Among the most controversial aspects of the recently enacted Employment Relations Amendment Act 2026 is the introduction of a high-income threshold for personal grievance claims.
Under the new provisions, employees earning $200,000 or more in annual remuneration will lose the right to bring a personal grievance for unjustified dismissal, or an unjustified disadvantage claim where the disadvantage relates to their dismissal.
Annual remuneration is defined broadly and includes but is not limited to, salary, bonuses, commissions and share-based remuneration.
The policy rationale for the change is straightforward. Highly paid employees are assumed to possess greater bargaining power and access to professional advice.
As a result, it is asserted that they should be able to negotiate their own contractual protections, such as extended notice periods or severance agreements, rather than relying on statutory remedies.
Additionally, the change is promoted as making it easier for employers to address underperformance in key roles.
Employers are also relieved of certain procedural standards that normally apply in dismissal situations, including responding to requests for reasons for dismissal.
The Amendment undoubtedly tips the balance in favour of employers, but it does not create a true “fire at will” regime, nor does it mean the employee has no recourse if they are unjustifiably dismissed.
Employees above the threshold will retain the ability to pursue other claims, including discrimination and harassment claims. The fundamental duty of good faith also remains intact.
Therefore, the result of the amendment may be less of a removal of legal risk, than a reallocation of it.
It may also have the unintended consequence of reviving common law employment claims.
Since 2020, the Employment Relations Act has been the exclusive pathway for challenging unjustified dismissals.
But, prior to this, many senior employees pursued common law wrongful dismissal claims.
The removal of the statutory avenue might make room again for the common law of tort and push employees into pursuing their claims in different forums.
This could actually result in greater risk for employers, as common law damages are not subject to the same statutory caps that apply to personal grievance remedies under the Employment Relations Act.
New Zealand’s reform is loosely inspired by the Australian unfair dismissal framework, which also excludes employees earning above a statutory “high income threshold” from bringing unfair dismissal claims. Albeit with different caveats.
The Australian experience supports that the reform may simply change the form of disputes rather than eliminate them, as high-income employees in that jurisdiction frequently pursue alternative legal claims due to the threshold.
Another unintended consequence, but with immediate practical implications, is that highly paid employees are unlikely to accept a loss of statutory protection lying down.
Therefore, pre-employment negotiations for affected employees may become more intense, as they seek contractual certainty in exchange for giving up certain rights.
Consequently, there is likely to be a rise in high-income employees demanding extended notice periods and severance entitlements.
The Amendment also introduces an opt-out mechanism, allowing employers and employees to agree that the statutory restrictions will not apply. In other words, the parties can agree that the unjustified dismissal protections remain.
This option is likely to become a focal point in negotiations for high-income employees, especially since the new rules will apply immediately to affected employees commencing in new roles, with the same or different employer (except where as a result of restructuring).
For current employees impacted by the threshold, there will be a 12-month transition period before the provisions take effect, unless agreed otherwise.
This creates a window for both employers and employees to reassess their contractual arrangements.
The impact of the reform will reveal itself in coming years, but the assumption that high-income employees do not require protection may be overly simplistic. One foreseeable outcome may be stagnation in the labour market as employees are not prepared to risk leaving secure employment.
Employment relationships inherently possess unequal dynamics, even at senior levels. What appears certain is that removing these statutory restrictions is not going to be straightforward or necessarily reduce litigation and disputes.
Originally published in The Post
