Mutually Agreed End of Employment
The Employment Relations (Termination of Employment by Agreement) Amendment Bill (the Bill) is a member’s bill, introduced by ACT MP, Laura McClure, to allow for a mutually agreed end of employment.[1] This Bill is one of many proposed changes in the employment law space and comes following the repeal of Fair Pay Agreements legislation and 90-day trial periods being extended to be able to be used by all employers.
The Bill has passed its first reading in Parliament with the support of ACT, National and New Zealand First. National and New Zealand First have said they will support the bill to the select committee stage and then reconsider. The Bill is open for submissions from the public until Thursday 22 May 2025.
A without prejudice discussion is often referred to more colloquially as ‘off the record’. Without prejudice discussions allow parties to negotiate freely, encouraging them to reach their own agreements without the need for litigation. The Bill expands without prejudice discussions, referred to in the Bill as pre-termination negotiations, and allows for these discussions between the employer and employee to occur at any time.
Current Law
Under the current law (based on case law and statute), for an employer to engage in a without prejudice discussion with an employee, there must be a dispute between the parties. A dispute occurs when there is a genuine disagreement over employment terms or treatment. It must be genuine and have arisen from an actual, not hypothetical situation. Generally, both parties must agree that the conversation is to be on a without prejudice basis, the employer cannot merely assert this at the time. The problem should be one which could give rise to litigation where what is said in negotiations may affect the result.
In practice, without prejudice discussions are an important first step for parties toward resolving issues and often result in them coming to their own agreements, without the need for formal intervention. The requirement for there to be a dispute between the parties before the employer can engage in a without prejudice discussion acts as protection for the employee. Without it, the employer could enter without prejudice discussions at any time to seek to end the employment relationship without good reason.
Proposed Bill
The Bill seeks to allow employers and employees to undertake pre-termination negotiations to terminate the employee’s employment in return for an agreed payment or other terms of settlement. Under the proposed Bill, the employer can undertake a protected negotiation with an employee regardless of whether there is a dispute. This would make it easier for employers to terminate employment agreements as there is no need for the employee to be aware of any issue the employer has and employers could avoid undertaking a fair process, instead opting to negotiate the employee’s termination.
Settlement agreements are situation specific; a standard settlement agreement includes clauses pertaining to the end date, payment of compensation and are usually full and final settlement of any claim both parties to the agreement may have against each other. This means the employee is unable to bring a personal grievance claim to their employer after settlement. Under this Bill, there is no requirement for there to be a dispute to initiate pre-termination negotiations. As these conversations can indicate an employer’s wish or intention to terminate an employee’s employment, if the employee did not wish to terminate their employment agreement for a monetary sum, any process from then on would effectively be predetermined, as the employer’s intention to dismiss has been made clear (even off the record).
If passed, the Bill would potentially enable employers to avoid initiating or following a fair process when trying to dismiss an employee. The proposed approach of throwing money at the problem strongly favours the employer and fails to recognise the inherent power imbalance and fails to consider there are many factors that should be considered when terminating an employment agreement.
Section 101A(2) of the Bill states an offer made by an employer to an employee to terminate the employment relationship is not grounds for a personal grievance. However, other conduct prior to the offer could be grounds for a personal grievance. The parties can agree that once compensation is paid, this constitutes full and final settlement of any cause of action arising out of the employment relationship, preventing the employee from raising a personal grievance in relation to the dismissal. Employees will be given a chance under the Bill to seek independent advice before signing a settlement agreement, however this is not a requirement. The Bill only requires the employer advise the employee to seek independent advice and give them a reasonable opportunity to do so.
Section 101A(4) of the Bill states an offer may include a requirement for both parties not to disclose terms of the agreement to the employer’s current employees. This would be difficult to enforce and could deteriorate relationships if either party failed to comply.
The Bill in practice
ACT MP Laura McClure has stated that since the process is mutual, if the employee chooses to not to go down the pathway of a pre-termination negotiations, employment can resume as normal.[2] If the employee is willing to leave the employment relationship, the proposed Bill could provide an avenue for the parties to end the relationship quickly without having to follow a strict process, while preventing the risk of a personal grievance being raised. The Bill’s effectiveness is questionable in situations where the employee wishes to remain in their job, but the employer attempts to start pre-termination negotiations to encourage their departure. Realistically, if an employer has pre-termination negotiations with an employee about coming to a settlement to end the employment relationship, it will damage the relationship and it will be very difficult for employment to resume as normal, particularly when, from the employee’s perspective, they were unaware of any issues the employer had.
This Bill will likely amplify the already existing power imbalance between the employer and employee. This makes it difficult for there to be a completely mutually agreed settlement where there is such an imbalance in bargaining power. Employees may feel pressured into settling for a lower amount and if they don’t settle, there is also a risk of insidious retaliation from the employer and any evidence of pre-termination negotiations would be inadmissible as evidence of the employer’s predetermination. It is difficult to see how this Bill will provide a fair and balanced approach for both employers and employees when there is such a large imbalance in favour of the employer.
Although the Bill may work in situations where the employee is happy to end the relationship in return for compensation, it fails to consider an instance where an employee does not want to end the relationship or where payment of monetary compensation is not an appropriate remedy. It also discourages employers from treating their employees fairly and in good faith. Following a pre-termination negotiation where the employee does not want to continue negotiations and does not agree to end the relationship, there will likely be a breakdown of trust in the employment relationship, causing irreparable damage.
Assistance
If you or your business needs advice regarding any of the recent legislative changes or need advice on a specific situation, our lawyers are here and happy to assist you. Talk to a member of the Dyhrberg Drayton Employment Law team today!
Imke Kitchin, Associate and Claudia Langley, Lawyer
[1] Employment Relations (Termination of Employment by Agreement Amendment Bill) 2024 (95 -1).
[2] The Act Party “New bill provides for mutually-agreed end of employment” (press release 22 May 2024).
