Employment agreements are essential documents. They contain the fundamental terms and conditions of the employment relationship. Under the Employment Relations Act (the Act), every employee must have a written Employment Agreement. Employment agreements may be collective employment agreements or individual employment agreements.
What is in an Employment Agreement?
At a minimum, an employment agreement must provide for the following matters:
- The names of the parties to the agreement;
- A description of the work to be performed;
- The location of the place of work;
- The hours to be worked;
- The wage or salary payable to the employee;
- An explanation in plain language of how to resolve any employment relationship problems;
- Whether or not there will be trial periods or probationary arrangements; and
- If the employment is casual or fixed term, the nature of the employment.
Although the Court of Appeal has held that an oral employment agreement is enforceable, it is simply good business practice as well as being in the interests of both employees and employers for there to be a written employment agreement.
In one case, where an employee brought a personal grievance for unjustified dismissal, although the Employment Relations Authority (the Authority) found that there had been no unjustified dismissal on the grounds that the employee had resigned of his own accord, the employer was still fined for failing to provide a written employment agreement due to the prejudice caused to the employee.
The Authority pointed out that:
- the Act, including the requirement to have written employment agreements, had been the subject of public debate and extensive publicity,
- employers should now be expected to know that written Employment Agreements are required and,
- special provisions such as probationary or trial periods should also be recorded in writing.
The Authority also noted that had there been a written agreement, then much of the matters in dispute could not have been contentious because the key terms would have been clearly set out. In this case, having a written agreement would not only have protected the employer but would also have mitigated the risk that an employee might bring a claim for a personal grievance.
Penalties for Employers
Employers have also been penalised for failing to provide an employee with a copy of a written employment agreement. In one case, an employee resigned without giving notice in accordance with his employment agreement. In response, his employer sought to retain one week’s pay in lieu of that notice.
Unfortunately for the employer, the Authority held that it was unreasonable to expect the employee to give notice in circumstances where he had not been provided with a copy of the agreement, the agreement was a lengthy and detailed document. He did not have the opportunity to refer to it. In this scenario, the Authority concluded that the employee could not be held responsible for his mistake in failing to give notice.
In another case, failure to insert the employer’s correct name meant that the employee faced genuine difficulties when she tried to pursue a personal grievance against her employer because she was not able to say with any certainty who her employer was. However, in that case, no penalty was imposed because, at that time, there was no ability under the statute to impose penalties. This state of affairs was changed in 2011 and enforcement powers of the labour inspectorate were significantly strengthened earlier this year.
Failing to sign a written employment agreement can also have negative consequences for an employer regarding their redundancy obligations.
In a recent case, an employee made a claim for redundancy compensation based on an amendment to her employment agreement that she had written and provided to her employer. Although she did not draw the employer’s attention to the amendments, because the employer did not respond and continued to employ her for a further five months, the Authority held that the employer had consented to the new arrangement. Further, the Authority found that failure to read the document was no defence. This omission resulted in significant redundancy compensation awarded to the employee.
Failure to specify remuneration can also be problematic. In one case, the Employment Court had no hesitation in fixing the amount of remuneration to be paid. This approach is based on the quantum meruit principle which requires one party to pay another where there has been a promise to pay even though that promise has not been expressed in words and the amount of the payment has not been agreed. The Court reviewed relevant company documents and meeting minutes before concluding that $5,000 per month would amount to reasonable remuneration.
Getting the Basics Right
Getting the basics right is essential for employers if they are to manage their risks in hiring employees effectively. Clarifying parties, the nature of the work, the amount of remuneration to be paid and ensuring that agreements are signed appear to be straightforward requirements. Yet, a recent media report suggested that more than 170,000 employees in New Zealand do not have written employment agreements. The number of employees without written agreements is highest in the farming, forestry and fishing sectors. In these industries, it is also on the cards that other risks such as health and safety are not adequately addressed.
Since 1 April of this year, the labour inspectorate has had its powers strengthened and can now apply to Court for a range of orders including pecuniary penalty orders, compensation orders and banning orders as well as issuing infringement notices.
In this context, employers who fail to ensure that their employment agreements are appropriately documented face the real prospect of significant sanctions. The Authority recently imposed a penalty of $7,000 for failure to comply with the requirements of an improvement notice.
To avoid compliance issues, we recommend that you seek independent legal advice. Our employment team can work with you to ensure your employment agreements are up to standard and water-tight. We aim to help you maintain good business practices at all stages of the employment process.
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This article should not be seen as legal advice and should not be relied on for that purpose.