As of Saturday, 21 February 2026, the Employment Relations Amendment Act is now in force.

The ACT Party, alongside the National Party, has moved quickly this term to reshape New Zealand’s employment law framework, passing a suite of reforms designed to increase labour market flexibility and reduce compliance burdens for employers.

This article provides a deep dive into the key changes, what they mean in practice, and where the most significant impacts are likely to be felt.

Contractors: A new statutory category

For years, New Zealand courts have relied on common law tests – such as control, integration, and the “fundamental/economic reality” test – to determine whether a worker is an employee or an independent contractor. This case-by-case approach has led to uncertainty, particularly in the gig economy.

The Amendment Act introduces a new statutory category: “specified contractors.”

Specified contractors are expressly excluded from the definition of an employee if certain conditions are met, including:

• A written agreement stating the worker is a specified contractor (not an independent contractor or an employee)
• Freedom to work for others
• Ability to subcontract work, with no vetting requirements
• No termination for refusing additional work beyond what was agreed
• A reasonable opportunity to seek independent advice before signing

Impact:

This significantly reduces the ability of contractors to argue they are employees, even if the relationship looks employment-like in practice. Businesses, particularly in gig platforms, IT, construction, and professional services, now have greater certainty in structuring contractor arrangements.

Personal Grievances: Narrowing remedies where employees contribute to the situation

The Act introduces major changes to personal grievance remedies, particularly where an employee’s actions contributed to the situation leading to the grievance.

Serious Misconduct

If an employee’s contributing behaviour amounts to serious misconduct, the Employment Relations Authority (ERA) or the courts must not provide any remedy. The Act does not provide a definition of ‘serious misconduct’

Contributing Behaviour (Not Serious Misconduct)

If an employee contributed to the situation (but not to the level of serious misconduct), the ERA or court must not award reinstatement or compensation.

Remedy Reductions

Previously, remedies could be reduced proportionally. Now, remedies can be reduced by up to 100%, formalising the possibility of zero compensation outcomes.

Impact:

This marks a significant shift away from the historically employee-protective approach, where procedural defects often resulted in compensation. Employee misconduct now plays a much larger role in determining outcomes.

High-income employees: Removal of unjustified dismissal protections

One of the most significant reforms applies to employees earning $200,000 or more per year (the “specified remuneration threshold”).

New rules for $200k+ earners

If an employee meets or exceeds the threshold:

• Employers are not required to observe certain good faith obligations when deciding to terminate
• Employers are not required to provide reasons for dismissal upon request
• Employees cannot bring a personal grievance for unjustified dismissal or unjustified disadvantage related to dismissal
• Employees can still bring claims for other grounds such as discrimination, harassment, or duress.

Contracting back In

Employers and employees may agree in writing that these provisions do not apply, effectively contracting back into standard protections.

Indexation

The $200,000 threshold will be indexed annually to wage growth (from 1 July 2027), based on Statistics New Zealand data.

Impact:

This creates a de facto “at-will” zone for senior and highly paid employees. Executive employment relationships are likely to become more contract-driven, with severance clauses replacing statutory protections.

Unions and Collective Agreements: Reduced default coverage

The Act rolls back several union-related provisions introduced in recent years.

Key Changes

• New employees are no longer automatically covered by collective agreement terms for their first 30 days
• Employers are no longer required to share new employee information with unions
• Employers must still inform new hires about the existence of a collective agreement, how to contact the union, and that joining the union will bind them to the collective
• Employers must provide a copy of the collective agreement and notify the union when an individual employment agreement is signed (with employee consent)
• Penalties apply for non-compliance

Impact:

This reduces unions’ ability to recruit and maintain membership and weakens collective bargaining leverage, particularly in industries with high turnover.

Trial Periods: Clarified but largely unchanged

The Act clarifies that employees dismissed under a valid 90-day trial period cannot bring a personal grievance for unjustified dismissal or unjustified disadvantage related to dismissal. Other personal grievance grounds remain available.

Impact:

This largely codifies existing practice rather than introducing a new policy direction.

The justification test: Process defects less likely to sink dismissals

Amendments to section 103A clarify that courts and the ERA must consider whether an employee obstructed the employer’s process. They must also not find a dismissal unjustified solely due to procedural defects unless the defects resulted in unfair treatment.

Impact:

Employers are given more leeway for technical procedural errors, shifting the focus from perfect process to substantive fairness.

Transitional Provisions

Existing high-income employees

The $200,000 threshold provisions will not apply for up to 12 months to existing employees in the same or restructured roles (unless they opt in).

Contractors

Existing contractors will generally become specified contractors unless litigation over their status was already underway.

Threshold indexation

The remuneration threshold cannot increase before 1 July 2027.

What this means in practice

For employees

• Most workers remain protected, but remedies are narrower
• High-income earners must rely on contractual protections
• Misconduct can significantly reduce or eliminate remedies

For contractors and gig workers

• Reclassification as employees is now far more difficult
• Contractor status is more secure for businesses

For unions

• Reduced default coverage and information sharing
• Harder to recruit new members and maintain bargaining power

For employers

• Greater flexibility in dismissals and contractor arrangements
• Lower litigation risk for procedural missteps
• More discretion over senior management employment

Conclusion

The Employment Relations Amendment Act 2025 represents a significant shift in New Zealand’s employment law landscape. By narrowing the definition of employee, reducing personal grievance remedies, weakening default union coverage, and removing unjustified dismissal protections for high earners, the Act rebalances power toward employers and contractual freedom.

For businesses, this provides greater certainty and flexibility. For employees, particularly contractors and senior professionals, it underscores the importance of robust contractual protections and legal advice.

Need help?

If you’d like support with transitioning to any of the changes outlined above, we can assist with

• Reviewing your employee/contractor agreements;
• Discussing and advising on approaches for high-income earners;
• Reviewing employment agreements for high-income earners;
• Reviewing or advising on your processes relating to serious misconduct or disciplinary matters;
• Reviewing your collective agreements, or recruitment documentation ensuring you still comply with union obligations;
• Or any other employment matter.

Our team is here to help.

Give us a call on 03 211 0153 or email admin@cmalaw.co.nz.

Disclaimer: This update provides commentary on employment law, health and safety and immigration topics, it should not be used as a substitute for legal or professional advice for specific situations. Please seek legal advice from your lawyer for any questions specific to your workplace.