Employers have long rewarded employees with additional benefits, such as covering carparking costs or providing various forms of insurance cover. Legally, such benefits that sit outside of your employment agreement terms are known as discretionary benefits as the employer has no legal obligation to provide them. This means the employer can decide to remove the benefit or change it in any way on their own terms provided it meets the consultation obligations under the Employment Relations Act 2000.

Or, at least, that used to be the case. A landmark decision sees the Employment Court rule in favour of aggrieved employees who had been stripped of their insurance benefits by the employer.[1]

Background

Te Pūkenga, formed in 2020,is the New Zealand institute of Skills and Technology. Two years after its establishment the Unitec branches of the Tertiary Education Union were merged into Te Pūkenga. For at least 29 years, Unitec staff had enjoyed life and income insurance benefits under group policies. Shortly after joining with Unitec, Te Pūkenga cancelled the insurance policies.

Decision by the Court

Te Pūkenga was found to have acted unlawfully in removing the discretionary benefit of life and income protection insurance for Unitec staff.

The cancellation itself was not an unlawful act as Te Pūkenga had informed employees on the insurance information sheet that it had ‘the right to amend or terminate the insurance benefit… at their discretion.’

However, three significant failures in the consultation process breached consultation legal obligations of good faith set out in s 4 of the Employment Relations Act 2000 (Act).

• Te Pūkenga notified Insurers of the cancellation before it consulted with employees. In doing so, Te Pūkengaentered the consultation having already determined the outcome, in breach of s 4(1A) of the Act that prohibits predetermination.

• Staff were given a false reason for the removal of the benefit and were incorrectly told they could not consult former Union staff on prior successfully retained benefits. This amounted to a provision of misleading consultation material, breaching good faith obligations under s(4)(1)(b) of the Act.

• Furthermore, feedback from staff and the Union regarding the removal of the benefits were ignored and not meaningfully considered, again, in breach of the duty of good faith.

What this means

Historically, employers were able to reserve their right to modify or withdraw additional employment benefits that were not contractual entitlements at their sole discretion without obtaining the employees consent, so long as it complied with consultation obligations under the Act.[2]

However, considering the Court’s findings in Te Pūkenga,make it clear that employers must comply with consultation obligations under the good faith requirements in s 4 of the Act, otherwise risk the action being unlawful.

Takeaways for employers:

Employers looking to remove a discretionary benefit, such as insurance, should treat this as they would any other significant change to employment.

Employers can still lawfully decide to remove a benefit: if they outline their ability to do so via a clause in the relevant policy and ensure that the proposed removal or modification is discussed fairly and reasonably by consultation with employees.  

This is directly important for businesses who are going through restructuring processes, or selling a business when consulting with staff to highlight discretionary benefits and the possible change to these; alongside general employment terms.

• Good faith is the key

Employers need to first genuinely consult with employees on its proposal. You must enter the consultation period with an open mind, give reasonable time and opportunity for feedback, and genuinely consider any feedback.

• Clearly state the reason

Reasons for removal of the benefit must be disclosed, and all information provided must be accurate and not misleading.

• Be genuine in your consultation

You should not predetermine an outcome before consultation has begun. Do not notify any third parties of a cancellation prior to consultation.

The changing circumstances around a benefit can be a touchy subject and rocky moment in the employment relationship. But, if you ensure the process is fair and reasonable, and you clearly, accurately, and openly consult with employees in good faith, you have discharged your legal duties.

Need help?

If you are looking at restructuring or selling your business, the team at Copeland McAllister are here to help. 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.

[1] Tertiary Education Union & Ors v Te Pūkenga t/a Unitec [2025] NZEmpC 242 (“Te Pūkenga”)

[2] Metropolitan Glass & Glazing Limited v Labour Inspector, Minister of Business and Innovation and Employment [2021] NZCA 560.