New Zealand’s employment law framework is undergoing its most significant transformation in decades. The Employment Relations Amendment Bill will reshape how dismissal risks, remedies, and contractor classification operate in practice. While these reforms aim to provide employers with greater flexibility, they also introduce legal gray areas that will require clarification through future litigation. Below are summaries of four of the most high-impact reforms with practical notes for employers.
Quick Hits
- High-Income Threshold: Employees earning NZD 200,000 or more in total remuneration will lose unjustified dismissal protections.
- Remedies Reduced or Eliminated for Certain Conduct: Available remedies in personal grievance claims are limited where an employee’s conduct contributed to the situation, and authorities can reduce or eliminate compensation entirely where the employee engaged in serious misconduct, even if the employer’s process was flawed.
- Procedural Fairness Standard Loosened: A dismissal will not be found unjustified solely due to procedural defects unless the error materially disadvantaged the employee, effectively shifting the analysis toward a “harmful error” standard.
- Worker Classification Gateway Test: A new statutory gateway test determines whether a worker must be treated as a contractor, making it more difficult for gig economy workers to challenge their employment status.
Reform #1: High-Income Threshold Removes Unjustified Dismissal Protections
Effective February 21, 2026, employees earning NZD 200,000 or more in total annual remuneration are barred from bringing personal grievance claims for unjustified dismissal. The restriction applies immediately to new employees hired after February 21, 2026 who meet the threshold. For existing employees, the law provides a twelve-month transitional period. Employers and employees may agree to opt out of the restriction.
To determine whether this restriction applies, employers must correctly calculate total annual remuneration and consider related timing implications, particularly when planning workforce reductions. Total remuneration includes base salary, bonuses, commissions, and equity compensation, calculated based on the employee’s earnings during the 364 days preceding the termination date. Because this calculation uses a rolling 364-day period, whether certain bonus or commission payments are counted depends on the termination date. As a result, an employee who does not meet the threshold under one calculation window may meet it under a slightly different calculation window if a significant enough variable payment falls within the relevant 364-day period. For redundancy actions, forecasting how many employees will meet or exceed the threshold may become an important aspect of planning. Employers may also want to consider that these high earners can still file breach of contract and discrimination claims, making careful crafting of employment agreements important.
Reform #2: Remedy Reductions for Serious Misconduct and Contributory Conduct
The reforms introduce significant changes to remedies in personal grievance claims. An employee whose behavior constitutes serious misconduct and contributed to the situation that gave rise to the personal grievance may lose all available remedies, including reinstatement. If the conduct does not rise to the level of serious misconduct, but the employee nevertheless contributed to the circumstances, the only available remedy will be lost wages, and even that can be reduced, potentially by up to 100 percent, depending on the employee’s level of contribution. While the Employment Relations Authority already had the ability to reduce remedies where an employee contributed to the circumstances giving rise to their grievance, the law now explicitly permits reductions of up to 100 percent.
Critically, the legislation does not define “serious misconduct,” and litigation is expected over what conduct qualifies or whether the existing common law definition applies. Courts will also need to interpret what it means for an employee to “contribute” to a grievance and how to quantify proportionate reductions. While this reform shifts the balance toward employers, employers should not assume they can dispense with fair process simply because misconduct occurred; courts will still expect reasonable conduct throughout.
Reform #3: Procedural Fairness Shifts Closer to a ‘Harmful Error’ Test
The reforms replace the traditional rigid checklist approach to procedural fairness with an assessment of fairness “in all the circumstances.” Previously, an employer’s procedural mistake could significantly jeopardize whether a dismissal would be deemed “fair”—even if the underlying reason for dismissal was sound.
Under the 2026 amendments, procedural defects alone will not render a dismissal unjustified unless the error resulted in unfair treatment of the employee. This is functionally similar to a “harmful error” or “materiality test,” as procedural errors that do not affect the fairness of the outcome should not invalidate an otherwise justified dismissal.
Reform #4: Contractor Classification Now Subject to a Five-Factor Gateway Test
The reforms introduce a five-factor checklist to determine whether a worker is a contractor rather than an employee. Previously, when disputes arose about a worker’s status, courts determined the “real nature of the relationship” by examining multiple factors about how the work was actually performed, an approach that often led to uncertainty and frequent litigation.
Under the new “gateway” test, if all the following conditions are met, the worker is automatically considered a contractor and cannot challenge his or her status:
- there is a written contract specifying the worker is an independent contractor;
- the worker is free to work for other clients, except while performing work for the business;
- the worker is either:
- not required to be available at certain times or for a minimum period, or
- able to sub-contract the work;
- the business cannot terminate the contract if the worker refuses additional tasks; and
- the worker had a reasonable opportunity to seek independent advice before entering the arrangement.
If any of the above requirements are not met, authorities will apply the traditional multifactor analysis to examine the real nature of the relationship.
Next Steps
The 2026 reforms represent a bold attempt to modernize New Zealand’s employment law framework. Litigation will play a pivotal role in clarifying definitions, testing boundaries, and shaping workplace rights. Employers may want to consider these reforms when planning terminations and structuring independent contractor relationships.
