"They fear the repercussions. So it's a policy that looks good on paper, but it probably isn't going to have that much of an impact in practice."
NZ First leader Winston Peters said the sanctions would be ignored because the chances of getting caught were so low given there was no corresponding boost for the Labour Inspectorate.
Lees-Galloway said the problem was partly because of the number of visas being given for low-skilled jobs.
"I don't think we need to be issuing as many temporary work visas for low-skilled, low-wage jobs as we are at the moment. If fewer visas were issued you'd have fewer migrants put into a position where they were vulnerable to exploitation."
The Government's move follows a recent report on migrant exploitation by University of Auckland researcher Dr Christina Stringer.
Released in December, Stringer reported cases of migrant workers being unpaid, denied toilet breaks, forced to work long hours and subjected to abuse by New Zealand bosses.
She recommended better monitoring of the industries in which migrants were most at risk of exploitation, training to identify victims, and giving migrant workers an induction so they were aware of their rights.
The trouble industries Stringer identified included the construction industry which was heavily reliant on migrant labourers after the Christchurch earthquake, dairy, horticulture and viticulture, hospitality, international education and prosecution.
It also identified the fishing industry - especially foreign charter vessels - a longstanding area of concern. Since May 2016, all ships fishing in New Zealand waters are required to be flagged to New Zealand to ensure they are subject to local employment laws.
Under the change, employers found to have breached employment standards by an authority such as the Labour Inspectorate or Employment Court will be banned from recruiting workers from overseas for between six months and two years, depending on the severity of the case.
The employer would be able to keep migrant workers until their visas ended - but a further visa would not be granted with the same employer.
It will apply to all employers who intend to recruit from overseas - from those supporting residence-class visa applications to those who are part of the Recognised Seasonal Employer Scheme.
Equal Employment Opportunities Commissioner Dr Jackie Blue said penalising employers who disregarded employment and immigration laws sent a strong message that their actions were not acceptable.
However, she hoped further action would follow.
"We are keen to see that these new measures are just the start of actions aimed at addressing what is a significant problem, particularly in our dairy, horticultural, hospitality and international education industries."
She said last year New Zealand had seen its first ever human trafficking conviction and there was an urgent need for better monitoring and protection of migrant labour.
