees will also receive statutory entitlements related to untaken leave pursuant to the Holidays Act 2003.

Redundancy compensation or severance pay may be provided for in an individual or collective employment agreement, or in an employer’s policy.

Rarely, an employer may have a custom or practice of making such payments or may choose to make a discretionary 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.

Yes, subject to limitations.  An employee can partly or fully settle issues arising from a personal grievance or breach of contract and forego enforcement of their rights at law in consideration for payment or other benefits.  There must be some form of employment relationship problem that needs to be resolved.  In almost all cases when the parties enter into a settlement agreement, they will agree to the terms of the settlement agreement, and discussions leading up to settlement, being strictly confidential.

A settlement agreement, however, must 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.

However, in New Zealand, the Employment Relations Authority and Employment Court have held that in order to have a genuine without prejudice conversation (one that is legally ‘off the record’) there must first be a dispute between the parties.  Legal proceedings or a personal grievance do not have to be raised, but there must at least be a significant difference in views about the lawfulness of an action or proposed action.  Accordingly, proposing a deed of release (as is common practice in other jurisdictions) prior to any dispute having arisen, is not likely to be covered by without prejudice protections and can be used to support an argument that the employer was threatening dismissal or unfairly pressuring an employee to resign.  There is presently a Bill before Parliament that would allow for protected discussions in certain circumstances where those discussions were for the purpose of agreeing on the termination of employment.  This Bill has not yet been passed.

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.  They will only be enforceable to the extent that they are reasonable and otherwise lawful.

The courts, however, have consistently signalled that restraint of trade covenants are to be taken seriously by the parties that have expressly entered into them.  Both the Authority and Employment Court have the power to issue interim and interlocutory injunctions to prevent breaches of restraint of trade covenants, as well as damages for breach.

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) by preventing an ex-employee from being employed or engaged with a competitor of 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, such as trade secrets, goodwill, client relationships, 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 exemployee 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, it is not necessary that any consideration over and above the remuneration for the underlying agreement be provided.  However, if a new restraint is proposed during the employment relationship, ‘fresh’ consideration will be required.

In determining whether a provision is enforceable, the courts will consider several factors, including the nature and significance of the proprietary interest that is sought to be protected, the reasonableness of duration and the geographic scope of the restraint, the context of the employment agreement, and the 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 they are less restrictive.  The enforceability of a non-competition or nonsolicitation clause increases with the employee’s seniority, along with factors that increase the access which an employee has to the employer’s confidential information, clients or other proprietary interests.

On 22 September 2022, the Employment Relations (Restraint of Trade) Amendment Bill was introduced to Parliament.  The Bill passed the first reading, and the Select Committee Report was presented on 24 May 2024.  The Bill is unlikely to pass its second reading as the current Government did not support the Bill when they were in Opposition.

However, if passed, this Bill would cover non-compete, non-solicitation and non-dealing restraint clauses.  The proposed Bill would amend the Employment Relations Act 2000 to provide that restraints of trade will have no effect if an employee earns less than three times the minimum wage.  Further, it would limit the use of restraints to situations where the employer has a proprietary interest to protect which must be described in the employment agreement, require employers to pay at least half the employee’s weekly earnings for each week the restraint of trade remains in effect, and limit the duration of restraints of trade to no more than six months.

As above, it is possible to include a restraint of trade covenant in an employee’s employment agreement which restricts solicitation of customers, clients, employees and other relevant groups for a specified period of time. To be enforceable, the restrictive covenant must be reasonable and lawful. There is no specific payment which is required to be paid for the restriction to be valid and enforceable, but the employee should have received some consideration for the restriction (which could be the employment agreement at the beginning of employment, or an additional payment if the restrictive covenant was agreed to at a later stage). The reasonableness of the restrictive covenant may also involve an assessment of the consideration received at the time the restrictive covenant was agreed. 

Yes. Most written employment agreements contain a clause expressly setting out the employee’s obligations 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. An employee who has been privy to and maintains (via memory or otherwise) information which is of a sufficiently high degree of confidentiality that it amounts 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.

There is no legal requirement to provide an employee with a written or verbal work reference unless it is provided for in the employee’s employment agreement.

Under the Privacy Act 2020, 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.

The most common difficulties arise around the natural justice / fair process requirements.  Issues tend to arise in this area when employers are confident in their view of what has taken place, are eager to dismiss an employee, and overlook or minimise procedural fairness as a result.  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 to be unjustified.

To mitigate and minimise procedural errors, the employer should:

• ensure a full investigation is carried out, 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 of their right to have a representative or support person at any formal 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 so that like situations can be treated alike; and
• carefully consider all options before making a final decision.

The Employment Relations Amendment Act 2026

The Employment Relations Amendment Act 2026 has introduced a number of significant changes to employment law, including some changes directly relevant to termination of employment.

A. New income threshold

Employees whose annual remuneration meets or exceeds the specified remuneration threshold (currently $200,000 or above annually, including ordinary remuneration, bonuses, commissions, etc) are no longer able to challenge their dismissal through a personal grievance or legal proceedings, unless expressly agreed otherwise in an employment agreement. Employers are no longer required to follow good-faith procedural steps when dismissing these employees.

This change will not impact existing employees for the first 12 months following the new law receiving royal assent, unless otherwise agreed. This effectively means that existing employees who would fall within this income bracket have 12 months to negotiate with their employer if they do not want this law change to affect them in the future, or if they want enhanced entitlements should they be dismissed.

B. Remedies

The other change is that remedies will not be available for a successful personal grievance if the employee contributed to the situation, and their contribution amounts to serious misconduct. Limited remedies may be available if there is contribution but not serious misconduct, although remedies could be reduced by up to 100%, and no reinstatement or compensation will be awarded in those situations at all. This may make employers more confident in progressing employment processes which would not otherwise be justified, where the employer believes the employee has either contributed to the situation or has engaged in serious misconduct.

Other Potential Law Change – Termination by Agreement

The Employment Relations (Termination of Employment by Agreement) Amendment Bill is a Member’s Bill which was introduced on 7 November 2024.

This bill would allow employers to offer a specified sum to an employee in exchange for an employee agreeing to end the employment relationship by signing a full and final settlement agreement.  The settlement agreement would prevent the employee from bringing a personal grievance claim for any cause of action arising from the employment relationship.

Currently, it is only lawful to make an offer to end an employment relationship and sign a settlement agreement if an employer and employee first establish that there is an existing employment relationship problem and agree to hold a “without prejudice” conversation (i.e. a confidential conversation that is inadmissible in any future proceedings relating to the employment relationship).

If the Bill is passed, employers would be able to make an offer on a “without prejudice” basis, regardless of whether there is an existing employment relationship problem.  This means that an employee would not have grounds to raise a personal grievance claim if an offer was made to them in this setting (even if they do not accept the offer).  The Bill provides for specific requirements to qualify for this protection,  including that the employer must advise the employee that they have a right to seek independent advice before signing any settlement agreement.

The effect of this Bill is that an employer could potentially terminate employment, in exchange for monies, without following the pre-requisite steps required under section 103A of the Employment Relations Act 2000 or without the existence of an employment relationship problem.

As this is an ACT member’s Bill, and ACT are currently a coalition partner, it is likely that this Bill may get some support however the Bill will not be heard with any urgency as it can only be heard on “Member’s days” which occur less frequently than other sitting days.  The Bill had its first reading on 4 April 2025, but there are still a number of stages to go before the Bill could become law.