New Zealand’s employment law framework is on the cusp of its most significant transformation in decades. A suite of legislative reforms – led by the Employment Relations Amendment Bill and related changes – will reshape workplace rights, employer obligations, and dispute resolution pathways. While these reforms aim to modernise the system, they also introduce legal grey areas that will almost certainly be tested in the courts. The Bill will now move through its Second Reading, Committee of the Whole House, and Third Reading, with final passage expected early this year. We expect to see a surge in litigation as the new rules bed in.

High-income threshold to remove unjustified dismissal protections

One of the most controversial changes is the introduction of a high-income threshold. Prior to the Select Committee stage, employees earning a base salary of more than NZD180,000 were to lose the right to bring a personal grievance for unjustified dismissal. However, following the Select Committee process, the threshold has been increased to NZD200,000. In addition, the basis for the calculation has shifted from base “salary and wages” only to “total remuneration”, meaning bonuses, commissions, and other comparable benefits are now included. The policy is designed to give employers greater flexibility in managing senior staff, but its implementation raises complex questions. A 12-month transitional period will allow employees captured by the threshold under existing employment agreements to decide whether they wish to opt back into dismissal protections or agree bespoke termination terms, such as enhanced severance.

We expect to see various streams of litigation arising from this change including:

Litigation around good faith obligations

Whether employers properly informed employees and negotiated fairly during the transition period. The principle of good faith will be tested in new ways as courts consider whether employers acted transparently and reasonably during these negotiations.

Compensation classification disputes

The change to “total remuneration”, will likely create practical questions about remuneration elements such as bonuses and commission. These are often unknown or variable at the time of assessment, meaning employees may move above or below the threshold year to year depending on what bonus, commission, or other such payments are received.

The interpretation and enforceability of bespoke termination provisions

We expect the courts will test the fairness and validity of bespoke termination clauses. Breach of contract claims, and judicial scrutiny of opt-in mechanisms are almost inevitable. Employers should anticipate that bespoke dismissal terms will be closely examined for compliance with statutory requirements and fairness principles.

Alternative personal grievance claims

As in Australia, we expect employees who are captured by the high-income threshold to bring a range of alternative personal grievance claims, including unjustified disadvantage, breach of contract, and discrimination claims.

Remedy reductions for serious misconduct and contributory conduct

Another key legislative change that will be tested by the courts is the removal or reduction of remedies for employees who are dismissed for serious misconduct or otherwise contributed to the circumstances giving rise to their personal grievance claim.

Employees whose behaviour meets the threshold for serious misconduct will lose all remedies, regardless of procedural defects. However, “serious misconduct” is not defined in the Bill, so we expect litigation over what conduct qualifies, and whether the existing common law definition of “serious misconduct” remains fit for purpose. Will dishonesty, insubordination, or breaches of health and safety obligations meet the threshold? The courts will likely develop a more nuanced interpretation over time.

The courts will also need to interpret what it means for an employee to “contribute” to a grievance and how to quantify reductions in remedies (which can be reduced by up to 100 per cent). While the reform shifts the balance toward employers, procedural fairness will still matter. The courts will likely develop new standards for assessing employer errors and determining whether they undermine the lawfulness of a dismissal.

Procedural fairness redefined

The legislative reforms also redefine procedural fairness itself. The rigid checklist approach will be replaced by an assessment of fairness “in all the circumstances” – including consideration of an employee’s behaviour during an employment process. This aims to reduce the impact of minor procedural errors where an employer’s overall conduct was reasonable. We expect to see litigation over whether obstructive employee behaviour justifies procedural shortcuts. Consistency in applying comparative fairness across similar cases will be another area to watch.

Employers should not assume that procedural obligations will disappear. While the courts may adopt a more flexible approach, they will still expect employers to act fairly, reasonably and in good faith. The challenge will be determining what constitutes “reasonable” in high-stakes or contentious situations.

Exit negotiation protections to be introduced

Exit negotiations are also being reshaped. The Employment Relations (Termination of Employment by Agreement) Amendment Bill introduces safeguards for pre-termination negotiations, allowing employers to offer exit packages without triggering constructive dismissal claims.

While intended to facilitate smoother exits, disputes will focus on whether conversations fall within the protected scope, compliance with safeguards such as written agreements and access to legal advice, and claims of coercion or breach of good faith where standards are not met. The courts will likely scrutinise whether employees were given genuine opportunities to seek advice and whether negotiations were conducted without undue pressure.

Worker status gateway test: Legislation versus litigation

Worker classification remains a hot-button issue. The proposed gateway test will shield certain independent contracting arrangements from challenge if they meet five statutory criteria.

The Select Committee has clarified that under this gateway test “workers” (which now includes legal entities) should not be restricted from working for other businesses. Changes were also made to allow businesses to vet subcontractors for qualifications or criminal records where justified and confirmed contracts cannot be terminated solely because a worker declines additional work beyond what was agreed.

However, the Supreme Court decision in Uber BV v E Tū Incorporated adds complexity. In late-2025, the Court held that four Uber drivers were employees under the Employment Relations Act, emphasising substance over contractual form [1]. This landmark ruling strengthens arguments for employee status in gig economy cases and may conflict with the gateway test.

If the legislation overrides the decision, expect a period of uncertainty and litigation over transitional arrangements and interpretation – especially if there is no retrospective application. Businesses relying on contractor models should review their arrangements now, as the courts will continue to scrutinise the reality of working relationships rather than the labels applied.

Partial pay deductions for partial strikes

Partial strikes will also be a battleground. The Employment Relations (Pay Deductions for Partial Strikes) Amendment Act 2025 allows employers to deduct either a flat 10 per cent or a proportionate amount from pay during partial strikes. Key litigation risks include calculation methods, notice requirements for deductions, and challenges from unions arguing breaches of collective bargaining rights. Recent Employment Court injunction cases show this will remain contentious in 2026, with unions likely to pursue litigation to narrow the scope of deductions.

Privacy litigation under new IPP3A

Privacy compliance is another emerging risk. From 1 May 2026, Information Privacy Principle 3A will require employers to notify individuals when collecting personal information indirectly, such as through reference checks or background screening.

Expect disputes over failure to notify individuals, especially where adverse decisions follow, breach of access rights if individuals cannot correct data, and what constitutes reasonable steps for notification. Employers must update privacy policies and onboarding processes to mitigate these risks.

Conclusion

The 2026 reforms represent a bold attempt to modernise New Zealand’s employment law framework. But with greater flexibility comes greater complexity. Litigation will play a pivotal role in clarifying definitions, testing boundaries, and shaping the future of workplace rights. Employers should act now – review contracts, update policies, and prepare for a legal environment where proactive compliance is the best defence.

Footnote

[1] Rasier Operations BV v E Tū Inc [2025] NZSC 162.