The rules have changed: The chair’s role hasn’t

Recent changes to the Employment Relations Act (ERA), now in force, mark a significant shift in how senior executives – particularly CEOs – are treated under New Zealand employment law.

This was a significant feature of ‘Governance in action: Managing CEO performance and transitions’, a webinar hosted by IoD Chief Executive Kirsten Patterson MNZM, CMInstD, with a panel comprising experienced board chair Kendall Langston CMInstD and Charlotte Parkhill, Partner, Dentons.

It would be a mistake for chairs to see the changes that came into force on 21 February 2026 as simply an HR or legal update. The changes to the Employment Relations Act 2000 have wider impacts than might first meet the eye. The new provisions change the power dynamics of the chair-CEO relationship, especially when performance concerns, succession or exits come into play.

While the law has moved, the expectations on chairs have not.

The headline change in plain terms

A new $200,000 income threshold has been introduced. Employees earning above this level of total remuneration (not just base salary) can no longer bring a claim for unjustified dismissal.

Some important nuances:

• • The threshold includes bonuses, allowances and other benefits
  • Only unjustified dismissal claims are removed
  • Other claims – such as discrimination, unjustified disadvantage and breach of contract – remain available
  • A 12-month transition period applies to existing high-income employees
  • New appointments above the threshold fall under the new regime immediately

In practice, this moves senior executives closer to an “employment at will” position –but not a United States-style free-for-all.

What changes for chairs, and what doesn’t

It would be easy to assume CEO exits are now simpler. They are not. They are different.

Legal leverage increases

Once the transition period has passed, boards have greater leverage when exiting a CEO. The risk of an unjustified dismissal claim is removed. That said, leverage is not the same as licence.

Boards that rely solely on legal power, rather than judgement, risk damaging culture, reputation and future recruitment.

Conversations matter more than ever

Many employment disputes do not start with decisions. They start with poorly handled conversations.

“Fireside chats” between chairs and CEOs are common and often appropriate. But chairs must remain careful not to:

• • Signal a closed mind too early
  • Create the impression that a decision has already been made
  • Use language that invites discrimination or bad faith claims

Even under the new law, the way a chair frames early discussions can materially affect legal and reputational risk.

Performance management is still difficult

Formal performance management of CEOs remains, in practice, extremely challenging. Chairs are rarely embedded in daily operations and evidencing performance failures at CEO level is complex.

Most CEO exits will continue to be negotiated, not litigated, regardless of the law change.

What boards are likely to see next

Based on early signals and offshore experience (particularly Australia), chairs should expect:

• • Longer notice periods and enhanced exit protections becoming standard in CEO contracts
  • Greater scrutiny of variable pay, particularly where remuneration fluctuates around the $200k threshold
  • Increased focus on contract drafting, especially bespoke exit clauses
  • A rise in discrimination or disadvantage claims, especially where exits are rushed or poorly communicated.

Some CEOs may seek to negotiate back into unjustified dismissal protections. While legally possible, this is uncommon and generally unattractive to boards.

Process still matters even when it’s not required

One of the most important governance insights from the ERA changes is this: the removal of a legal requirement does not remove the value of good process.

Boards that abandon process altogether risk:

• • Higher exit costs
  • Loss of trust internally and externally
  • Creative legal claims replacing unjustified dismissal actions
  • Damage to their employer brand

Most organisations will continue to follow a “quasi-process”. This means respectful conversations, clear documentation and structured exits. This is not because the law demands it, but because good governance does.

Practical questions for chairs to ask now

Chairs should ensure their boards are actively considering:

• • Do we understand how our CEO’s total remuneration sits against the threshold?
  • Are our CEO contracts fit for this new environment – legally and reputationally?
  • Who leads exit discussions, and how are those conversations framed?
  • Are we disciplined about internal and external communications?
  • Do we understand the implications of MBIE-certified exit agreements?

A final word for chairs

The ERA changes alter the legal backdrop, but they do not change the fundamentals of leadership.

How a board treats its CEO at the point of transition remains a powerful signal: to staff, stakeholders, future candidates and the market.

For chairs, the task is not to test the limits of the law, but to exercise judgement, foresight and restraint. In other words, following the spirit of the law suggested in the Fourth Pillar – Effective Compliance of The Four Pillars of Government Best Practice.

The rules have changed. The standard of governance has not.