Limiting Employment Claims By Higher Earners

Is there a need?

In these times when there is talk of “draining the swamp” should the rights of higher earners in New Zealand to bring employment claims be limited? That’s what is proposed in the Employment Relations (Allowing Higher Earners to Contract Out of Personal Grievance Provisions) Amendment Bill 2016 that is currently before a Select Committee. Submissions to the Select Committee closed on 5 May 2017 and the Select Committee’s Report is due on 22 September 2017. It’s a private members Bill of the National MP for Coromandel, Scott Simpson.

Aim

Its stated aim is to allow employees with an annual gross salary of over $150,000 per annum to contract out of the personal grievance provisions”.

Rationale

The stated purpose is to allow higher earners to contract out of their current personal grievance rights provided they do so in writing and receive prior independent legal advice. It is contemplated that the higher earners will negotiate a severance package provision which will form part of their employment agreement. It is said the Bill will aid higher earners to negotiate the terms of potential “golden handshakes” at the outset and thereby avoid costly personal grievances. It is stressed that the higher earners will be under no compulsion to agree to such a clause being included in their employment agreement.

Close-up Of Two Businessman Shaking Hands In Front Of Scale

For Whose Benefit?

The proponents of the Bill argue higher earners already negotiate golden handshakes now and it will protect businesses from costly personal grievances. It is equally claimed that it will benefit higher earners by giving them the freedom to negotiate at the outset a more generous severance package than they could negotiate later.

If the Bill is passed only time will tell who will be the true beneficiaries. That will depend on the terms of the severance package or golden handshake negotiated as the parties agree on the employment terms at the outset. Who needs who the most? One suspects in most cases it will be the employee (no matter what level of salary) that needs the employer more.

Drafting Issues

The Bill is poorly drafted and has obvious flaws that include:

  1. It inadvertently appears to exclude rights to pursue discrimination, harassment and arrears claims when contracting out. This is an acknowledged oversight.
  2. It uses a very blunt instrument in effectively defining a higher earner as a person receiving a salary of more than $150,000 per annum when entering into the employment agreement. It does not address salary increases, very significant bonus or severance payments, substantial benefits etc.

Having the qualifying amount of salary only assessed at the time the employment agreement commences rather than when employment ends (like Australia) seems to overlook that many employment agreements are not regularly updated.

Where to From Here?

The opposition parties appear to be challenging the Bill despite early support from the Labour Leader, Andrew Little to support the Bill to the select committee stage.

Whatever the political outcome regarding this Bill, it needs considerable additional thought and work if it is to be brought into law. One Labour Party spokesman has described it as “a solution looking for the problem”. One commentator said the Bill will help reduce clogging up the legal system and the personal grievance claims; but is that really a problem?

Higher Earner’s Personal Grievances

Few high earners feature in the reported personal grievance claims that are brought before the Employment Relations Authority or the Employment Court. Some may utilise the Mediation Service. Many negotiate private settlements. There is good reason for this. Most senior executives and higher earners in New Zealand recognise that they have the right to pursue a personal grievance claim. Some raise them. Most negotiate a “managed exit” quietly and professionally. They recognise that New Zealand is a small market place and their most valuable asset is their reputation. Most recognise that even if they were to succeed with an employment claim, the preferred approach is winning the battle and losing the war”.

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