Golden Handshake: Employee Exit Agreements In New Zealand

When an employee is leaving your business, you don’t just want the handover to go smoothly - you want the legal risk to be contained, the messaging to be consistent, and the relationship to end on fair (and documented) terms.

That’s where a golden handshake can come up. In practice, it’s usually an extra payment (or package of benefits) offered to an employee as part of an exit arrangement - often to support an agreed resignation, help resolve an employment issue, or provide certainty about what happens next.

For small businesses, it can feel a bit intimidating. You might be thinking: “Is this even allowed?”, “Do we have to do it?”, or “If we pay more, does that guarantee the issue is over?”.

In this guide, we’ll break down how golden handshake arrangements typically work in New Zealand, what your obligations are as an employer, and how to structure an exit agreement so you’re protected from day one (and right through to the final pay run).

What Is A Golden Handshake (And When Do NZ Businesses Use One)?

A golden handshake is an informal term - it’s not a special category of payment defined in a single “golden handshake law”. Instead, it usually describes an ex gratia payment (a discretionary payment) or a negotiated exit package offered when an employee leaves.

In a small business context, a golden handshake often appears in situations like:

• Mutual separation - you and the employee agree it’s best to part ways and want to document a clean exit.
• Settlement of employment issues - for example, after a grievance is raised (or before one escalates).
• Role changes or restructure discussions - where a business wants to reduce risk and avoid uncertainty.
• Senior employees - where the employee holds sensitive knowledge, key client relationships, or leadership responsibilities.
• Time-sensitive exits - where you need an employee to leave quickly, but you also want to avoid a dispute about process.

It’s important to be clear: a golden handshake isn’t the same as paying an employee their standard entitlements. Employees are already entitled to things like wages owed, annual leave owed, and (in some cases) notice or payment in lieu. A golden handshake is typically an additional payment on top, in exchange for agreed terms.

Is A Golden Handshake Legal In New Zealand?

In general, a golden handshake can be legal in New Zealand - but the legal risk is in the details.

From an employment law perspective, you’re usually dealing with:

• Contract law principles - the agreement needs to be clear, properly recorded, and not misleading or unfair.
• Employment Relations Act 2000 obligations - including good faith duties during negotiations and around ending employment.
• Minimum employment standards - you can’t “contract out” of minimum rights (for example, by offering an extra payment but underpaying final entitlements).

A key point for employers: a golden handshake doesn’t automatically protect you unless it’s supported by the right documentation and process.

For example:

• If the employee claims they were pressured, misled, or not given a fair opportunity to seek advice, an agreement may be challenged.
• If you describe the payment incorrectly (for example, calling it “redundancy pay” when it’s not), you may create confusion and risk later disputes.
• If you don’t properly deal with final entitlements like holiday pay, you can still face issues even after paying the handshake amount.

That’s why employers often link a golden handshake to a written settlement document - and in New Zealand, this is often done through a Record of Settlement, commonly documented as part of (or following) mediation through MBIE. Depending on the circumstances, businesses may also use a deed of settlement or other separation agreement, but the process and wording matter.

Golden Handshake Vs Redundancy Pay, Notice Pay, And Final Entitlements

One of the most common mistakes we see is lumping everything together as “a payout” without separating what’s legally required versus what’s discretionary.

Before you offer any golden handshake figure, it helps to split the exit into categories.

1) Final Pay And Holiday Pay (Usually Non-Negotiable)

This usually includes:

• wages/salary owed up to the last day worked
• any outstanding reimbursements
• annual leave owed (paid out on termination)
• any alternative holidays owing, where applicable

These are standard final entitlements. They generally aren’t “part of the deal” - they’re part of getting payroll right.

2) Notice Period Or Payment In Lieu

If the employee is leaving and you don’t want them to work their notice period (or you want to end the relationship sooner), you might consider Payment In Lieu Of Notice.

This is different from a golden handshake. It’s not “extra” in the same way - it’s often tied to your contractual notice obligations and the practical need for a quick exit.

3) Redundancy Payments (Only If Applicable)

In New Zealand, redundancy entitlements depend heavily on what the employment agreement says and what you communicate during the process. Redundancy is also a process-heavy area: consultation and good faith matter.

(If you’re considering changing roles or hours as part of your restructure planning, it’s worth thinking carefully about your approach - Reducing Staff Hours can trigger legal risk if not managed properly.)

4) The Golden Handshake (The Negotiated “Extra”)

This is the discretionary component that’s typically offered to achieve certainty, resolve issues, or agree on the exit terms. The key is that it should be linked to clear agreed outcomes - not vague expectations like “everyone will just move on”.

What Should Be In An Employee Exit Agreement If You’re Offering A Golden Handshake?

If you’re paying a golden handshake, the agreement around it matters just as much as the amount. A well-drafted exit agreement can help you:

• reduce the risk of a personal grievance being filed later
• document exactly what’s being paid and when
• set expectations about confidentiality and non-disparagement
• manage handover obligations and property return
• avoid accidental admissions or unclear wording that creates future problems

While every situation is different, these are common terms to consider.

Exit Date And Handover Requirements

You’ll want clarity on:

• the employee’s last day of work
• whether they’ll work out notice or leave earlier
• handover obligations (documents, passwords, client files)
• return of company property (keys, devices, vehicles, uniforms)

The Payment Breakdown (And How It’s Taxed)

The agreement should clearly set out:

• what is normal final pay versus what is the golden handshake amount
• when payments will be made
• whether any deductions apply (and why)

Tax treatment can vary depending on the payment type, so it’s worth aligning your legal drafting with your payroll/accounting approach so everything matches up in practice. (This is general information only - for tax treatment in your specific situation, you should get advice from your accountant or a tax adviser.)

Confidentiality And Communications

Most businesses want to keep exit terms confidential - especially where a golden handshake is paid. The agreement can cover:

• what details must remain confidential (amounts, circumstances, negotiations)
• what can be said internally (for example, to a manager or payroll)
• a consistent external message (for example, “resigned to pursue other opportunities”)

If your workplace already relies on confidentiality terms in your contracts, check they’re consistent with what you’re trying to achieve in the exit. Getting your Confidentiality Clause right from the start can make exits far less messy.

Non-Disparagement (Protecting Your Reputation)

Non-disparagement clauses can be useful where you’re concerned about reputational damage, client relationships, or staff morale. These need to be carefully drafted so they’re clear and reasonable.

In some workplaces, this sits alongside other obligations like social media rules. If your staff are active online, your internal policies matter here too - Employee Social Media Use can become a real risk point during and after an exit.

Restraints Of Trade (Only If They’re Legitimately Needed)

If your business relies on client relationships, confidential pricing, or trade secrets, you might consider restraint clauses (like non-solicitation of customers or staff). The key is they must be reasonable and genuinely necessary to protect your legitimate interests.

Don’t assume a golden handshake automatically makes restraints enforceable. Enforceability depends on the clause and the context - and restraints can backfire if they’re too broad or poorly drafted.

Release Of Claims And Settlement Language

This is often a key reason employers use an exit agreement when offering a golden handshake - but it’s important to be realistic about what these clauses can (and can’t) do.

A properly structured settlement can record that:

• the employee agrees the payment is in settlement of specified issues
• the employee won’t bring (or will withdraw) claims connected to their employment or exit, to the extent legally possible
• each party releases the other from claims (with appropriate carve-outs)

In New Zealand, settlements are often documented as a Record of Settlement (frequently through MBIE mediation). That pathway can provide more certainty, particularly where the settlement is intended to be final. Because the wording and process are critical here, DIY templates can create more risk than they solve. If you need a document that’s built for your situation, a Deed Of Settlement is often the right tool - but it needs to match the facts of your situation.

Practical Risks For Employers (And How To Avoid Common Mistakes)

Golden handshake discussions can be commercially sensible - but they can also go wrong quickly if you’re not careful about process and communication.

Here are some of the most common employer-side risks we see.

1) Turning A Performance Issue Into A Settlement Without Following A Fair Process

If an employee is underperforming, it might be tempting to “pay them out” rather than go through performance management. Sometimes that’s a valid commercial call - but be careful.

If the employee feels ambushed, pressured, or threatened, you can end up with a bigger dispute than you started with.

If your underlying issue is performance or misconduct, you should make sure your overall approach aligns with good faith and fair process. In many cases, having a solid Employment Contract and clear policies will make the path forward much easier (and defensible).

2) Using The Wrong Labels (And Creating Confusion Later)

Words matter. Calling a payment “redundancy pay” or “notice pay” when it’s actually a discretionary handshake can create misunderstandings, internal inconsistencies, and legal ambiguity.

Your exit agreement should use plain language and clearly separate:

• legal entitlements (final pay, holidays, notice)
• discretionary amounts (golden handshake / ex gratia payment)
• what each payment is “for” (if anything)

3) Forgetting About Company Property, Accounts, And Access

When someone leaves, you need a practical checklist as well as a legal agreement. Think:

• laptops, phones, tools, uniforms
• passwords and access to shared systems
• customer databases and CRMs
• emails and forwarding rules

If your employee had access to personal information (staff or customer data), your exit steps should also align with your privacy obligations. New Zealand’s Privacy Act 2020 expects organisations to take reasonable steps to protect personal information - which includes access control when someone leaves.

This is often where having a strong Privacy Policy and internal processes pays off.

4) Assuming The Payment Guarantees Silence Or Loyalty

Paying a golden handshake doesn’t automatically prevent reputational issues, social media posts, or complaints. If you need confidentiality and non-disparagement, it has to be clearly documented, and you still need to handle the exit respectfully.

In practice, the best “protection” is:

• a fair process
• clear written terms
• good communication
• proper offboarding steps

Key Takeaways

• A golden handshake is usually a discretionary payment offered as part of an agreed employee exit, often to create certainty and reduce dispute risk.
• Golden handshakes are generally legal in New Zealand, but the process and documentation around them are crucial (including good faith obligations under the Employment Relations Act 2000).
• Separate what’s already owed (final pay, annual leave, and possibly notice) from what’s extra (the handshake) so your records and agreement are clear.
• If you’re offering a golden handshake, use a properly drafted exit agreement covering the exit date, payment breakdown, confidentiality, communications, company property return, and settlement terms.
• Be careful about pressure tactics, unclear wording, and skipping fair process - these are common triggers for disputes even where money is paid.
• Good legal foundations (strong employment contracts, confidentiality terms, and privacy processes) make exits easier and reduce the chance you’ll need a “damage control” settlement later.

If you’d like help structuring a golden handshake offer, negotiating exit terms, or documenting an employee separation properly, reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.