New Zealand at a Glance

Contract terms cannot provide for less than the minimum legal entitlements outlined in the legislation and collective employment agreements that may apply. All contracts must be in writing.

Probationary periods must be in the employment agreement and can be for any amount of time. During the probation period, employers must follow a fair process to give feedback, support and training throughout. Employers must also give a chance for the employee to improve. Employees may raise a personal grievance for dismissal if this process is not followed properly.

Employers with less than 20 employees can ask for a 90-day trial period from an employee, which needs to be written in the employment contract with a valid notice period. An employee cannot bring a personal grievance for unjustified dismissal or other legal proceedings about their dismissal as long as the employer has given the right amount of notice period (unless the trial period is deemed invalid by the Employment Relations Authority). Employers do not need to give reasons for dismissal.

A probationary period cannot be applied following a trial period.

The agreed number of work hours must be in the employment agreement. Working hours cannot be more than 40 hours per week (not including overtime) unless the employer and the employee agree otherwise.

The hours agreed to in an employment agreement are generally the only hours that an employee needs to report to work. Many employees in New Zealand will receive payment if their employer asks them to work more than their normal hours.

The arrangement on overtime needs to be agreed to by the employer and the employee, whether this overtime is factored into the employee’s salary, paid at the employee’s normal rate of pay (at least the minimum wage rate or compensated at a higher rate of pay. The terms should be put into the employment agreement so that both parties are clear.

If the specific hours aren’t put into a written agreement, then an accurate and timely written record will need to be kept of exactly what hours the employee has worked.

Bonuses are not required. However, many employers will offer bonuses as an incentive and for retention purposes. Bonuses differ based on industry and seniority.

Employers who want to dismiss an employee must:

1) act in good faith.

2) have a good reason for the dismissal.

3) follow a fair and reasonable process

4) have an open mind when dealing with problems so they ensure outcomes are not predetermined.

If the employer doesn’t follow above, the employee may be able to take a personal grievance claim against the employer. Reasons to dismiss an employee include:

• serious misconduct
• repeated misconduct
• performance issues
• during a trial period
• redundancy
•  incompatibility
• incapacity.

There are general principles of fair process an employer must follow to justify serious misconduct, repeated misconduct and performance issues.

To terminate an employee’s employment, employers must give a written notice of the last employment day or remit a payment in lieu of notice. Serious misconduct warrants dismissal without notice. However, employers must still pay all outstanding entitlements. Disputes by both employers and employees can be referred to the Employment Relations Authority (ERA).

When terminating an employee, a fair and reasonable notice must be given (except in case of serious misconduct). This notice must take into account the length of service, type of job, how long it will take to replace the employee and common practice in the workplace. If there is no notice period in the employment agreement then two to four weeks’ notice is often seen as fair, depending on the role. Employers can specify in employees’ collective employment agreements or employment contracts how much notice employees must give when they resign. Employers and employees can usually give notice in writing.

Just because an employment agreement contains a notice period doesn’t mean the employer can dismiss the employee for any reason as long as they give the appropriate notice. The employer must still have a good reason and must follow a fair process.

An employer and employee can agree the final pay will be made on the employee’s last day of work. Employees should, at the latest, get their final payment on the pay day for their final period of employment. The final pay must include payment for all the hours worked since the last pay until the end of employment, annual holidays, public and alternative holidays owing, as well as any additional lump sum or other payments owed. These can be included in the employment agreement or later negotiated as a component of a leaving package. Any authorized deductions can be taken from the final pay. If the employee provides the required notice, the employer must compensate the employee through the end of their notice period. If an employee gives less than agreed notice, the employer only pays up to the last working day. Employers may also deduct pay in lieu of notice from any amount already owed to the employee.

There is no provision in New Zealand law for the suspension of an employment contract in cases of a plant closure or economic downturn. Unless there is a specific clause in an employment agreement giving a period of notice in a redundancy situation, ‘reasonable notice’ must be given. The length of ‘reasonable notice’ depends on a variety of conditions, such as:

• the reason for the redundancy
• the employee’s length of service
• the employee’s seniority and remuneration package
• custom, practice and industry norms
• the employee’s ability to find alternative employment
• the amount of compensation being paid (if any)

Employers cannot make someone redundant without undergoing the workplace change process first. The process of redundancy and the payment of redundancy compensation (where applicable) must be a last option. It should only occur once all redeployment options have been exhausted. The notice period must not be less than the length of notice prescribed in the employment agreement or workplace policies. If the employee agrees, an employer may give an extended notice period while they continue in their role or in a special project of some sort.

Redundancy compensation

Whether employees receive redundancy payments is dependent on the applicable employment agreements and is a matter of negotiation between the parties. However, any employee whose employment is ending due to redundancy must be provided notice according to the terms of the employment agreement. An employer can require an employee to work through the end of their notice period. A redundancy payment is taxable income.

As an employer, you must keep wage and time, and holidays and leave records that comply with the Employment Relations Act 2000 and the Holidays Act 2003. In particular, you must be able to show that you’ve correctly given your employees all minimum employment entitlements such as the minimum wage and annual holidays.

Legally, personnel files must be kept for at least six years and pay records seven years, and you have to make them available to:

• your employees, if they ask to see their own file
• their union or other representative, if requested by your employee
• Labour Inspectors and Immigration Officers from the Ministry of Business, Innovation and Employment (MBIE), if requested by them.

Employees have total freedom over joining a union. It is illegal for employers to influence that decision. A trade union must have at least 15 members who are employees and must be organized for the purpose of supporting or advancing claims related to a proposed registered agreement. The largest trade union is the New Zealand Council of Trade Union (NZCTU or CTU), with 360,000 workers in this union.

Employees sometimes work in a triangular employment situation. This is where someone is employed by one employer but is working under another business or organization that tells them what they should do during their day-to-day work. The latter business or organization is the controlling third party. The arrangement is ‘triangular’ because there are three parties to the arrangement, with each party having separate relationships with one another. The three parties are: the employer, employee, and the third party.

The Employment Relations (Triangular Employment) Amendment Act 2019 came into force on 28 June 2020, addressing a gap in legislation in relation to employees in triangular employment situations (e.g. labor-for-hire). Employees are now able to apply to the ERA to add a ‘controlling third party’ (such as a ‘host’ employer in a labor hire arrangement) to a personal grievance claim. Employers can file an application to add a controlling third party to a personal grievance. The ERA will be able to divide responsibility for providing remedies between the responsible parties, reflecting the degree to which the employer and the controlling third party contribute to the personal grievance.