Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698834910324.pdf (New Zealand)
Employment Relations (Restraint of Trade) Amendment Bill Member’s Bill Explanatory note General policy statement A restraint of trade in an employment agreement is a provision that stops an employee from working in their field, in their area, or for a competitor after the employment has ended.

In some jurisdictions, a restraint of trade is known as a “non-compete clause”.
Restraints of trade are common in employment agreements and are often used without much thought being given to whether they are reasonable in the circumstance or to the consequences for the employee, for the employee’s family, or for competition.

When restraints of trade are challenged in a court, they may be found to be unreason‐ able and, as a consequence, unenforceable.
Challenging provisions in the Employ‐ ment Relations Authority or in a court can be expensive and uncertain and, as a con‐ sequence, many unreasonable restraints of trade have the effect of restraining an employee even though they are probably unenforceable.

This means many employees on modest incomes choose to stay in lower paid work or to abide by the restraint.

This, in turn, depresses wages and stifles innovation.
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.

This Bill will prohibit the use of restraints of trade in employment agreements for lower and middle income employees.
It will also require employers of higher income employees to carefully consider whether a restraint of trade is appropriate in relation to those employees and, if they insist on a restraint of trade, to compensate the employees for it.
In more detail, this Bill will— • provide that restraints of trade have no effect wherever an employee earns less than 3 times the minimum wage: 172—1 Employment Relations (Restraint of Trade) Amendment Bill Explanatory note limit the use of restraints of trade to those situations where the employer has a proprietary interest to protect through the use of the provision: require employers to pay to employees who are subject to a restraint of trade provision an amount equal to half of the employee’s weekly earnings for each week that the restraint of trade remains in effect: limit the duration of restraints of trade to no more than 6 months.
2 • • • The Bill is not intended to limit or affect the common law duties of confidentiality and fidelity.

Clause 1 is the Title clause.

Clause by clause analysis Clause 2 is the commencement clause and provides for this Bill to come into force on the day after the date on which it receives the Royal assent.

Clause 3 identifies the Employment Relations Act 2000 (the principal Act) as the Act being amended by the Bill.
Clause 4 inserts a new sections 67I to 67K into the principal Act to provide that a restraint of trade provision in an employment agreement is of no effect unless it meets the requirements of those sections.

Clause 5 amends section 103 of the principal Act, which specifies the circumstances in which an employee can bring a personal grievance, to insert a reference to new sec‐ tion 67J.
Clause 6 amends Schedule 1AA of the principal Act to provide for savings and transi‐ tional provisions arising from the Bill.
Helen White Employment Relations (Restraint of Trade) Amendment Bill Member’s Bill Contents Title Commencement Principal Act New sections 67I to 67K and cross-heading inserted Restraint of trade provisions 67I 67J 67K Interpretation Restriction on restraints of trade Effect on law of restraint of trade, confidentiality, and fidelity Section 103 amended Schedule 1AA amended Schedule New Part 4 inserted into Schedule 1AA Page 1 1 2 2 2 3 3 4 4 5 The Parliament of New Zealand enacts as follows: 1 2 Title This Act is the Employment Relations (Restraint of Trade) Amendment Act 2022.
Commencement 5 This Act comes into force on the day after the date on which it receives the Royal assent.

172—1 1 cl 3 3 4 67I (1) Employment Relations (Restraint of Trade) Amendment Bill Principal Act This Act amends the Employment Relations Act 2000.
New sections 67I to 67K and cross-heading inserted After section 67H, insert: Restraint of trade provisions Interpretation In sections 67J and 67K,— average weekly earnings, in relation to an employee, means the employee’s average weekly earnings as calculated under subsection (2) gross earnings has the meaning given to it by section 14 of the Holidays Act 2003 reasonable compensation, in relation to an employee who is subject to a restraint of trade provision, means compensation that— 5 10 (a) (b) is paid separately from any salary, wages, or other benefit provided to the employee in connection with their period of employment; and 15 amounts to not less than half of the average weekly earnings of the employee for each week (or part week) that the restraint of trade provi‐ sion applies restraint of trade provision means a provision in an employee’s employment agreement that— 20 (a) (b) operates after the employment ends; and prohibits or restricts the former employee from 1 or more of the follow‐ ing: (i) (ii) (iii) performing work in a similar field to their former employer’s business: 25 contacting or dealing with employees or clients of their former employer’s business: offering employment to employees of their former employer’s business threshold weekly rate means an amount that is 3 times the minimum weekly adult rate prescribed under section 4 of the Minimum Wage Act 1983.
30 (2) For the purposes of subsection (1), average weekly earnings must be calcu‐ lated as follows: a = b / (c – d) is the employee’s average weekly earnings 35 is the employee’s gross earnings received from the employer in the 52 week period preceding the end of the employment a b 2 Employment Relations (Restraint of Trade) Amendment Bill cl 4 c is the lesser of the following: (i) the number of weeks (to the nearest week) that the employee has been employed under the employment agreement; and (ii) 52 d is the number of weeks (to the nearest week) in the 52 week period (or, if the employee has been employed under the employment agreement for less than 52 weeks, in that shorter period) in which the employee was— 5 (i) (ii) being paid weekly compensation under the Accident Compensa‐ tion Act 2001: exercising their entitlement to leave under the Parental Leave and Employment Protection Act 1987: 10 (iii) on leave without pay with their employer’s agreement.
67J Restriction on restraints of trade (1) A restraint of trade provision is of no effect unless— (a) the employee’s average weekly earnings exceed the threshold weekly rate; and 15 (b) the employer has a proprietary interest and— (i) (ii) (iii) the provision protects the interest; and the interest is described in the agreement; and the restrictions imposed on the employee by the provision are no greater than necessary having regard to the interest; and 20 (c) the provision requires the employer, at the time that the employment ends, to pay reasonable compensation to the employee for the restric‐ tions imposed by the provision.
(2) A restraint of trade provision is of no effect unless the reasonable compensa‐ 25 tion referred to in subsection (1)(c) has been paid to the employee.

(3) A restraint of trade provision ceases to have effect on the day that is 6 months after the date on which the employment ends (or on any earlier date agreed by the parties).
(4) An employment agreement that contains a restraint of trade provision that is of no effect under this section is not, as a consequence, an illegal contract under subpart 5 of Part 2 of the Contract and Commercial Law Act 2017.

67K Effect on law of restraint of trade, confidentiality, and fidelity (1) Nothing in sections 67I or 67J limits or affects any rule of law relating to restraint of trade, except to the extent that the rule is inconsistent with those sections.
(2) Nothing in sections 67I or 67J limits or affects the common law duties of confidentiality and fidelity.

30 35 3 Employment Relations (Restraint of Trade) Amendment Bill Section 103 amended In section 103(1)(h), replace “or 67H” with “67H, or 67J”.

Schedule 1AA amended cl 5 5 6 In Schedule 1AA,— (a) insert the Part set out in the Schedule of this Act as the last Part; and 5 (b) make all necessary consequential amendments.
4 Employment Relations (Restraint of Trade) Amendment Bill Schedule Schedule New Part 4 inserted into Schedule 1AA s 6 Part 4 Provisions relating to Employment Relations (Restraint of Trade Terms) Amendment Act 2022 5 17 Interpretation In this Part, 2022 Act means the Employment Relations (Restraint of Trade) Amendment Act 2022.
18 (1) (2) (3) Application, savings, and transitional provisions arising from 2022 Act 10 The amendments made by the 2022 Act do not apply to conduct that occurred before the commencement of that Act.
If a collective agreement (the previous agreement) is in force immediately before the commencement of the 2022 Act, sections 67I to 67K (as inserted by section 4 of that Act) apply to— (a) any collective agreement that replaces the previous agreement, on the commencement of the replacement agreement; and (b) an individual employment agreement that comes into force under section 61(2)(a), based on the previous agreement and any additional terms and conditions agreed under section 61(1), on the commencement of the individual employment agreement.
If an individual employment agreement has been entered into, or has come into force under section 61(2)(a), before the commencement of the 2022 Act, sec- tions 67I to 67K (as inserted by section 4 of that Act) apply to the agree‐ ment from the day that is 6 months after the date on which the 2022 Act came into force.

15 20 25 Wellington, New Zealand: Published under the authority of the House of Representatives—2022 5