This Termination by Agreement (also called mutual separation or mutual termination) bill is ready to have its second reading after significant changes recommended by the select committee.
The new bill inserts a new section 8B, sections 100H to 100R.
Note that this is still a bill before parliament and could change after the next reading.
This article is not a substitute for legal advice. Always seek advice if you are considering ending an employee’s employment.
What are pre-termination negotiations?
Section 100I
It’s always important to define these things, as the term “pre-termination negotiations” is used throughout the bill.
Pre-termination negotiations include:
- All discussions correspondence and interactions between the employer and employee about the termination of the employment relationship and
- Any offers made during the interactions
- The employer’s request to begin negotiations.
Requesting pre-termination negotiations
Sections 100J to 100K
An employer may initiate negotiations for termination by agreement, whether there is an employment relationship problem or not. We take it to mean that you could begin negotiations for any reason, which is useful if you need to reduce staff numbers for other reasons. (Ref section 100J(5)(a)).
The bill does not say that negotiations can be initiated by an employee – but it doesn’t say they can’t, either.
For a binding agreement, the employee must be aged 16 or over.
Ideally this would be done in writing, to adhere to the record-keeping requirements laid out in the bill (because the employee’s response must be recorded), and to provide evidence
When initiating negotiations, the employer must:
- Tell the person they have the right to representation
- Give them time to arrange that representation
- Provide them with information, including:
- That the person may decline the request
- That negotiations won’t start until the employee says they can
- A reminder of the duty of all parties to act in good faith, and what that means
- That the employee’s employment will not be terminated if no agreement is reached
- That if a termination agreement is reached, the employee can seek independent advice on the terms of the agreement
- That when a termination agreement is signed, it is a full and final settlement and the employee may.
Pre-termination negotiations
Sections 100L to 100M
Reiterates that negotiations may not begin without the employee’s agreement, and that all parties must act in good faith. There is an emphasis on the parties not doing anything that will, or could, mislead or deceive the other. If a breach of good faith is later found, a penalty could be imposed.
Termination agreements
Section 100N
The bill then has a full rundown on the termination agreements themselves, which must be in writing, namely:
- How much money will be paid to the employee
- What section of Act the settlement is made under (currently section 100N)
- That the agreement must be signed by both parties
- A reiteration of the items above that must be communicated to the employee before negotiations start, ie
- That the employee can seek independent advice
- Giving a reasonable opportunity to seek that advice
- That the terms of the agreement create a full and final settlement
- That the terms of the agreement are binding on both parties
- The agreement may not be cancelled under any of sections 36 to 40 of the Contract and Commercial Law Act 2017; and
- The terms of the agreement can not be appealed later; the only appeal may be for enforcement of the agreement.
Unfair pre-termination negotiations
Section 100P
The bill then goes on to say that the employer must not engage in unfair pre-termination negotiations. If they are found to have done this, the employer may be charged a penalty. As well, there’s a range of remedies available, including reinstatement and compensation – like the remedies available for an unjustified dismissal.
Unfair pre-termination negotiations are based around breaches of the procedural requirements explained above.
In addition, pre-termination negotiations may be deemed unfair if
- the employee isn’t able to understand what’s going on due to “diminished capacity”, which includes “emotional distress”.
- The employee relied only on the skill and care of the employer and/or their employer’s representative
- There was undue pressure to accept the termination agreement.
The Authority may make an order cancelling a termination of an employee has been treated unfairly because of certain defects in the process or if the termination agreement itself is non-compliant.
However, if any process defects don’t result in an employee being treated unfairly, then the Authority must not determine a termination agreement to be invalid.
Admissibility of evidence
Section 100R
This is the bit that employers are really concerned about – when negotiations don’t lead to a settlement, and the employee is fired later.
Section 100R(1) says –
Evidence of pre-termination negotiations is inadmissible in any proceeding before the Authority or the court.
(“Authority” is the Employment Relations Authority, and the “court” is the Employment Court).
Then there is a lengthy list of exceptions to this, which are all directly related to termination negotiations themselves.
So, while the bill doesn’t specifically say “unjustified dismissal at a future time” or anything like that, it’s implied.
So, what now?
Now, we wait. Any changes to the bill before it is passed into law will be minor. Once it passes into law, it is likely to be effective immediately, because it doesn’t impact on any terms and conditions of employment or legal rights or entitlements.
There won’t be any need to have a formal policy or procedure, since the whole process is dictated by the law. That said there’s nothing to stop you from having one and we will be in contact with all our clients about this once the law has passed.
Further help with employment law compliance
Whether it’s helping out with a suite of policies and procedures, help with a one-off situation, or employment law training for your leadership team and managers, we’re always here to help.
Check out our employment law training here.
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