28 November 2023
New Government: Old Employment Law?
After enough political drama to green light a Netflix series, a new coalition government has been formed. From the appointment of dual deputy prime ministers to the establishment of a novel ministry aimed at reducing regulatory constraints, this Government has signaled that the times are a-changin’.
While plenty will change over the next few years, some changes will have a familiar feel. New Zealanders' can expect to see a paradigm shift in the employment law framework, with the pendulum of power swinging back to favour employers before Christmas. With this shift, mainstays of our employment law landscape will experience a return to earlier practices.
So, let’s review four key changes that we (and businesses most likely) will have to look forward to under this new Government:
Repeal of the Fair Pay Agreement Regime by Christmas 2023
The Fair Pay Agreements (‘FPA’) Act 2022 aimed to set industry-wide minimum employment conditions through collective bargaining between employers and employees. There are currently six FPA agreements going through the bargaining process.
The Labour/Green government hoped the Fair Pay Agreements Act would stop "the race to the bottom we’ve seen in various industries and encourage competition that isn’t based on low wages, but on better products, services, and innovation.” The FPA framework intended to establish fairer wages and conditions across industries by standardising certain terms.
However, the new Government's decision to repeal the FPA regime signifies a departure from this approach. The justification for the Act’s repeal is that FPAs harm productivity by reducing labour market flexibility.
Suppose the Act is repealed by this year's end. In that case, it clearly indicates this Government's preference for a more decentralised wage setting, allowing individual businesses and sectors to retain the flexibility in negotiating employment terms. This change could allow employers to keep the autonomy they have enjoyed in determining wages and conditions within their specific industries, departing from the centralised approach envisioned by the FPA.
Expanding 90-Day Trials to Apply to All Businesses
The expansion of the 90-day trial period to encompass all businesses marks a return to an earlier approach in employment law. Currently, the 90-day trial period allows small businesses (with fewer than 20 employees) to hire new staff on a trial basis, providing the flexibility to assess their suitability for the role without the risk of unfair dismissal claims. The policy justification was that larger businesses had the resources to conduct thorough recruitment and vetting.
Expanding this provision to all businesses implies that larger enterprises will also have the option to utilise the protections afforded by trial periods when dismissing new employees. This change could enable employers to evaluate new hires' performance without the immediate concern of facing legal repercussions in the event of termination within the first 90 days.
In exchange for doing away with the sense of buyer regret larger employers feel after hiring a less-than-suitable employee, employees will now be faced with less certainty when applying to new positions subject to 90-day restraints.
Removing the eligibility for damages if the employee is at fault
The proposal to simplify personal grievances and limit damages if the employee is at fault represents a departure from how the courts deal with this issue. Personal grievances refer to disputes between employers and employees regarding employment issues, such as unjustified dismissal or unfair treatment.
Employees found to have personal grievances could potentially receive various financial remedies. In the past, employers could argue for a complete reduction in these financial remedies if the employee was found particularly blameworthy. However, a precedent set by the Employment Court in the Xtreme Dining Ltd and Madigan case clarified that the Employment Relations Act did not allow the complete removal of established damages. The Court ruled that employers could, at most, argue for a maximum reduction of 50% in cases of severe employee misconduct.
The new proposal seeks to do away with this precedent, potentially restricting complaints from employees who may share some blame, essentially serving as a practical barrier to their grievances. Consequently, we could expect to see far greater reductions coming out of the Authority and the Court regarding the remedies they find. This change could also put downward pressure on the financial value of specific settlements in resolving employment disputes.
Maintaining Contractor Status and Employment Challenges
The new Government will be seen as Santa to Uber, which is currently in the middle of an appeal of the Employment Court’s decision that several Uber drivers were employees.
While further details will be forthcoming, this policy reflects the “Contract is King” approach adopted by the High Court of Australia. Two recent rulings have emphasised that the classification of an individual as an employee or contractor hinges on the provisions outlined within a valid written contract.
If enacted, this change will represent a paradigm shift. Since the Supreme Court’s 2005 decision of Bryson v Three Foot Six Limited, assessing whether a worker is an employee or an independent contractor required the Employment Relations Authority or Employment Court to determine "the real nature of the relationship" between the parties. Over time, the Courts have developed several tests to determine the relationship's "real nature". Now, it may appear that these tried-and-true tests will go by the wayside and that the terms of the contract will now take precedence.
This proposal can be seen to be a response to the lack of certainty that has developed in this area. Through appeals on this issue, we have seen different courts come to different conclusions on the same facts. While potentially providing more certainty as to worker status, concerns loom over potential exploitation risks due to this policy. The utilisation of service contracts to negate statutory entitlements raises apprehensions about the potential costs borne by workers amidst this push for certainty and raises questions as to whether all businesses will be competing on a fair playing-field when it comes to worker remuneration.
As always in law, the only constant is change. While many of these changes may feel like a trip back to yesteryear, there will surely be plenty of new pitfalls to follow as politicians, lawyers, and courts grapple with the scope of the coming changes.
If you want tailored support navigating your way with employment law, please get in touch with the employment team at Saunders Robinson Brown.
The above information is of a general nature only. The information in this article does in no way constitute legal advice and all readers should contact a law firm for advice relating to their specific circumstances.