Knowledge The government is planning a series of employment law changes in 2025, many of which stem from the ACT – National Party of New Zealand Coalition Commitment. One notable change is a proposed income threshold for unjustified dismissal claims. If passed, employees earning over $180,000 per year will no longer have the automatic right to bring an unjustified dismissal claim.
As with any change that affects long-established rights, it will be interesting to see how this plays out in practice. Essentially, the new rule means that those earning above the threshold won’t be able to challenge dismissals in the same way they could before.
The Ministry of Business, Innovation and Employment (MBIE) recently released three key documents outlining the government’s reasoning behind the change, as well as the advice officials provided. Interestingly, the officials’ recommendations and the government’s decision seem to have diverged.
Why is this change being introduced?
The government has put forward several reasons for adjusting the dismissal laws:
- Greater flexibility in the labour market, especially for employees with strong bargaining power.
- Challenges in dismissing high-income employees, as poor performance at senior levels can impact an entire organisation.
- Time and cost savings, since following existing dismissal procedures can be expensive and time-consuming.
- Alignment with existing contract practices, as many senior executives already have “no-fault termination” clauses in their contracts—though these aren’t legally enforceable, they often lead to mutually agreed exits.
- Financial resilience of high earners, who are generally better equipped to manage income loss after a dismissal.
Despite these justifications, it’s not entirely clear what specific problem this change is meant to solve. High-paid senior executives are often commercially minded and tend to negotiate their exits pragmatically when their time at an organisation is up. While there are occasional exceptions, in most cases, both executives and employers see the writing on the wall and come to a mutual agreement.
Will this change really boost productivity?
One of New Zealand’s key economic challenges is lower productivity compared to other OECD countries. While research suggests that flexible labour markets can support higher productivity, MBIE’s analysis indicates that New Zealand’s labour market is already quite flexible—more so than most countries except the U.S.
MBIE also pointed out that low management quality scores are a more significant factor affecting firm performance than dismissal laws. So, while this change may bring some benefits, it’s unlikely to be a silver bullet for productivity challenges.
What did MBIE recommend?
MBIE outlined three categories of high earners who could be affected:
- Senior Executives – Those reporting directly to the board, such as CEOs and managing directors.
- Highly-Paid Middle Managers – Managers overseeing departments or teams.
- Highly-Paid Non-Managers – Technical experts like lawyers, doctors, and engineers.
MBIE recommended limiting the new law to senior executives, as they are the ones with the most bargaining power and influence over an entire organisation. However, Cabinet decided to apply the rule to all employees earning above the threshold, regardless of their role—likely for simplicity.
How does this compare to Australia?
Australia has had a high-income threshold for dismissal claims since 2009. As of July 2024, the threshold is AUD $175,000, which translates to approximately NZD $193,500. MBIE suggested a similar approach, recommending a $200,000 threshold for New Zealand. However, Cabinet opted for a lower figure of $180,000, meaning more employees will be affected.
Can employees opt out?
MBIE also suggested an opt-out system, allowing high earners to agree with their employers that standard dismissal protections wouldn’t apply. Instead, the government has introduced an opt-in approach—employees earning over $180,000 will need to negotiate with their employer to be covered by unjustified dismissal laws.
Who will this apply to?
The proposed new law won’t just apply to new employment agreements—it will also cover existing employment relationships. However, there will be a 12-month transition period to give employees and employers time to prepare.
It’s also worth noting that while this change removes the right to claim for unjustified dismissal, other employment claims under legislation and common law will remain available.