Employment agreements from an employer perspective–make sure your employment agreements, and their clauses, stand up against the law

An individual employment agreement (Agreement) is a written agreement that contains the terms and conditions of the employment as negotiated by an employer and employee. An Agreement is a useful tool with which the employer can set clear performance expectations, standards, processes and responsibilities for an employee before they start work. It is also used as a reference point in employment disputes.

It is a requirement of the Employment Relations Act 2000 (the Act) that the employer holds a copy of each employee’s Agreement or they risk being fined or prosecuted under the Act by a Labour Inspector or the Employment Relations Authority (ERA).
An Agreement is required to include the following:

  • The names of the employee and employer;
  • A description of the work to be performed;
  • Where the employee is to perform the work;
  • The agreed hours or an indication of the employee’s work schedule;
  • The wages or salary payable to the employee; and
  • A plain language explanation of the services available to the employee for the resolution of employment relationship problems, including a reference to the period of 90 days within
    which a personal grievance must be raised.

An Agreement cannot contradict any New Zealand legislation or record less than the employee’s minimum rights under New Zealand law. Employers can find it useful to include manuals, a job description and workplace policies, procedures, rules and regulations in the Agreement to give the employee a clearer view of the standards of practice that are expected in the workplace.

A 90-day trial (Trial Period) was introduced under section 67A of the Act by the National Party in March 2009. It allows an employer to dismiss an employee without reason during the Trial Period. Dismissal during the Trial Period is still subject to the notice requirements under the Act.

The Labour Government is in the process of amending the Act so that only small businesses with less than 19 employees can use the Trial Period. An employer may only use the Trial Period if the clause is included in the written Agreement. The clause must include the following terms:

  • The employee will serve a Trial Period for a specified time (generally 90 days);
  • During the Trial Period the employer may dismiss the employee without reason;
  • The employee is not entitled to bring a personal grievance or other legal proceedings in respect of the dismissal.

After the employer has finalised the Agreement with their prospective employee, and the employee has possession of the Agreement, the employer must give them sufficient time to read the Agreement and take legal advice if they choose. Generally, 24-48 hours is an acceptable timeframe. However, we note that the more complex the Agreement, the more time the employer will need to give the prospective employee to consider it.

Before the employee starts work, the employer should encourage the employee to sign and return the Agreement to the employer. If the employee does not return the Agreement before commencing work, the employer must have a comprehensive record of what was agreed before the employee started work and a record of them attempting to retrieve the signed Agreement.

We note that an employee cannot be on a Trial Period if they have worked for the employer before. This also means that if a new employee begins working without handing in their signed Agreement, by the time they give the Agreement to the employer, they may not be considered a new employee under the Act. If this is the case, the Trial Period, if contained in the Agreement, will no longer apply.

In a case before the ERA, prior to a new employee giving her signed Agreement to her new employer, she commenced work. She worked a total of one day at her new workplace before being dismissed. The employer relied on the Trial Period stipulated in her Agreement to dismiss her without reason. The new employee successfully argued that as she had commenced work before giving her Agreement to the employer, she was no longer a new employee and therefore the Trial Period did not apply. A personal grievance was successfully raised for unjustified dismissal.

The Agreement will guide you through the employer/employee relationship. Therefore, it is always recommended that you seek advice from an Employment specialist when drafting the document.