Employment Relations
(Restraint of Trade) Amendment Bill

A proposed bill aiming to limit the application of restraints of trade clauses was presented in Parliament and has advanced to the select committee stage, where submissions of public input have recently closed.  

Labour MP Helen White introduced the Employment Relations (Restraint of Trade) Amendment Bill on September 22, 2022, following the widely publicised Tova O’Brien restraint of trade ruling. White stated, “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.” Restraint of trade clauses have the effect of “depressing wages and stifling innovation as people cannot negotiate for better-paying conditions and are unable to move on.”

The Bill

The bill suggests that the enforceability of restraint of trade clauses would be contingent upon meeting specific criteria. This criterion includes the existence of a legitimate proprietary interest for the employer to safeguard through the restraint, the employee earning more than three times the minimum wage (currently equivalent to $2,724 per week based on a 40-hour week at $68.10 an hour), the payment of reasonable compensation to the employee for the restraint (as defined), and a limitation of the restraint to a maximum of six months post-termination. The effect of this bill means that restraints would no longer be applicable to low or middle-income employees. When High-income employees are concerned, employers would be required to compensate them with half of their average weekly earnings for the duration of the restraint.

Practical Concerns

Public submissions are likely to give rise to various practical concerns for the select committee’s deliberation. The New Zealand Law Society has already outlined specific matters to consider, including:

• The inclusion of a definition of “proprietary interest,” which can identify varying categories of interests to be legitimately protected.
• Clarity as to whether garden leave will have any effect on the application of the new provisions.
• Consideration as to whether the definition of “average weekly earnings” should be revised to include part-time employees who, on a full-time equivalent (FTE) basis, earn more than three times the minimum weekly adult rate.

Post Election Outcome

The future of the bill post-election remains relatively uncertain. Act and National have both expressed reservations about the potentially detrimental effects the bill may have on businesses, alongside the possibility for the bill to extend beyond its intended scope. The bill in its current form is thus unlikely to be enacted.

However, National has indicated an openness to considering a modified bill. Specifically, Paul Goldsmith argued that a bill with a more specific focus on excessive restraints of trade for low-wage workers as opposed to simply  rendering Restraint of Trades largely futile, may mean the bill is more likely to be considered under a National-Act government.