Hot off the press, the Government today announced a sudden overhaul of the pay equity regime under the Equal Pay Act 1972 (Act), to make the process of raising and resolving pay equity claims more robust, workable and sustainable.

Workplace Relations Minister Brooke van Velden stated: “It is clear the current Act is not working as intended, and amendments made by the previous government in 2020 have created issues. Claims have been able to progress without strong evidence of undervaluation and there have been very broad claims where it is difficult to tell whether differences in pay are due to sex-based discrimination or other factors.”

A Bill has been introduced today which will amend the Act (see here), and will be going through parliament right now, without any select committee scrutiny, and take effect the day after Royal Assent, As in immediately!

The context behind the Equal Pay Act

The Act has been a cornerstone of New Zealand’s employment landscape, designed to ensure that employees receive equal remuneration for the same or substantially similar work. At its core, the legislation aims to eliminate gender-based wage discrimination in both the public and private sectors.

What is changing?

Previously, employees or unions could raise a pay equity claim if it was merely arguable. The amendment now requires the claim to have “merit” supported by evidence of current and historical undervaluation and the work must have been at least 70% female dominant for 10 years.

The changes also propose a clearer structure for assessing claims, including a hierarchy of comparators. According to the Cabinet Paper, priority must be given to comparators employed by the same employer. If none are appropriate, comparators from similar employers may be used, followed by those within the same industry or sector. If there is no comparator within that group, the pay equity claim will not proceed.

Comparators from different industries or sectors are excluded because when using a comparator from a different industry or sector it may be too difficult to determine whether differences in remuneration are due to sex-based discrimination or due to non sex-based factors. Additionally, factors such as workforce size can be grounds for excluding a comparator, and if no suitable comparator exists within the hierarchy, the claim cannot proceed.

The changes will apply retrospectively to any existing pay equity claim that has not settled. This is a very unusual approach. The Minister has acknowledged that this is inconsistent with the general principle against retrospective application of legislation. The concern is that there could be a large number of claims filed and potentially determined under the current Act. The Minister has noted that this is likely to be contentious and receive public comment from stakeholders. 

Minister van Velden announced that there will be a better framework and guidance for parties to use to assess whether there is sex-based undervaluation, branded as being more sustainable and evidence based, departing from the typical framework seen in collective bargaining under the Employment Relations Act 2000.

The Minister highlighted that this will be a significant cost saving to the Crown ahead of the much anticipate budget set to be delivered on 22 May 2025, given that the costs of all settlements to date have cost $1.78 billion per year.

We will be watching developments closely and will share updates on this with you.  In the mean time if you’d like to discuss the potential impact of the pay equity overhaul on your business, please get in touch with one of our experts.

Thanks to Ella Rainthorpe and Clara Evans for their assistance in writing this article.