Calls to change New Zealand’s unfair dismissal laws

NZ’s productivity is being held back by labour laws that protect businesses from firing high-income earning managers, according to a new report by The New Zealand Initiative.

Report author and chair of The Initiative, Roger Partridge, has argued the country should follow Australia’s lead in making it easier for businesses to dismiss underperforming senior managers. Currently, all employees are protected by the unjustified dismissal provisions of the Employment Contracts Act 2000, regardless of seniority or income. But Partridge said the actions of failing senior managers have more potential to damage a business’s productivity and performance than the wider employee base.

“No one wants vulnerable workers being unjustifiably dismissed. But by constraining firms from getting rid of underperforming bosses, laws introduced to protect the jobs of ordinary workers may be placing those jobs at risk,” he said.

“The difference between C-grade and A-grade managers may very well be the difference between business success or failure.”

In Australia, the high-income threshold currently sits at $158,500. Those earning above that figure are unable to make unfair dismissal claims against their employers and it’s a move Partridge believes New Zealand should also adopt. He said the current dismissal laws are stymying the country’s business growth and performance, citing the 2014 Productivity Commission report which highlighted low managerial capabilities as a cause of the country’s poor productivity record.

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For decades, New Zealand has struggled against sluggish productivity. Experts are divided over the causes, but the country’s economic reliance on traditional sectors like agriculture and a lack of investment in digital industries have been blamed.

A previous attempt to bring in a threshold was made in 2017 through a Private Member bill in Parliament but it failed to gain traction. MPs were concerned the $150,000 threshold was too low and criticised the bill’s complexity. The Initiative has proposed an initial threshold of $250,000, which would then be adjusted annually to track the increases in the country’s median income.

“This threshold would capture less than the top 1% of income earners, while capturing the CEOs and senior managers whose roles have the most significant impact on productivity,” he said.

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