How high earners have a window to opt out of $180K threshold

Published 7 March 2025 | 2 min read

New Zealand businesses are facing a major shift in employment law, and high-earning employees are at the centre of it.

The government’s new $180,000 threshold for unjustified dismissal claims means that employees earning above this limit will no longer have the right to raise personal grievances over dismissal—unless they negotiate an opt-out.

Employers have just 12 months to navigate this transition and manage employment agreements before the default rule kicks in.

This creates a pressing challenge for businesses. Should they encourage high earners to opt out and ensure greater flexibility in leadership roles? Or should they work to retain traditional protections to maintain a stable and predictable employment environment?

The clock is ticking, and decisions made now will shape workplace dynamics for years to come.

A complex transition

The law change, spearheaded by Workplace Relations and Safety Minister Brooke van Velden, aims to give businesses more freedom when appointing senior leaders.

In theory, this allows companies to take risks on high-impact hires without the fear of costly dismissal disputes.

However, this change also places a new administrative burden on employers. Every high-earning employee will have the right to negotiate an opt-out within the first 12 months, meaning businesses must be proactive in reviewing and adjusting contracts.

Uncertainty around how many employees will seek to opt out adds further complexity, making it essential for HR teams to stay ahead of the curve.

Conflicts and complications

On the surface, the policy appears to offer greater flexibility for businesses. But the reality is more nuanced.

Employees who previously enjoyed dismissal protections may push back on accepting new contracts without them.

Some may even reject pay rises that push them over the $180,000 threshold to retain their current employment protections.

If an employer and employee don’t actively renegotiate, the default position after 12 months is that the high-income threshold applies—potentially leading to disputes if employees later claim they weren’t aware of the change.

The threshold applies only to base salaries, excluding bonuses and benefits, meaning businesses must carefully structure compensation packages to avoid unintended consequences.

For employers, the transition period is a double-edged sword. It offers an opportunity to redesign employment agreements but also carries risks if not handled strategically.

What NZ businesses should know

• 12-month transition period: High earners on existing contracts can negotiate an opt-out within 12 months of the amendment taking effect.
• Default position: If no opt-out agreement is reached, the new threshold will automatically apply, removing the right to raise unjustified dismissal claims.
• Impact on hiring & promotions: Some employees may resist crossing the $180,000 threshold to maintain dismissal protections, affecting remuneration negotiations.
• Contract clarity is crucial: Employers must ensure all employment agreements are clear on dismissal terms, reducing ambiguity in future disputes.
• Restructures & Role Changes: If a high earner changes roles due to a restructure, their transition period may still apply, but switching employers resets their agreement.
• Customised dismissal procedures: Employers and employees can negotiate specific termination clauses instead of opting back into full dismissal protections.

Strategic approach to employment agreements

Employers must act quickly to review existing contracts, engage in open discussions with affected employees, and seek legal advice to ensure compliance.

Businesses should develop a clear strategy for handling opt-outs, balancing the need for leadership flexibility with employee expectations.

With only a 12-month window, proactive contract management will prove essential in maintaining trust while leveraging the new employment law changes to drive organisational success.

Note: This information is based on official details from Employment New Zealand and is subject to change. Always refer to the latest guidelines for the most accurate information. Visit Employment New Zealand here.