There is a delicate balance businesses need to strike between fostering a positive workplace environment and mitigating risk.
Business owners and managers often struggle to get their heads around New Zealand’s employment laws that are complex to navigate.
Late last year, Workplace Relations and Safety Minister, Brooke van Velden released plans to reform a number of issues with the current Employment Relations Act (ERA).
Among the key proposed changes to our employment laws is the introduction of a salary cap for accessing unjustified dismissal claims, as well as new rules around remedies for serious misconduct.
With these changes on the horizon, we find ourselves on the verge of a sea change in the culture around employment relations that we haven’t seen for 25 years.
Fear is holding us back
At the core of discussions I have with many SME and corporate clients is the concern of becoming entangled in personal grievances and legal disputes. In the current business climate, this apprehension can result in cautious decision-making, which stifles innovation and agile business practices. The cost of compliance can also create extra financial pressure which does not contribute to the growth of the business.
This fear of legal risk and compliance can hold back business growth and SMEs from taking the step of employing more staff and scaling up.
The proposed law changes for grievances indicate a shift toward a more balanced approach to substance over process for employment decisions, so that employers can focus more on their core business.
What changes do SMEs need to know about?
There are a number of changes in the employment area that have been announced by the NZ government that are likely to be law by the end of the year. Key proposals include:
A $180,000 per annum salary cap for accessing unjustified dismissal claims
Employees earning over $180,000 per annum will no longer be able to pursue compensation for unjustified dismissal.
Removing eligibility for remedies if the employee is at fault
Those dismissed for proven instances of serious misconduct, for example, theft or assault, would not have access to remedies such as compensation for hurt and humiliation and lost remuneration.
There will be a stronger emphasis on looking at an employee’s contribution in the case of other types of dismissals (for example poor performance) when considering whether remedies should be awarded and how much should be paid out.
It has been announced that the income threshold for unjustified dismissal claims will apply to existing employment agreements after one year and immediately after a Bill is passed for new employment agreements. This provides a transitional period when the parties can potentially renegotiate their arrangements. The Government has signalled that this may allow parties to agree their own termination arrangements.
What does it all mean?
The business ecosystem thrives on healthy risk-taking, but the fear of personal grievances can hold that back, as can the cost of legal compliance in general. By addressing the potential loopholes that enable unworthy claims, the proposed changes recognise the detrimental impact that such claims can have on employers.
If implemented, these reforms could empower SMEs to approach business with renewed confidence, focusing on productivity and growth rather than on potential legal pitfalls.
It’s often forgotten that many employers (particularly small business owners) find employment disputes hugely stressful. At times it seems nonsensical. They may ask why is there a payout when someone has damaged or caused loss to their business (for example theft, serious negligence, or creating divisive work culture).
Will this make a difference?
Some would say that if an employee is determined to make a claim they will find a way. Indeed, we have seen this when the trial period laws have been introduced. Aggrieved employees will still test the waters – and will pursue claims if they think there has been an injustice. Disadvantage grievances, discrimination, or technical arguments might be run instead of unjustified dismissal in these cases.
So while these proposals reduce the options for an employee, it doesn't remove the need for employers to act fairly and make good employment decisions.
Furthermore it makes sense for businesses to treat their staff well – reward the right behaviour and work hard to maintain positive work culture to retain their top talent. Recruitment, training and developing good staff can be costly and time consuming. No sensible employer will dismiss a good employee without good reason. Equally, no good employee should stay working for a rogue employer.
We need to make sure that there are opportunities in the labour market for matching the good employees with the good employers, and make sure that through appropriate regulation the bad employers are weeded out (for example through clamping down on migrant exploitation).
Other potential changes to watch for
In tandem with labour relations reforms, an anticipated review of the Holidays Act could herald a move toward simplified legislation that matches the reality of modern payroll systems.
The current Holidays Act is unwieldy and has been developed with rigid concepts that don’t work with modern variable work arrangements. The need to apply annual leave entitlements on a weekly basis is an example. It has been signalled by the NZ government that a change to an hourly accrual system might apply. The objective of any further review would be to simplify and improve workability of the current rules.
This is about aligning the law with the common payroll practice – it has to be formula driven and systems based to allow for scale. It also has to allow for the vast variation in working arrangements around hours, pay and incentives.
A transformative era
Building a culture that celebrates open dialogue will be crucial for SMEs and big business alike if these changes are passed into law.
The process of disciplinary action and then raising grievances is somewhat antiquated. These are tools for employers and employees to let each other know that they have crossed a boundary and set consequences for that. But at times, the consequences that follow are out of proportion to the wrong done. It may be time to rethink the balance around these measures and how we can achieve positive outcomes with alternative approaches. We might instead work on rewarding the right behaviour in the first place.
Simplifying compliance requirements would allow businesses to allocate time and resources toward more strategic initiatives, enhance service offerings, develop new products or markets and scale more effectively.
The emphasis on clear communication, empathetic conflict resolution, and streamlined compliance lays the groundwork for a transformative era that helps to bring the balance back to employment relations.
