As 2025 unfolds, collective bargaining in New Zealand is being shaped by economic conditions, legislative changes, and shifting labour market dynamics. The repeal of the Fair Pay Agreements Act, alongside a government keen on tightening fiscal constraints, has created a challenging environment for negotiations. Perspectives from employees, employers and unions illustrate the complexity of these negotiations, with each party facing distinct pressures and priorities.

The Employee perspective

For employees, the economic outlook is mixed. While unemployment has risen to 5.1% and is forecast to climb to 5.4% in 2025, some skilled sectors still face labour shortages. Employees in high-demand industries such as healthcare, IT, and engineering continue to see wage increases of 3% to 4%, although this is lower than previous years.

Those in lower-skilled roles, particularly in retail, hospitality, and logistics, are experiencing smaller wage increases of 1% to 3%. Many employees are finding that wage growth is not keeping up with their expectations, particularly as employers cite economic uncertainty as a reason for conservative pay rises.

Industrial action is increasingly seen as a viable option for employees frustrated by stagnant wage growth. The use of military personnel to replace striking civilian defence staff in late 2024 was a stark reminder of the government’s willingness to intervene. Many employees feel that collective action is necessary to secure meaningful wage increases, though they also recognise the risks to workplace relationships and long-term job security.

The Employer perspective

Employers are facing a paradox: while workers expect wage increases of 3% or more, economic indicators point to a slow recovery and ongoing cost pressures. Many businesses are restructuring, particularly in the public sector, where the government is seeking to reduce expenditure.

In the private sector, employers in construction, manufacturing, and logistics are offering restrained increases (1%–2.5%) due to lower demand and concerns about profitability. Meanwhile, those in high-demand areas such as healthcare and IT acknowledge the need for competitive pay but remain cautious about long-term commitments given economic uncertainty.

A significant concern for employers is the shift in union bargaining strategies. The increasing number of less experienced organisers has led to earlier industrial action, sometimes before meaningful discussions have taken place. Employers argue that this makes negotiations more adversarial and less productive.

Additionally, the removal of the median wage requirement for Accredited Employer Work Visas has led to a more flexible hiring environment, but some employers remain cautious about over-reliance on migrant workers due to potential future policy shifts.

The Union perspective

Unions continue to push for wage increases that outpace inflation, arguing that real wages have eroded over the past few years. Despite CPI falling by 2.2% to December 2024, unions contend that workers still face rising costs in specific areas, such as housing and essential goods. The current Living Wage of $27.80 remains a key bargaining point for unions, especially in sectors where employers have resisted aligning pay rates accordingly.

However, unions are facing internal challenges. A high turnover of organisers has led to a less experienced negotiating workforce, with newer organisers more inclined to take industrial action when talks reach an impasse. As a result, strike activity is increasing, particularly in the public sector, where wage offers remain subdued (typically between 0% and 2%).

Union leaders have also raised concerns over proposed legislative changes, such as the reintroduction of partial wage deductions for partial strikes and restrictions on personal grievance claims for employees earning over $180,000. They argue that these measures disproportionately favour employers and reduce workers’ ability to advocate for fair pay and conditions.

In summary

Collective agreement bargaining in New Zealand at the start of 2025 is a high-stakes process, with unions, employees, and employers each navigating a complex set of economic and legislative conditions. The balance between wage growth, job security, and business sustainability remains delicate.

With continued industrial unrest expected, particularly in the public sector, all parties will need to engage in pragmatic, solutions-focused bargaining to avoid prolonged disputes and ensure fair outcomes for both workers and businesses in the evolving employment landscape.

 

2025 is shaping up to bring significant changes to employment law to in New Zealand. In this update, we summarise the key changes that employers and employees need to be aware of.

Increase to the minimum wage

From April 1st, the minimum wage will increase to $23.50 per hour. Employers must ensure that they are paying at least this amount by the specified date to avoid any compliance issues. Employers should check their payroll now to avoid any surprises.

Gateway test for contractors

The government is also planning to introduce a new ‘gateway test’ to determine whether an individual is an employee or an independent contractor. Although still in development, this test aims to provide greater clarity in employment classifications.

Income threshold for unjustified dismissal claims

Another notable potential change is that high-earning employees, defined as those earning more than $180,000 base pay per year, will no longer be able to make unjustified dismissal claims. This change is intended to simplify the hiring and termination processes for companies, reducing the risk of legal disputes.

However, given that there are already mechanisms available to employers to address employment matters involving high-earning individuals, it is unclear that this change would solve significant employment relations problems for Employers, as it is likely that employees who earn more than the threshold will negotiate alternative contractual arrangements to protect themselves, e.g. non-fault termination clauses, opting back into the current unjustified dismissal legislation.

The proposed Employment Relations (Termination of Employment by Agreement) Bill may offer an alternative legislative approach, as it would allow employers to approach employees with an offer of an agreed exit without the risk of constructive dismissal claims.

Other changes this year may include:

• Proposed amendments to personal grievance remedies could result in reduced compensation for employees involved in misconduct, even if procedural errors occurred.
• Employers may soon be unable to enforce pay secrecy clauses, allowing employees to discuss remuneration openly.
• Another notable proposed change is the ability for employers to make deductions for partial strikes, which could improve management of industrial action.
• New legislation for the Holidays Act will likely be introduced during the current government’s term which will attempt to simplify compliance requirements.
• Recently, legislation passed into law making it a criminal offence for employers to intentionally fail to pay employees the wages they are entitled to, unless there are reasonable grounds for any such failure. This will come into effect as soon as it receives royal assent.

With these changes on the horizon, employers should review their policies and employment agreements to ensure compliance.

If you would like specific advice about any of these changes, please get in touch with our team.