K3 Insights

Labour MP Helen White has introduced the Employment Relations (Restraint of Trade) Amendment Bill with the aim of reforming how restraint of trade clauses are used in employment agreements across New Zealand. These clauses typically prohibit employees from working in the same or a similar industry for a period after their employment ends. While intended to safeguard legitimate business interests, their broad or indiscriminate use can impede employees’ ability to pursue further employment or career progression.

Key Provisions of the Bill

The proposed legislation would amend the Employment Relations Act 2000, specifically by introducing new sections (67I to 67K). These amendments are designed to limit the circumstances under which restraint of trade provisions can be enforced. The key changes are:

• Income Threshold: Restraint of trade clauses would be unenforceable against employees earning less than three times the minimum wage. This provision is intended to protect lower-income workers from unjustified post-employment restrictions.
• Compensation Requirement: For employees earning above this threshold, a restraint clause would only be enforceable if the employer provides reasonable compensation. This is defined as no less than 50% of the employee’s average weekly earnings for each week the restraint remains in effect.
• Scope and Reasonableness: Any enforceable restraint must be reasonable in its duration, geographic scope, and subject matter. Broad, overly restrictive clauses that inhibit an individual’s ability to work will not meet the standard of enforceability under the amended framework.

Legislative Progress

The bill was introduced to Parliament on 21 September 2022 and passed its first reading on 26 July 2023. It was then referred to the Education and Workforce Committee, which undertook further review and recommended minor amendments to clarify its provisions. The Committee's report was released on 23 May 2024, and the bill now awaits its second reading.

Implications for Employers and Employees

If enacted, the bill would have a significant impact on employment practices in New Zealand:

• Employers would need to carefully review and justify the inclusion of restraint of trade clauses in their employment agreements. In higher-income roles, employers would also need to budget for the mandatory compensation associated with any enforceable restraint.
• Employees, particularly those earning below the income threshold, would gain greater freedom to pursue new opportunities without being subject to restrictive clauses. The bill would also bring clarity and fairness to the way restraints operate for higher earners.

Policy Context

The bill reflects a broader policy trend aimed at promoting equity and mobility in the labour market. It seeks to balance the interests of businesses with the rights of workers by ensuring that post-employment restrictions are justified, compensated, and proportionate. If passed, it would place New Zealand among jurisdictions actively re-evaluating the scope and utility of restraint of trade provisions in modern employment contracts.