Getting employment contracts right


In Waikato Business News’ November 2016 survey, 90 percent of respondents predicted that 2017 would be a more positive year for their businesses than 2016.

For many Waikato businesses, 2017 will be a time of growth and expansion, which usually requires an increase in employees.

Following some significant employment law changes in April 2016, particularly in relation to hours of work for both hourly wage and salaried workers, there’s a good chance that the employment agreements currently used by many employers are now out of date.

While the topic of individual employment agreements (IEAs) is for most, a big yawn, they are the founding document that an employer and employee agree will govern their working relationship, workplace wedding vows if you like, so getting the terms right from the outset is crucial.

There are seven clauses that are mandatory inclusions in IEAs, pursuant to section 65 of the Employment Relations Act 2000. Five of these I refer to as the ‘five Ws; Who (name of the parties), Where (location of the work), When (the hours of work), What (the role the employee will be performing) and Wages (how much the employee will be paid).

The remaining two clauses comprise a clause that states that an employee has 90 days to raise a personal grievance if there is an employment relationship problem and a clause known as a restructure or employee protection provision, which specifies the process an employer will follow in the event of a sale or transfer of the business.

However, there are many more clauses (most IEAs are around 15 or more pages long) that are very useful to have in an IEA and whose true worth will not be known until a specific employment problem arises.

For an employer’s actions to be considered fair and reasonable, the action must be both lawful and justified. For an action to be lawful, it usually requires the action to be permitted in accordance with the IEA.

For example, if you want to suspend an employee (usually on pay) during a disciplinary investigation, this would only be lawful if there is a clause in the IEA that allows the employer to do this.

Even where there is a relevant clause in the IEA which means the action will be lawful, it still needs to be justified.

Suspending an employee during a disciplinary investigation merely because the IEA makes it lawful, will still be held to be an unjustified suspension if there is no justifiable reason why the employee cannot continue working during the investigation.

Other useful clauses that you may not have in your IEA but should, include a clause that an employee will agree to sign a medical request authorisation allowing the employer to discuss an employee’s prognosis with a treatment provider when there is a long-term medical incapacity issue, a force majeure/act of God clause that allows an employer to request employees take annual leave immediately if the business is shut-down temporarily due to unforeseen circumstances such as earthquake or flood and a clause that allows an employer to deduct money from an employee’s pay if they damage their uniform or cell phone, or owe the employer money.

There are so many possible issues that can arise during an employment relationship, and employers with a comprehensive, up-to-date IEA will be grateful in times of trouble that they put the effort in from the outset. An IEA can be in template form, so once you have a copy it can be used for successive new employees at no additional cost.

How to change existing employees to a new IEA
Once agreed to and signed, IEAs can only be varied by mutual agreement and in writing. Where employees are on old IEAs that have seen better days, the employer will need to consult with employees and obtain their agreement to change to the new IEAs.

Employees should always be given sufficient time (at least a week) to read through a new IEA and should be encouraged to seek independent/legal advice before signing. Section 60A of the Act requires the parties to negotiate an employment agreement in good faith. The latter means that the parties should not do anything that may deceive or mislead the other. Employees should raise any issues or queries relating to a new IEA with their employer, and the employer should ensure they respond in a timely and transparent manner.

Where an employee unreasonably refuses to sign an updated IEA, it can be useful to conduct the process at the time a new term advantageous to the employee is being included, such as a pay increase (provided that it is not merely an increase to the minimum wage which must be complied with as soon as the new minimum wage order is in force).

Providing an incentive such as a pay increase commencing once the new IEA is agreed to, can be helpful where an employee appears to refuse for no other reason than to be difficult.

Practica Legal wishes all Waikato Business News readers a safe, happy and prosperous 2017.


About Author

Erin Burke

Employment Lawyer and Director at Practica Legal
Email: phone: 027 459 3375

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