Two Bills giving effect to the Government's package of workplace changes recently passed their first reading, and were sent to select committee. Public submissions on the Employment Relations Bill close on 13 September 2010, with submissions on the Holidays Amendment Bill closing on 17 September 2010. A select committee report is expected in early November.

This Brief Counsel provides a user-friendly guide to the Employment Relations Bill and Holidays Amendment Bill both of which are scheduled to come into force on 1 April next year.

Employment Relations Bill

The Employment Relations Bill would shift the balance of power back in favour of employers in several key areas, most notably:

  • personal grievances
  • union access to the workplace, and
  • employer communications during bargaining.

That privilege comes with some more onerous exposures. In particular:

  • employers would face penalties if they do not keep copies of signed employment agreements (this requirement would take effect from 1 July 2011)
  • maximum penalties under the Employment Relations and Holidays Act would double, moving from $5,000 to $10,000 for individuals and from $10,000 to $20,000 for companies, and
  • labour inspectors would be given wider powers, and more flexibility to address both low level and ongoing non-compliance.

Personal grievances

If enacted, the Bill will extend the current small business 90 day trial period to all employers, regardless of size. The 90 day trial periods are not automatic. They must be agreed and recorded in the employment agreement.

Under the Employment Relations Act, the terms "trial period" and "probationary period" are not interchangeable.

  • An employer can dismiss an employee during a trial period without the employee being able to challenge the dismissal.
  • By contrast, an employee may be dismissed in reliance on an unsuccessful probationary period, but a fair process is still required, and the dismissal can be challenged.

As trial periods become more widely used, we would expect probationary periods to become less popular. However, probationary clauses will likely still be used for senior or more experienced employees who are unwilling or unlikely to agree to a trial period.

There is potential for confusion here. To avoid costly mistakes employers will need to ensure they understand the difference between the two concepts.

The proposed Bill returns the test that an employer has to meet when justifying disciplinary action to that originally used: whether a fair and reasonable employer could (rather than would) have dismissed the employee in the circumstances. This should mean that courts will accept a wider range of disciplinary outcomes, and employers are more likely to win borderline cases.

In an attempt to clarify (rather than change) the current law, the Bill also sets out minimum steps an employer must take when dismissing or taking action against an employee. When assessing the employer's actions, the Authority or Court must consider whether the employer:

  • conducted a sufficient investigation (having regard to its resources)
  • raised its concerns with the employee first
  • gave the employee a reasonable opportunity to respond, and
  • genuinely considered any explanation.

The Authority or Court will not be able to find a dismissal or action (such as a warning) unjustified if process defects:

  • were only minor or technical, and
  • probably did not lead to unfairness.

As signalled, reinstatement will cease to be the primary remedy for unjustified dismissal (it remains a remedy where practicable and reasonable).

As a matter of fact, reinstatement is seldom awarded or seriously sought. However, tactical reinstatement claims are made fairly frequently by employees seeking a quick settlement. This change will make such claims less effective.

The Authority and Court will be given an explicit power to dismiss frivolous or vexatious claims or defences.

Access to the workplace

Under the proposed changes, employers would have the power to either consent or not consent to a union request for access. Consent can only be withheld on reasonable grounds. But strict timeframes will apply.

Employers will have two working days to respond to an access request and, if they do not meet this deadline, will be presumed to have given consent.

An employer withholding consent must provide reasons in writing within two working days of giving that decision. Employers will face a penalty if they unreasonably withhold consent, or fail to give reasons in writing for doing so.


As signalled, the proposed amendments will also confirm employers' entitlement to communicate with their employees during bargaining.

Communication must be made in good faith (for example, it could not be misleading or deceptive). Crucially though, employers will have the ability to communicate with their staff about their own proposals made during bargaining.

Settlement options

The Bill proposes a number of technical and procedural changes, many of which look to be positive and useful.

Parties in dispute can agree to ask either a mediator or an Authority member to make a "recommendation". If neither party rejects that recommendation within an agreed period of time, it will have the effect of a settlement.

We suspect this power will not be used frequently, but it does provide a useful and fairly cheap way of resolving certain types of disputes.

Holidays Bill

Paying out annual holiday entitlement

Under the proposed amendments, an employer and employee will be able to agree to the employer paying out the fourth week of annual leave.

The employee must have an entitlement to take the leave, the payout must be requested in writing, and the request must be "informed and voluntary".

An employment agreement cannot require employees to request a pay out, but it can provide a process for making these requests. An employer can decline these requests, without providing reasons.

New calculation of average daily pay

The Bill aims to fix problems with the relevant daily pay formula. This formula is used to calculate public holiday, alternate holiday, sick and bereavement pay for employees whose daily pay is uncertain (for example because they earn commission, or work irregular hours).

Average daily pay will be based on the employee's earnings over the last year, instead of the last four weeks as is currently the case. This will ensure (for example) that large commission payments do not artificially inflate leave payments.

An employer can use the average daily pay formula if it is not "possible or practicable" to determine what the employee would have earned, or where an employee's daily payment varies within the pay period in which the holiday or leave falls.

Requiring medical certificates within three days

At the moment, employers can only require a medical certificate:

  • after three or more consecutive days' sickness, or
  • (within the three days) if there are reasonable grounds to suspect that leave is not genuine.

The Bill proposes that an employer could require an employee to produce proof of sickness or injury within the three day period. However, the employer will have to meet the employee's reasonable expenses in obtaining the medical certificate.

Transferring public holidays to another working day

The Bill would allow employers and employees to transfer the observance of either whole or part of a public holiday to another identified working day. These agreements cannot be made with the purpose of ensuring that the employee does not receive time and a half for working the public holiday (although they may have that effect).

Allowing employers to direct when alternative holiday must be taken

Currently employees can determine when they will take an alternative holiday by giving their employer 14 days notice. The Bill would change that so that alternative holidays are treated like annual leave. If there is no agreement, the employer (not the employee) will be able to direct when the alternative holiday is taken.

Other changes

The Bill would make some other technical changes, including reversing a recent decision which ruled that employees are not legally entitled to public holidays falling within a Christmas closedown period.

It also proposes a new definition of "discretionary payment". Unless incentive payments can be classified as "discretionary", they attract holiday pay which adds (very approximately) an additional 8% to their cost.

The proposed definition says that incentive payments are not discretionary for holiday pay purposes even when the amount paid is discretionary, if the payment is "provided for" in the employment agreement. Therefore, they will attract holiday pay.

We think this proposed change may go too far. Many payments - truly discretionary in nature and therefore outside the proper ambit of holiday pay calculations - are currently "provided for" in the employment agreement so may be caught by the definition as it stands.

Please contact the authors featured if you would like to discuss any aspect of the Bills, or would like assistance in preparing submissions.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.