On 21 February 2026, a suite of significant changes to New Zealand’s employment law came into force with the passage of the Employment Relations Amendment Act 2025 — the most substantial amendment to the Employment Relations Act 2000 in years.
The reforms aim to increase labour market flexibility, cut red tape for employers, and rebalance key elements of the personal grievance system.
Quick summary:
The Act will:
- Clarify contractor vs employee status with a four part ‘gateway test’ to ensure businesses and workers have more clarity from the start of their contracting arrangement.
- Ensure accountability for serious misconduct and poor behaviour which means the law stops pay-outs that financially reward employees for serious misconduct.
- Set an income threshold of $200,000 for unjustified dismissal personal grievances, enabling employers to give workers a go in these high impact positions, without having to risk a costly and disruptive dismissal process if things don’t work out.
- Restore freedom for workers to negotiate their employment agreements from day one by removing the 30-day rule. This means employers and workers can agree on their own terms from the first day on the job.
Clarified rules on contractor vs employee status
The reforms introduce a new ‘gateway test’ designed to make it clearer — at the outset — whether a working arrangement is genuinely that of a contractor or an employee. The intent is to provide greater upfront certainty for businesses and workers, reducing disputes over status later on:
- If an arrangement meets all of the gateway criteria, the worker will be recognised as a specified contractor.
- If the criteria are not all met, the traditional common-law test on employment status still applies.
The goal is to give both parties certainty from the start, avoiding disputes later about how the working relationship should have been classified.
Enhanced consequences where conduct contributes to a grievance
The new law also changes how personal grievances are handled where an employee’s own conduct is a contributing factor.
In such cases, the Employment Relations Authority and the Employment Court are now required to reduce or remove certain remedies — such as compensation or reinstatement — based on the degree to which the employee’s behaviour contributed to the problem.
New threshold for unjustified dismissal claims
A major change affects high-earning employees: under the Act, workers earning $200,000 or more per year under new employment agreements can no longer raise a personal grievance claim for unjustified dismissal or unjustified disadvantage in relation to dismissal.
- The remuneration threshold will be adjusted annually beginning 1 July 2027 to reflect economic changes.
- Importantly, employers and employees can agree in writing to retain dismissal protections if they choose.
- Employees on existing agreements have a 12-month transition period before the threshold applies, allowing time to renegotiate contracts.
Removal of the 30-day rule for collective agreements
One of the headline changes is the removal of the so-called “30-day rule,” which previously obligated new employees to begin employment on the terms of a collective employment agreement for their first 30 days — regardless of their preferences. Under the new law:
- New hires can decide from day one whether they want an individual employment agreement or to be covered by an existing collective agreement.
- Employers no longer have to issue the formal “active choice” form about union membership, although they must still provide information to help new staff understand their options.
- There are updated rules for situations where more than one collective agreement could apply.
This change is intended to reduce early administrative compliance costs and give both parties more flexibility in setting terms at the start of employment. Note that this rule only applied to workplaces where a collective agreement was already in place. For most hospitality businesses, where collective agreements are less common, this change is unlikely to affect your day-to-day operations.
What the reforms mean in practice
From today, both employers and employees need to:
- Check contractor engagement practices against the new gateway test to minimise disputes over status.
- Understand how personal grievances and dismissal protections now operate, especially for higher-paid workers.
- Update workplace policies relevant to conduct, performance management, and disciplinary action.
Practical steps to adapt
With the Employment Relations Amendment Act now in force, employer members should now ensure their systems, documentation and internal processes align with the new legal framework. While the reforms offer increased flexibility, they also introduce new compliance risks if not properly implemented.
Employment agreement templates
One of the most immediate action points is reviewing employment agreement templates — particularly for senior or high-earning roles.
For employees earning $200,000 or more annually, the Act removes access to unjustified dismissal claims for new employment agreements unless the parties agree otherwise. Employers must now make a strategic decision: whether to rely on this statutory exclusion or to preserve dismissal protections contractually.
Existing high-earning employees should also be identified, as a 12-month transition period applies. Employers may wish to proactively clarify how those arrangements will operate moving forward. Clear drafting is essential — ambiguity will only invite dispute.
If you have an employee who will be earning at or above this threshold please let us know so we can issue you with a different employment agreement template.
Update onboarding processes following removal of the 30-day rule
Note, this section is only relevant to workplaces where a collective agreement is already in place. If your business doesn’t have one, no action is needed here.
The removal of the 30-day rule simplifies hiring processes but requires immediate administrative updates.
Offer letters and onboarding documentation should be revised to reflect that new employees can choose their agreement type from the outset. Any outdated “active choice” forms relating to union membership should be removed from recruitment packs.
While the procedural burden has reduced, employers must still ensure new employees receive accurate information about collective coverage and union rights where relevant.
Audit contractor arrangements
The new contractor ‘gateway test’ is likely to be one of the most consequential changes for many businesses.
Employers engaging contractors should conduct a thorough audit of all independent contractor arrangements to ensure they satisfy the statutory criteria. Contractor agreements should clearly reflect genuine independence, commercial autonomy and a lack of employment-style control.
Hybrid arrangements — where individuals are labelled contractors but operate like employees — now carry heightened risk. Businesses should avoid informal arrangements and ensure contractual documentation aligns with operational reality.
Strengthen documentation in performance and disciplinary processes
The amendments require decision-makers to reduce remedies where an employee’s conduct contributed to the grievance. This elevates the importance of well-documented investigations and clear findings.
Employers should:
- Ensure all performance concerns are recorded contemporaneously
- Clearly document misconduct findings and supporting evidence
- Link conclusions to specific behaviours and policies
Thorough documentation will be critical if matters proceed to mediation, the Employment Relations Authority or the Employment Court.
Train managers on the new framework
Finally, internal training should not be overlooked.
Managers involved in recruitment, contractor engagement or disciplinary processes must understand:
- The high-income threshold and its implications
- The new contractor gateway test
- The increased significance of contributory conduct
- Updated onboarding obligations
Many employment disputes arise from inconsistent or uninformed managerial decisions. Targeted training now will reduce risk later.
Conclusion
Taken together, the reforms signal a recalibration of New Zealand’s employment framework. Employers have gained greater flexibility — particularly at the hiring stage and in senior employment arrangements — but that flexibility must be exercised carefully.
Businesses that proactively update agreements, audit contractor relationships and strengthen internal processes will be well positioned to take advantage of the reforms while minimising legal exposure.
If members have questions or concerns, reach out to our Helpline team today.
