The Employment Relations (Restraint of Trade) Amendment Bill (Bill) had its first reading on 26 July 2023 and is off to the Select Committee for further scrutiny.
The Bill was introduced on 22 September 2022 by Labour MP, Helen White, in the wake of the highly publicized Tova O’Brien restraint of trade decision.
Helen states: “It is in the public interest that lower paid employees should be free to take a job with a competitor for more money or better conditions, or to use their skills to start their own business.” The impact of restraint of trade clauses “depresses wages and stifles innovation because people can’t negotiate for better paying conditions, and they can’t move on.”
A restraint of trade clause is a provision in an employment agreement that operates after the employment ends so as to protect an employer’s proprietary interest by preventing competition. Typically, a restraint of trade will restrict the former employee from working for a competitor of, or setting up in competition with, their previous employer.
The Bill does not limit the common law duties of confidentiality and fidelity. It is intended to amend the Employment Relations Act 2000 by:
- preventing the use of restraint of trade clauses for employees who earn less than three times the minimum wage (which would currently equate to $68.10 per hour);
- restricting restraint of trade clauses to situations where an employer has a proprietary interest to protect (which must be described in the employment agreement);
- requiring employers to pay those employees subject to a restraint of trade ‘reasonable compensation’, which is at minimum an amount equal to half the employee’s weekly earnings for each week that the restraint of trade is in effect; and
- preventing the duration of a restraint of trade to endure beyond 6 months.
The two notable points for discussion in the Select Committee stage are likely to be:
- whether the Bill applies retrospectively to all agreements (our view is this would be incredibly difficult to justify); and
- whether the salary calculation of ‘reasonable compensation’ applies to the employee’s base salary or total renumeration (which would include employer KiwiSaver contribution).
It remains uncertain whether the Bill will be enacted pre-election. While there is strong forward push from Labour and the Greens, both Act and National have expressed concerns about the Bill overreaching in its application and the adverse impact it may have on businesses. It is highly unlikely that the Bill in its current form would be enacted by a National-led government.
The Education and Workforce Committee is now calling for submissions on this Bill. The closing date is 11.59 pm on 18 September 2023.
We will continue to update you as this topical Bill develops.
If you have questions about a restraint of trade clause in your employment agreement or your employees’ agreements, feel free to get in touch with the Employment Team at Lane Neave.
Special thanks to Law Clerk Olivia Kemp for her assistance in writing this article.
