New Zealand Moves to Allow Mutual Employment Termination Discussions, Drawing on UK Model

New Zealand is set to introduce a framework that would allow employers and employees to end contracts by mutual agreement, a move taking inspiration from the UK’s long-standing “protected conversations” regime. 

Terminations in New Zealand have long posed challenges for employers, as release agreements are not enforceable. Instead, for the parties to agree to waive future claims, there must be an active dispute underway, and the parties must enter into a formal record of settlement agreement, which must be filed with the Ministry of Business, Innovation and Employment. A mediator is then assigned to determine whether the agreed terms are legally valid, enforceable and that the parties are fully informed concerning them, confirming:

• it has been explained to the parties that:
  • once signed, the terms are final, binding and enforceable;
  • the terms may not be cancelled for repudiation or misrepresentation, or cancelled once affirmed; and
  • the agreement cannot be subsequently challenged before the Employment Relations Authority or courts (except for enforcement), and
• no party has given up minimum entitlements in making the agreement. 

There are many situations, however, where both parties may wish to explore a mutual termination option without an active dispute. The proposed reforms are intended to address this type of situation, enabling employers to initiate discussions of potential mutual termination of the employment agreement. 

The UK has a similar, long-standing system under the Employment Rights Act 1996. Similarly, if passed, the New Zealand proposal would enable employers to offer written agreements that provide employees with compensation in exchange for waiving future claims. Employees would have to receive independent advice before signing. Negotiations would remain confidential and be inadmissible in court, except where the court was satisfied that there was a prima facie case that the communication was made or received, or the information was compiled or prepared, for a dishonest purpose or an intent to enable or aid commission of an offense.

The final wording of the proposed law is not yet fully settled. In early November, a parliamentary select committee recommended substantial amendments, including that an employer’s request to begin pre-termination negotiations must:

• inform the employee of their right to obtain representation before responding to the request or at any other time in the process;
• give the employee a reasonable opportunity to obtain representation; and
• provide the employee with the following information:
  • that the employee may decline the request to begin pre-termination negotiations;
  • that negotiations may not begin without the employee’s agreement to do so;
  • that the statutory duty of good faith is met during pre-termination negotiations if the parties do not, whether directly or indirectly, do anything to mislead or deceive each other during the negotiations, or that is likely to mislead or deceive each other during the negotiations;
  • that the employee’s employment may be terminated under this process only if the parties enter into a termination agreement;
  • that the employee is entitled to obtain independent advice on the proposed terms of a termination agreement; and
  • that the written terms of a termination agreement will constitute the full and final settlement of any cause of action arising out of the employment relationship between the parties. 

The employee may decline the employer’s request for a pre-termination negotiation. If the employee agrees to the request, the employer must make a record of the request and the employee’s response. 

The select committee proposed further amendments to the bill, such that: 

• the settlement agreement must be in writing and signed by each party;
• the agreement must state the relevant legislation that applies to such settlement agreements;
• the employer must advise the employee to seek independent advice on the proposed agreement before signing; and
• the employer must have given the employee a reasonable opportunity to obtain independent advice before the employee signed the agreement.

The proposed law is currently before the New Zealand Parliament, at the second reading stage. It will be sent to the Committee of the Whole House before a third reading takes place and royal assent is given.