When the coalition Government announced that it was stripping out the right of high income employees to pursue personal grievance claims late last year, it was not clear how this would affect employees in existing employment relationships. “High income employees” are regarded as those earning $200 000 or more, which according to 2024 census data, amounts to 2.42% of all waged and salaried employees.
In the Regulatory Impact Statement published on 31 January 2025 the Office for the Minister of Workplace Relations and Safety, Brooke Van Velden, is now recommending to Cabinet that the intended law reform be extended to existing employment relationships as well as new agreements that are entered into after the amendment takes effect.
The Cabinet paper recognises the trade-off between labour market flexibility and minimum standards and reasons that high income employees have greater bargaining power and will be able to negotiate back into unjustified dismissal protection if they wish to do so, or negotiate their own dismissal arrangements.
This may be true for parties entering into a new employment relationship where the business is keen to procure the employee’s services and is willing to make compromises as a result. However employees within an existing employment relationship are likely to have less bargaining leverage, and employers will have less reason to agree to forgo their get out of jail free card.
In this context it is likely that many employees in existing employment relationships will need to give something up in order to buy back the right to bring a personal grievance claim. This may include accepting a salary cut or reduction in benefits.
The most vulnerable employees, particularly those viewed as non-performers, will be at greatest disadvantage as their employers are unlikely to agree to opting back into personal grievance procedures, or if they do, will be able to extract a hefty price.
Alternatively, the Cabinet paper contemplates that an employee and an employer may agree a severance arrangement at the start of the relationship which allows a party to terminate the employment by paying a “fee”. This type of “no fault” termination arrangement is already reasonably common in senior executive employment agreements, although there has always been a question as to whether such provisions amount to unlawfully contracting out of the Employment Relations Act.
The new law will remove any uncertainty and allow a free for all, however the concept of a pre agreed “exit” package reinforces the notion that employees can be bought and sold at their employer’s whim.
The proposed new law will not include any specified minimum severance payments, purportedly on the basis that this will restrict freedom of contract. However, again, those with little bargaining leverage will struggle to negotiate a good deal because if they do not accept what is offered by the employer, they will have no personal grievance rights under the Act.
One aspect of the intended amendment that has been pared back from the original proposal is that it now relates only to unjustified dismissal claims and not to all personal grievances. This means that employees will still be able to pursue other legal claims against their employer, including unjustified disadvantage and discrimination grievances, breach of contract actions and breach of good faith claims.
This amendment reflects the intent of the proposed law change which is to avoid compliance costs associated with dismissal procedures, including the need to follow a fair process, and also compensatory awards which tend to be bigger for high income employees. However, it is equally likely to undermine the dual objective of achieving simplicity as employees and their lawyers seek out creative ways to challenge their employer’s actions. There will no doubt be increased litigation which flows from this.
Whether the proposal achieves the overriding objective of greater labour market productivity remains to be seen. The Cabinet paper appears to assume that being able to move high income earners on will create opportunities for other employees and improve career pathways. It will also encourage employers to give a broader range of potential employees a go, the paper says. But churn at a senior level can be destabilising and result in a loss of institutional knowledge and experience.
Conversely, senior employees may be more reluctant to leave secure jobs resulting in stagnation and less opportunity for fresh ideas, innovation and growth.
Finally, there is a serious moral issue with removing fundamental employment rights without providing compensation or a reasonable alternative. Employers will need to give serious thought to the value of retaining the good will of their existing senior employees in deciding how they approach negotiations once the law passes. It may be a case of just because you can, does not mean you should.
Originally published in The Post
