Farewell to the golden handshake?

The era of lucrative golden handshakes could possibly come to an end if a private member’s bill is pulled from the ballot and passed.

National MP Paul Goldsmith has put in a member’s bill that proposes employers earning high salaries could contract out of the personal grievance provisions of the Employment Relations Act.

Under current law Goldsmith said a CEO who had signed a contract with a company with the provision either party could terminate the agreement on a no-fault basis with six months’ pay could still take out a personal grievance.

The Employment Relations (Freedom of Contract for Higher Earners) Amendment Bill, however, would amend the Employment Relations Act to allow employees with an annual gross salary over $150,000 to contract out of the personal grievance provisions.

“Under the changes, whatever an employee and an employer agree to in their employment contract will stand. This takes away the existential threat of personal grievance for the employer, in exchange for agreed terms with the employee,” Goldsmith explained.

“If someone is sufficiently skilled to command a salary of $150,000, he or she is not so vulnerable that they need to be protected even from their own contract. Well-paid CEOs are capable of bargaining for themselves.”

Australia has a similar provision in which under the Fair Work Act 2009, clause 382 sets the high income threshold under which the unfair dismissal rules do not apply at A$129,300 (NZ$147,000).

Lawyer, Blair Scotland, Principal at Dundas Street Employment Lawyers, said he isn’t entirely convinced the legislation will be the demise of golden handshakes, but instead lead to its nature changing.

“You may see the golden handshake changes its form or is documented more clearly up front at the beginning of the employment relationship – if things go badly wrong [it would say] ‘this is how much money you will get and you won’t be able to run off to the courts’,” he said.

Scotland added employees could look to protect themselves by asking for a written agreement in their contracts asking for x amount of dollars as a buffer if a personal grievance was to occur in return for giving up their legal rights. He expects it to have more impact in the private sector than public.

The proposed amendment would also give employers a greater degree of confidence as to what would happen if the employment did not work.

“If you think about it from an employee/employers’ perspective, if I’m the CEO of a company and I have a falling out with the directors I really don’t want to harm my future employment prospects by splashing that out across the countryside. Likewise, if you’re the board of a company and you don’t like your CEO, if you treat that person poorly and it gets made public how difficult is it going to be for you to recruit someone of a similar quality or better quality to come into your organisation if everyone thinks you’re a ratbag?,” Scotland said. “It’s about avoiding those scuffles and employment relationship problems and giving the parties a bit of certainty up front.”

The proposed law change has won the backing of the Employers and Manufacturers Association and BusinessNZ.

EMA CEO Kim Campbell called it a “useful, sensible proposal” that would save tax payers money and help free up court time.

“High earners should be allowed to sort out things like this amongst themselves and at their own expense,” Campbell said. “It’s a useful idea. It would save on mediation and court time otherwise taken up by personal grievance cases, and reduce a business risk.

“Since the law would be voluntary when the parties drew up their employment agreement, a third party representative such as a union could have their say about it at the time.”

BusinessNZ said the exclusion makes sense. Its CEO Phil O’Reilly said currently a senior employee on a fixed term contract whose contract was terminated would be paid out the remainder of the contract and would also be free to take a personal grievance – which could be seen as excessive.

“Excluding higher paid employees from personal grievances would help focus employment law provisions on those who had most need of employment protection, and would help reduce the number of personal grievance cases clogging up the legal system,” he added.

Goldsmith said that if the bill progressed it would not apply to existing contracts and there could be more debate around the salary threshold.