What Needs to be in an Employment Agreement?

One of the most common requests I get is to look at an individual employment agreement to make sure its alright. An advantage of my practice is that I act for both employers and employees. That means I can assist employers in drafting up agreements as well as advising employee clients as to whether the agreement they present me with is fair or not.

I thought it might be useful to set out the important things that should be in anyone’s employment agreement. Firstly, it should correctly identify the employee and the employer. This might seem to be a statement of (to quote Basil Fawlty) “the bleeding obvious”! However, you would be amazed to know the number of times that employee is unsure as to their actual employer. They might be convinced that they are employed by John Smith Panelbeating, when in fact their true employer is “Fix a Ding Lower Hutt Ltd”. If you are in a situation where you are looking to recover some sort of remedies under the Employment Relations Act 2000 from an employer it is very important that you correctly identify that employer.

The employment agreement also needs to state exactly what job it is you had been employed to do, where you are going to work, the hours of work, the salary or hourly rate of pay, and as complete a job description as possible. The job description is important for a number of reasons. Firstly, you need to be clear exactly what it is that you are required to do in order for you to discharge that employment satisfactorily. Secondly, if the issue ever arises as to whether or not that position is redundant or not then the fuller and better the description of the job the easier it is to ascertain whether or not that job has truly become redundant. It is not uncommon for employers who want to get rid of a particular employee to perceive that an easy and convenient way to do this would be to “restructure” the business in such a way that the employee’s position no longer exists. If there is a restructuring proposed and if the employee believes that their position still remains, albeit with a different label or title affixed to it, then they can challenge the genuineness of the restructuring. Courts have generally found that if in the proposed new position at least 75% of the old job still remains, then it is not a true redundancy at all and the position still exists.

Employment agreements commonly have a clause to do with the employee’s responsibilities, namely that they will do their job properly and diligently in a way that promotes their employer’s business. Sometimes there can be a probationary period of employment, almost always for the first 13 weeks. This probationary clause is widely misunderstood, particularly by employers who have “appropriated” some form of employment agreement without paying to get good advice as to the same! Put shortly, you cannot employ someone under a probationary clause, wait until the probation period expires, and then on the last day terminate their employment saying that they are unsatisfactory. If the employee is not performing adequately then the employee needs to be told throughout the probation period that this is the case and they also need to be given the opportunity of improving and such assistance as they might require to improve. Otherwise, the employer may be facing a personal grievance claim.

It is quite common for employment agreements to have the employee confirm that all representations are made about their qualifications and experience and other material matters are true and correct. Honesty is, as always, the best policy. If an employer finds out that they have been lied to then almost certainly that employee is going to be dismissed.

It is usual to record that annual leave will be paid in accordance with the Holidays Act 2003. That entitles every employee after working 12 months to 4 weeks holiday. If you don’t work a full year before leaving then you will get 8% of your gross taxable earnings paid to you in a lump sum. It is important to note that holidays legislation is, in many respects, a sort of public health legislation, the Government recognises the importance of the worker taking a break. So the entitlement at first instance is not entitlement to money but an entitlement to that break. It crystallises into money form only at such time as the holiday is taken or the employment terminates.

It is common to record the public holidays that are recognised and for which the employee is paid. So those holidays are presently (perhaps we have a Sir Ed Hillary day coming?) Christmas Day and Boxing Day, New Years Day and 2 January, Waitangi Day, Good Friday and Easter Monday, Anzac Day, Queens Birthday, Labour Day and, in our area, Wellington Anniversary Day. If the holiday falls on a day in the week on which you would not normally work, you don’t get paid for it (the exception being Christmas and New Year holidays which if they fall on a Saturday or Sunday, and you don’t work those days, the holiday is treated as falling on the following Monday or Tuesday). If it does, however, and you work it then you get time and a half for the time you work and a days paid holiday at some later date.

Everyone is entitled to sick leave after completing 6 months continuous employment. There is a maximum entitlement of 5 days paid sick leave, but you can also take domestic leave if your partner, child or parent is sick and you have to be at home for them.

Bereavement leave is granted for immediate family, or other family if your boss accepts that you have suffered a bereavement as a result of the death. It is for a period of 3 working days and there isn’t a maximum limit.

Agreements commonly provide that if required you will attend upon a doctor nominated by your boss for the purposes of getting a medical report from such doctor, at your employer’s expense. The clause in your agreement will also record that you give your permission for such report to be disclosed to your employer, otherwise the doctor isn’t going to release those personal details.

Every employment agreement also records how much notice you need to give of termination of employment. There is often a penalty clause that says where either the employer or employee doesn’t give enough notice then for those weeks for which insufficient notice has been given you may have to forfeit wages. If your boss gives insufficient notice he will have to pay you for all the notice period regardless.

Depending on the nature of your employment it is common for there to be a recognition of health and safety requirements. In more dangerous employment there will be quite clear guidelines as to safety procedures.

There is generally a clause dealing with what will happen if you abandon your employment, usually if you are absent from work without telling your boss for more than 3 consecutive working days then your agreement is likely to record that you have abandoned your employment and your employment may thereafter be terminated.

There is quite a variation in clauses as to what may or may not constitute misconduct, serious or otherwise. Similarly there are differences as to the disciplinary procedure that may follow either misconduct or failure to perform. The general overview that the Employment Court and the Employment Relations Authority will take, however, is that in every instance the employer must act fairly, tell the employee as soon as possible what it believes the employee is doing wrong and give the employee a chance to give an explanation, and to take such explanation into account before acting further.

For some specialised positions, particularly in the IT world, there may be clauses drawn up protecting the intellectual property of the employer. It is not uncommon in such positions for there to be restraint of trade clauses, but those can be problematical.

The Employment Relations Act 2000 does not make any provision for redundancy payments. With large companies, corporations, City Councils (Hutt City Council for example) and the like, there is often provision for redundancy payments. However, since the Court of Appeal has recognised that there is no obligation to make redundancy payments it is more often than not that there is no redundancy clause at all, apart from the statutory requirement that if your boss sells the business he has to take all possible steps to see whether or not you can be employed by the new employer.

Finally, and essentially, you need to be told in your employment agreement that if a problem arises you have remedies. Those remedies are often set out in a schedule to your agreement which customarily defines what an employment relationship problem is, how you can go about getting assistance for it and how you can raise a personal grievance, and where.

One of the real difficulties when advising a client or relative or friend as to whether or not they should sign up an individual employment agreement or query the same, is judging whether or not it is at all likely that the employer is going to change their agreement in any material way. Although the law and the good faith requirements mean that an employer must consider such requests, there is no requirement on the employer to change the employment agreement. If the employee is desperate for work there is undoubtedly an imbalance of power here. Having said that, it is surprising how often there are omissions in agreements or alterations that need to be made for that specific employment. Most employers in New Zealand are small employers dealing with a mountain of red tape and paperwork as well as trying to run their business. They are not going to be experts in employment law. Quite often they will be happy to see an agreement altered to correctly reflect either the law or the particular circumstances relating to that particular employee.