A look at important difference in employment law between Australia and New Zealand
If you are involved in a business that operates on both sides of the Tasman, it's important to understand the key employment law differences between Australia and New Zealand.
As a firm, we’ve had conversations with people about the key differences in the two sets of employment laws including approaches to workplace change and disputes.
Below we set out the main differences and 10 key things to know if you are an Australian business operating, or looking to operate, under New Zealand employment law.
Statutory duty of good faith
A defining feature of New Zealand’s employment law landscape is the overarching statutory duty of good faith which is incorporated into all aspects of an employment relationship.
The courts regard an employment agreement as a relational contract, and not just a contract governed by its express terms.
This duty requires parties to be “active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative.”
It also requires an employer that is proposing to make a decision that could have an adverse impact on the continuation of an employee’s employment to be given access to information relevant to the decision and an opportunity to comment on the information before the decision is made.
When it comes to the duty of good faith, restructures are a potential pitfall for Australian businesses operating in New Zealand. An employer will need to consult with the employee before a decision has been made, which contrasts with the common Australian practice of consulting as soon as a decision has been made.
No modern awards (yet)
Unlike in Australia, New Zealand doesn’t have a system of modern awards. Instead, minimum employment standards are consistent across industries and solely set out in legislation, including the Minimum Wage Act, the Holidays Act, and the Employment Relations Act.
It’s possible this will change in the near future, with the recent introduction of the Fair Pay Agreements Act 2022, which allows for the initiation of sector-wide bargaining. The intention of fair pay agreements is to set minimum terms and conditions for an industry as a whole, in a similar manner to modern awards. To date, there have not been any fair pay agreements brought into effect.
The Employment Court recently ordered four defendant companies to pay over $1.55 million in penalties for 120 breaches of employment standards.
Prescribed requirements in individual employment agreements
There is a legal requirement in New Zealand for all employees to have a written employment agreement.
While this can (and should) include such terms as the parties deem fit, there are a number of clauses that are required and prescribed by statute.
A couple of compulsory clauses that Australian businesses may not be familiar with include the requirement to have a plain language explanation of the services available for the resolution of employment relationship problems (including the 90-day time limit for a personal grievance to be raised within), and an “employee protection provision” relating to situations where restructuring occurs and another business takes over as the employer, or where the work carried out is being outsourced.
Leave
Personal/carer’s (sick) leave in Australia accrues progressively through the year but is pro-rated for part-time employees. In New Zealand, the entitlement to sick leave does not arise until after six months of continuous employment, at which point the employee is entitled to 10 days of paid sick leave for each 12-month period (regardless of whether they work part-time or full-time).
Unlike Australia, where sick leave and compassionate leave (called bereavement leave in New Zealand) would be paid at base rate of pay (excluding incentive-based payments and potential overtime), in New Zealand these calculations can be complex and may take into account incentive-based payments, overtime and other allowances and payments.
While both Australia and New Zealand laws provide for four weeks of annual leave for most employees, this entitlement does not technically accrue progressively through the year in New Zealand. Rather, this entitlement crystalises after 12 months of continuous service.
Again, there are complex calculations when it comes to calculating the payment for annual leave as compared with the simplistic “base rate of pay” in Australia. In New Zealand, two calculations must be carried out with the greater amount of the two calculations being paid to the employee. These calculations take into account additional payments such as commission, contractual bonuses and overtime.
Three individuals were held personally liable for more than $40,000 in unpaid wages to workers.
Superannuation/KiwiSaver
Unlike Australia's mandatory Superannuation Guarantee system, New Zealand's KiwiSaver scheme allows employees to opt-out of the scheme, relieving employers of their contribution obligations. However, most employees do participate in KiwiSaver, which allows them to contribute a portion of their earnings (at a rate of 3, 4, 6, 8 or 10 per cent) to a fund of their choice.
Employee contributions are deducted directly from their earnings and employers are required to contribute an additional 3 per cent of an employee's gross salary or wages to their chosen fund. This stands in contrast to Australia, where employers are currently required to contribute a minimum of 10.5 per cent of an employee's ordinary time earnings to a complying super fund.
Personal grievances in relation to dismissal
There is no minimum employment period in New Zealand. Where Australian businesses can avoid unfair dismissal claims in the first six months for large employers (and 12 months for small businesses), employees in New Zealand have access to unjustified dismissal claims from day one.
The exception to this is for small-to-medium-sized employers that employ fewer than 20 employees, if (and only if) they include a valid 90-day trial period provision within the employee’s employment agreement, prior to the commencement of employment.
Another important aspect of unjustified dismissal claims is that there is no high-income threshold or similar type of jurisdictional objection preventing high income earners from bringing a claim.
Personal grievances—unjustified disadvantage claims
A distinguishing feature of employment law in New Zealand is the ability to bring an unjustified disadvantage claim. These claims allow employees to challenge a wide range of actions by their employer, such as changes to their job duties, disciplinary action, or failure to provide a safe workplace.
Unlike Australia, New Zealand does not have a general protections framework; however, unjustified disadvantage claims are wider in scope and provide a crucial avenue for employees seeking to challenge unfair treatment in the workplace.
The New Zealand government announced a tough new Employment Standards Bill in 2015.
Litigation
In New Zealand, the Employment Relations Authority has exclusive jurisdiction to hear all employment-related matters in the first instance. The main exception to this is in human rights matters, where an employee can choose to have their matter heard in the Human Rights Review Tribunal instead.
This is different from Australia, where separate tribunals and courts handle different types of employment-related disputes. The Authority’s broad jurisdiction allows for a more streamlined process for resolving employment disputes in New Zealand.
Another feature of New Zealand’s system to be aware of is the ability for an employee to join as a third party to litigation if there is a triangular employment relationship. This means that if a worker is employed by a labour hire company and does work for another (host) company, they may join the host company to the claim.
Restraints
Similar to Australia, the New Zealand position on restraints is that they are only enforceable to the extent that they are reasonable and necessary to protect a legitimate proprietary interest of the employer.
In New Zealand, what is ‘reasonable’ is assessed at the time the restraint is entered into. For this reason, the common Australian practice of using cascading restraints is unsuitable. If cascading restraints are used, the courts are likely to automatically opt for the lowest (least onerous) option because the parties must have contemplated that level of restriction at the time the agreement was entered into.
Any restraints should be tailored to the level that is most likely to be reasonable and enforceable, but still provided maximum protection for the company.
Other notable differences
Unlike Australia, there is no statutory prescribed:
- entitlement to long service leave for long serving employees
- redundancy compensation
- maximum number of weekly hours (however, minimum wage laws and health and safety considerations will apply)
- minimum notice of termination (however, notice must be reasonable).
In summary
While Australia and New Zealand share a good number of similarities in their employment laws, there are some key differences that can catch out unsuspecting directors, managers, and HR practitioners. It's important to understand these differences when operating across the Tasman.
By staying informed and seeking expert advice, businesses can avoid costly mistakes and thrive in both markets.
Mark Lawlor is a partner focusing on employment law, workplace disputes, and health and safety at Duncan Cotterill in Auckland. Nikita Bartlett is an associate specialising in employment law at Duncan Cotterill in Auckland.