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Prime Minister John Key says the "good faith" of employers means employees will not be pressured into cashing in their fourth week of leave.
He said the swap could happen only if an employee volunteered, and it would be illegal for employers to suggest an exchange. The National Government intends to have the swap option in place by April next year.
Mr Key was yesterday questioned about an employment situation where a person was offered a job paying $40,000 a year and told that the fourth week of leave would have to be included in this or the job would go to the "next in line".
He said this would not happen because employers "would be prosecuted if they did that".
Asked what could be done to stop employers pressuring for the swap then simply denying doing so, Mr Key said all employment relationships had to be based on "good faith".
"You can always make the claim that an employer is pressuring an employee. In the end, if the employee doesn't want to be cashed out and wants to have the four weeks, they'll do that because the law says they have the right to do that."
Mr Key said he did not believe employers would do this because there was no great advantage to them as they still had to pay out the fourth week. He said the swap would probably be decided on an annual basis. Swapping a week's leave for the money effectively gives employees a 2 per cent pay rise.
Labour leader Phil Goff said National was never committed to the entitlement of four weeks' holiday. The change left workers vulnerable to being effectively required to work the last week of their holidays.
Longer holidays increased productivity and were important for working parents to have quality time with their children.
"It's about work-life balance which the National Government gives lip service to, but in practice promotes the opposite," he said.
Progressive leader Jim Anderton said calling the plan a "buy-back" did not change the fact that it cut the minimum holiday entitlement. Thousands of workers paid just over the minimum wage would be presented with employment contracts that say they request cash instead of annual leave.
Mr Anderton said the plan was "hypocritical for a Government that took 27 days of holidays in its first 100 days in office".