Employment Agreement Health Check

Sunday March 3, 2013

Every day we see a range of Employment Agreements that come from various sources such as industry groups, accountancy software packages and other professionals. Sometimes people simply say to us that the agreement they use was the one the owner of the business before them used so they just continued with it. Some of these Employment Agreements are good, some are bad and others are atrocious.

There is a real risk that if you do not keep your Employment Agreements up to date, you are not getting the full benefit from them, or worse, you could be breaching the law and exposing your business to a penalty under the Employment Relations Act ("Act") or a personal grievance that could have been avoided or mitigated by a good Employment Agreement.

What must be in every Employment Agreement?

Since 2000 it has been mandatory for every Employer to provide their Employees with a written Employment Agreement, all agreements must cover the minimum requirements, including:

  1. The name of Employee, the name of Employer, a description of the work to be performed, an indication of where the Employee is to perform the work (i.e. place of work), the wages or salary to be paid to the Employee;
  2. A plain language explanation of the services available for the resolution of employment relationship problems, including reference to the 90 day limit within which a personal grievance must be raised;
  3. Employment protection provisions which outline the Employer's obligation to attempt to negotiate for the transfer of Employees on the sale of the business; and
  4. For fixed term agreements, the Agreement must record the fixed term nature of the relationship, the reason for this (which must be a genuine reason under the Act) and the length of the fixed term.

What else should be in your Employment Agreement?

There is of course a number of other clauses that are very useful to have in employment agreements, below are just a few that we find are the ones that are often missing:

  • The ability to suspend an employee in the event of allegations of misconduct.
  • An ability to terminate an employee for long term incapacity after a period of time.
  • For new employees, a trial period that says something along the lines of "the employee agrees that they shall be subject to a 90 day trial period during which the employee can not bring a claim for unjustified dismissal.  Notwithstanding the normal notice period in this agreement the required notice for termination during the trial period shall be one day" (note the wording may vary but the key things are underlined however we suggest you take advice on the correct wording and when a trial period can be relied on).
  • The right to deduct any amount owing to the Employer from the Employees wages.
  • The right to pay an employee in lieu of notice

What do you not want to see in your Employment Agreement?

  • The words "probationary period".  If your agreement still contains these words it is likely that you are not getting the protection of the new, more powerful, trial period.  There is an important distinction between the two.
  • A trial period that lasts for 3 months instead of 90 days

Did you know?

  • Since 1 April 2011, every employer is required to hold a signed copy of that agreement on file and be able to produce it on request.
  • Employment Agreements must be signed before the employee starts work for some of the provision to be enforceable.
  • Every Employee must be advised of their right to get independent advice before signing an employment agreement and be given sufficient time to seek such advice.
  • If you pay casual employees holiday pay as they go, then you must make sure it is no less than 8% as they go, the employee must agree to this in writing (usually in there employment agreement), they must be working for short periods under 12 months at a time and irregular hours, and it must be broken down and shown on separately from their normal hourly rate on their regular payslip.  If you miss any one of these requirements the employee can double dip and claim their holiday pay effectively twice.
  • Casual employees can in some circumstances be entitled to a paid day off on a public holiday even if you did not require them to work that day?

If you have any concerns that your current Employment Agreements don't tick all the right boxes in relation to the points covered above, we suggest you immediately have the agreements reviewed.  If you require any assistance please don't hesitate to contact one of the lawyers in the Employment Team at Holland Beckett on 578 2199 or email luke.stewart@hobec.co.nz  

It is, of course, impossible to tailor an Employment Agreement to your specific requirements through a Health Check like this, and that is not the aim.  This health check instead aims to give you a free tool to gauge if your current agreement is on the right track or if there is room for improvement.

There are lots things that could go in an agreement and this is by no means intended to be a complete guide to what should be in your agreement.  We suggest you always take independent advice on your agreements and the suitability of them in your businesses particular industry and circumstances.


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