Dismissal 'at will' for high income earners

The Government announced on Friday 29 November that it will introduce an income threshold of $180,000 on personal grievance claims for unjustified dismissals. The change will allow employers to terminate the employment of employees who earn over the threshold 'at will', subject to any contractual obligations they have agreed to with that employee, such as regarding notice.  

Employees who earn over the threshold currently represent about 3.4% of the workforce. Workplace Relations and Safety Ministry Brooke van Velden says that the policy is about offering employers more choice when negotiating contracts with their high impact leadership and specialist roles. These senior employees can have a significant impact on workplace performance and culture. The changes would allow the parties to negotiate their own arrangements around termination of employment or opt back into the unjustified dismissal protections.

The changes will be introduced in 2025 and will form part of broader amendments to the Employment Relations Act 2000, including the introduction of the new 'gateway test' for contractors. Changes to the Holidays Act 2003 are also anticipated next year.

The amendments are good news for employers as the impact of poor performing senior employees can be significant and a straight-forward process for exiting those employees will be welcomed. High-income earning employees who are hard to find or replace will likely want to negotiate either an agreement to opt back into the protections or other contractual protections such as longer notice periods and compensation as part of their packages. We will also likely see discrimination and disadvantage claims in this income threshold increase where the exit is contentious and the employee is unable to raise an unjustified dismissal claim.

We recommend employers start considering what position they will take with their high-income employees regarding dismissal protections when the new law comes into effect. Please contact our employment specialists for further advice.