K3 Insights

What is an Unjustified Dismissal Claim?

Currently, all employees can bring a claim against an employer if they believe they were dismissed without good reason or through an unfair process. The usual process involves employees raising a personal grievance within 90 days under section 103 of the Employment Relations Act 2000 (the Act). Under the proposed new policy, high-income earners would be unable to raise a personal grievance for unjustified dismissal.

Flow-on Effects with the Act

However, under section 120 of the Act, employees can request a written statement from their employer providing reasons for the dismissal. Employees must make this request within 60 days of the dismissal or within 60 days after becoming aware of the dismissal, and employers must respond within 14 days. If the proposed policy is introduced, high-income earners may rely on section 120 to obtain statements for future employment purposes.

Why is this Policy Being Proposed?

This proposed policy aims to increase market flexibility by allowing for more flexible dismissal processes for high-income workers. Employers would benefit by assuming less risk when hiring high-income workers, making it easier to find the right people for high-impact leadership and specialist roles. Employers may be more willing to hire high-income earners, potentially increasing job opportunities for employees.

Who will this Policy Apply to?

It is important to consider whether this policy will apply to you if it is introduced next year. The $180,000 threshold aligns with the current top income tax rates and will cover approximately 3.4% of the workforce. The threshold is based on regular base salary and excludes other income such as benefits, incentives, and vehicle use. If introduced, the threshold would be adjusted annually in line with increases in average weekly earnings. Part-time workers are unlikely to be affected by this policy, as the threshold is not adjusted for part-time employment.

Consequences of this Policy

While this policy may seem disadvantageous for high-income earners, it does not leave these workers without protections. Employees and employers can negotiate to opt back into unjustified dismissal protection or agree on their own dismissal processes. Additionally, high-income earners retain the right to raise other personal grievances, such as claims involving discrimination or sexual harassment.

If brought into effect, employers will need to think carefully about how they utilise these provisions and the impact they may have on brand, reputation, and employee engagement. Senior roles are already challenging, and exposing new joiners to an organisation—or team members being promoted from within—to greater risks of job instability could deter applicants or reduce interest in such roles. Organisations will need robust recruitment practices that enable fair and reasonable assessments of candidates, ensuring these provisions are used as an exception, not the norm (similar to trial periods).

Additionally, organisations should foster psychological safety, where senior leaders feel comfortable professionally challenging the status quo without fear of reprisal. Employers may also need to consider their practices around negotiating exit terms during the hiring process. Currently, discussions around exiting an organisation at the time of job offer are not commonly detailed, as many candidates may feel reluctant to raise these topics for fear of being perceived negatively.