Kent France, an associate of Wynn Williams in Christchurch, considers individual employment contracts under the new act.
Introduction
While the focus of the Employment Relations Act 2000 ("ERA") is on collective employment contracts and union membership, the ERA will also change the way that an employer takes on staff on an individual basis.
Where individual employees are concerned the ERA intends to achieve three things. They are:
1. to specify rules for determining the terms and conditions of an employees employment; and
2. to ensure that new employees are given information about their employment agreements and an adequate opportunity to seek advice about them before signing; and
3. to recognise that good faith applies to individual employment agreements.
The ERA will apply in different ways depending on the employer's existing structure.
Existing employees
Existing employees on individual employment contracts under the Employment Contracts Act 1991
Every individual employment contract under the Employment Contracts Act 1991 already in force continues according to the terms of that contract. The new obligations of good faith applying between employers and employees on an ongoing basis under the ERA will apply.
New employees
Where a collective employment agreement exists and a new employee is a member of a union that is a party to the agreement
In this situation, as long as the collective contract covers the work to be done by the new employee, that person's terms and conditions of employment will automatically be governed by the collective employment agreement.
Where a collective employment agreement exists and the new employee is not a union member
When a new employee is taken on, he or she must be told the following things:
1. that a collective employment agreement exists and covers the work the employee does;
2. that he or she may join the union that is a party to the collective agreement;
3. how to contact the union;
4. that if he or she joins the union they will be bound by the collective agreement; and
5. that during the first 30 days of his or her employment the terms and conditions of employment will be the terms and conditions of the relevant collective employment agreement, and any additional terms and conditions agreed to that are not inconsistent with the collective agreement.
The employer must also give the new employee a copy of the collective employment agreement and if the employee agrees, inform the union as soon as practicable that the employee has entered into an employment agreement with the employer.
If the work to be done by the employee is covered by more than one collective agreement, the collective agreement that applies is the one applying to more employees in the workplace. The employer must tell the employee that the other agreement or agreements exist.
An employer that fails to take these steps is liable for a penalty imposed by the Employment Relations Authority of up to $5,000.00 for individuals or up to $10,000.00 for companies and other incorporated bodies.
If the new employee does not join the union then after the 30 day period expires the employee and the employer may by agreement vary the individual employment agreement that is to apply, as they think fit. That agreement must be made after the 30 day period expires. An employee and an employer cannot enter into an agreement during the 30 day period that a term or condition of the employment contract will automatically alter at the expiry of the period, to become inconsistent with the collective agreement.
Individual employment agreements
Where there is no applicable collective employment agreement
In this situation the employer must give the employee a copy of the intended individual employment agreement in advance.
The employee must be advised that they are entitled to seek independent advice about the agreement and the employee is entitled to a reasonable opportunity to seek that advice.
An employer that fails to take these steps is liable for a penalty imposed by the Employment Relations Authority of up to $5,000.00 for individuals or up to $10,000.00 for companies and other incorporated bodies.
Individual employment agreements must be in writing
All individual employment agreements entered into after the commencement of the ERA must be in writing. This is a significant change to the position under the Employment Contracts Act. It will require employers to be organised to have written contracts available to give to prospective employees before they start work.
Content of individual employment agreements
An agreement may contain any terms and conditions that the employee or employer agree to but must include the following:
1. the names of the employee and employer concerned; and
2. a description of the work to be performed by the employee; and
3. an indication of where the employee is to perform the work; and
4. an indication of the arrangements relating to the times the employee is to work; and
5. the wages or salary payable to the employee; and
6. a plain language explanation of the services available 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 individual employment agreement must not contain anything
1. contrary to law, or
2. inconsistent with the ERA.
Other issues to be dealt with in individual employment agreements
There are a myriad of other possible clauses that can be included in individual employment agreements. In many cases their inclusion will depend upon the particular circumstances. Employers should give serious consideration to including the following additional clauses:
1. Specific requirements for how work is to be done should be recorded.
2. Specific holiday entitlements should be recorded.
3. Details relating to the way in which employment may be terminated, including the period of notice to be given and whether payment can be made in lieu of notice; summary dismissal for serious misconduct; a period of notice for resignation by the employee; and abandonment of employment.
4. Redundancy clauses. It is likely that redundancy clauses will be extremely important under the ERA [see Redundancy below].
5. Provisions relating to the confidential treatment of business information.
6. Rules relating to company policies and manuals.
7. Continuity of service.
8. Conscientious performance of duties and the fidelity of the employee.
9. Employer obligations and responsibilities.
10. A provision that the written agreement is the complete agreement.
11. An acknowledgement that parties have understood the agreement and have had the opportunity to take advice about it.
12. Restraint of trade.
13. Ownership of intellectual property generated or used during employment.
14. Restriction on any other business activity.
15. Superannuation provisions.
16. Any other benefits available to the employee.
Fixed term agreements
Fixed term employment agreements
Fixed term employment agreements are permitted provided that both the employer and the employee agree.
Fixed term employment agreements may record that they will end:
1. at the close of a specified date or period; or
2. on the occurrence of a specified event; or
3. at the conclusion of a specified project.
At the time the agreement is entered into the employer must have genuine reasons based on reasonable grounds for specifying the employment of the employee is to end in the way described in the agreement.
The ERA provides that the following are not genuine reasons for using a fixed term employment agreement:
1. to exclude or limit the rights of the employee under the ERA; or
2. to establish the suitability of the employee for permanent employment.
To provide the best protection available under the law the employer should ensure that the reasons for a fixed term contract are recorded in writing in the contract.
The employer must also advise the employee of when or how his or her employment will end under the fixed term contract and the reasons for his or her employment ending in that way. This advice should also be included in writing in the contract.
The effect of these provisions is that a fixed term contract may be used if there are genuine reasons for it. Fixed term contracts cannot now be used as a form of trial period. There are specific rules for trial periods that are discussed below.
Trial and probationary arrangements
The ERA provides that where parties to an individual employment agreement agree that the employee will serve a period of probation or trial after the commencement of employment then:
1. the trial period must be recorded in writing in the employment agreement; and
2. the law relating to unjustified dismissal will apply during the trial period.
The effect of these provisions is that the employer's obligations of fairness, and the employee's entitlement to be warned of their shortcomings prior to dismissal apply during the trial period. An employer will definitely not be able simply to observe an employee's performance during the trial period and advise them at the end of the period that they are unsuitable and that their employment has terminated. The employee's performance during the trial period must be managed so that they have an opportunity to be informed of the level of performance required of them and the chance to meet that standard. Legal advice should be taken before dismissing a new employee in reliance on a trial period clause.
Redundancy
The ERA provides that the duty of good faith between employer and employee applies to proposals to contract out work otherwise done by employees or to sell or transfer all or part of the employer's business, and to situations where employers may be made redundant.
It is likely that renewed debate will occur about how redundancies are to be managed. Special thought should be given to establishing clear provisions in individual employment contracts about how redundancy situations will be managed including the level of consultation that will occur with staff, what opportunities will be explored for redeployment, the way in which staff may be selected for redundancy and what notice and redundancy compensation may be available to the employee if they are made redundant.
Rules relating to unfair bargaining for individual employment agreements
The ERA provides that an assumption will be made that bargaining for an individual employment agreement has been unfair if certain circumstances are present and one of the parties to the agreement either:
1. knows of those circumstances; or
2. ought to know of those circumstances because they are aware of information from which it can be reasonably inferred that the prescribed current circumstances apply to the other person.
The circumstances are that one of the parties, at the time of bargaining for or entering into the individual employment agreement, is unable to understand adequately the provisions or implications of the agreement by reason of diminished capacity due (for example) to:
1. age; or
2. sickness; or
3. mental educational disability; or
4. a disability relating to communication; or
5. emotional distress; or
6. that person A reasonably relies on the skill, care or advice of person B or a person acting on person B's behalf; or
7. that person A is induced to enter into the agreement by oppressive means, undue influence or duress; or
8. in respect of an employee, the employee was not given a copy of the written employment agreement in advance of starting work or an opportunity to seek advice about it before signing it.
If a party to an individual employment agreement is found to have bargained unfairly the following remedies apply. The Employment Relations Authority may:
1. Make an order that the party in breach pays to the other party such sum, by way of compensation, as the authority thinks fit.
2. Make an order cancelling or varying the agreement.
3. Make such other order as the Employment Relations Authority thinks fit in the circumstances.
No other challenge about whether and employment contract is unfair or unconscionable is permitted.
It is likely that over time there will be Court cases defining clearly how this section will apply. Employers should take steps to ensure, before entering into an individual employment agreement, that the prospective employee understands the employment contract that he or she will enter into and receives adequate independent advice about the effects of the contract before starting work
Copyright The Lawlink Group Ltd 2000
Every effort has been made to ensure that this information is accurate. However, it is general introductory information only. It does not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters.
Kent France is an associate in the Lawlink firm of Wynn Williams. Kent has experience in arbitration, litigation, dispute resolution and employment law.
Web site: : Wynn Williams
Email: kent.france@wynnwilliams.co.nz
September 2000
Introduction
While the focus of the Employment Relations Act 2000 ("ERA") is on collective employment contracts and union membership, the ERA will also change the way that an employer takes on staff on an individual basis.
Where individual employees are concerned the ERA intends to achieve three things. They are:
1. to specify rules for determining the terms and conditions of an employees employment; and
2. to ensure that new employees are given information about their employment agreements and an adequate opportunity to seek advice about them before signing; and
3. to recognise that good faith applies to individual employment agreements.
The ERA will apply in different ways depending on the employer's existing structure.
Existing employees
Existing employees on individual employment contracts under the Employment Contracts Act 1991
Every individual employment contract under the Employment Contracts Act 1991 already in force continues according to the terms of that contract. The new obligations of good faith applying between employers and employees on an ongoing basis under the ERA will apply.
New employees
Where a collective employment agreement exists and a new employee is a member of a union that is a party to the agreement
In this situation, as long as the collective contract covers the work to be done by the new employee, that person's terms and conditions of employment will automatically be governed by the collective employment agreement.
Where a collective employment agreement exists and the new employee is not a union member
When a new employee is taken on, he or she must be told the following things:
1. that a collective employment agreement exists and covers the work the employee does;
2. that he or she may join the union that is a party to the collective agreement;
3. how to contact the union;
4. that if he or she joins the union they will be bound by the collective agreement; and
5. that during the first 30 days of his or her employment the terms and conditions of employment will be the terms and conditions of the relevant collective employment agreement, and any additional terms and conditions agreed to that are not inconsistent with the collective agreement.
The employer must also give the new employee a copy of the collective employment agreement and if the employee agrees, inform the union as soon as practicable that the employee has entered into an employment agreement with the employer.
If the work to be done by the employee is covered by more than one collective agreement, the collective agreement that applies is the one applying to more employees in the workplace. The employer must tell the employee that the other agreement or agreements exist.
An employer that fails to take these steps is liable for a penalty imposed by the Employment Relations Authority of up to $5,000.00 for individuals or up to $10,000.00 for companies and other incorporated bodies.
If the new employee does not join the union then after the 30 day period expires the employee and the employer may by agreement vary the individual employment agreement that is to apply, as they think fit. That agreement must be made after the 30 day period expires. An employee and an employer cannot enter into an agreement during the 30 day period that a term or condition of the employment contract will automatically alter at the expiry of the period, to become inconsistent with the collective agreement.
Individual employment agreements
Where there is no applicable collective employment agreement
In this situation the employer must give the employee a copy of the intended individual employment agreement in advance.
The employee must be advised that they are entitled to seek independent advice about the agreement and the employee is entitled to a reasonable opportunity to seek that advice.
An employer that fails to take these steps is liable for a penalty imposed by the Employment Relations Authority of up to $5,000.00 for individuals or up to $10,000.00 for companies and other incorporated bodies.
Individual employment agreements must be in writing
All individual employment agreements entered into after the commencement of the ERA must be in writing. This is a significant change to the position under the Employment Contracts Act. It will require employers to be organised to have written contracts available to give to prospective employees before they start work.
Content of individual employment agreements
An agreement may contain any terms and conditions that the employee or employer agree to but must include the following:
1. the names of the employee and employer concerned; and
2. a description of the work to be performed by the employee; and
3. an indication of where the employee is to perform the work; and
4. an indication of the arrangements relating to the times the employee is to work; and
5. the wages or salary payable to the employee; and
6. a plain language explanation of the services available 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 individual employment agreement must not contain anything
1. contrary to law, or
2. inconsistent with the ERA.
Other issues to be dealt with in individual employment agreements
There are a myriad of other possible clauses that can be included in individual employment agreements. In many cases their inclusion will depend upon the particular circumstances. Employers should give serious consideration to including the following additional clauses:
1. Specific requirements for how work is to be done should be recorded.
2. Specific holiday entitlements should be recorded.
3. Details relating to the way in which employment may be terminated, including the period of notice to be given and whether payment can be made in lieu of notice; summary dismissal for serious misconduct; a period of notice for resignation by the employee; and abandonment of employment.
4. Redundancy clauses. It is likely that redundancy clauses will be extremely important under the ERA [see Redundancy below].
5. Provisions relating to the confidential treatment of business information.
6. Rules relating to company policies and manuals.
7. Continuity of service.
8. Conscientious performance of duties and the fidelity of the employee.
9. Employer obligations and responsibilities.
10. A provision that the written agreement is the complete agreement.
11. An acknowledgement that parties have understood the agreement and have had the opportunity to take advice about it.
12. Restraint of trade.
13. Ownership of intellectual property generated or used during employment.
14. Restriction on any other business activity.
15. Superannuation provisions.
16. Any other benefits available to the employee.
Fixed term agreements
Fixed term employment agreements
Fixed term employment agreements are permitted provided that both the employer and the employee agree.
Fixed term employment agreements may record that they will end:
1. at the close of a specified date or period; or
2. on the occurrence of a specified event; or
3. at the conclusion of a specified project.
At the time the agreement is entered into the employer must have genuine reasons based on reasonable grounds for specifying the employment of the employee is to end in the way described in the agreement.
The ERA provides that the following are not genuine reasons for using a fixed term employment agreement:
1. to exclude or limit the rights of the employee under the ERA; or
2. to establish the suitability of the employee for permanent employment.
To provide the best protection available under the law the employer should ensure that the reasons for a fixed term contract are recorded in writing in the contract.
The employer must also advise the employee of when or how his or her employment will end under the fixed term contract and the reasons for his or her employment ending in that way. This advice should also be included in writing in the contract.
The effect of these provisions is that a fixed term contract may be used if there are genuine reasons for it. Fixed term contracts cannot now be used as a form of trial period. There are specific rules for trial periods that are discussed below.
Trial and probationary arrangements
The ERA provides that where parties to an individual employment agreement agree that the employee will serve a period of probation or trial after the commencement of employment then:
1. the trial period must be recorded in writing in the employment agreement; and
2. the law relating to unjustified dismissal will apply during the trial period.
The effect of these provisions is that the employer's obligations of fairness, and the employee's entitlement to be warned of their shortcomings prior to dismissal apply during the trial period. An employer will definitely not be able simply to observe an employee's performance during the trial period and advise them at the end of the period that they are unsuitable and that their employment has terminated. The employee's performance during the trial period must be managed so that they have an opportunity to be informed of the level of performance required of them and the chance to meet that standard. Legal advice should be taken before dismissing a new employee in reliance on a trial period clause.
Redundancy
The ERA provides that the duty of good faith between employer and employee applies to proposals to contract out work otherwise done by employees or to sell or transfer all or part of the employer's business, and to situations where employers may be made redundant.
It is likely that renewed debate will occur about how redundancies are to be managed. Special thought should be given to establishing clear provisions in individual employment contracts about how redundancy situations will be managed including the level of consultation that will occur with staff, what opportunities will be explored for redeployment, the way in which staff may be selected for redundancy and what notice and redundancy compensation may be available to the employee if they are made redundant.
Rules relating to unfair bargaining for individual employment agreements
The ERA provides that an assumption will be made that bargaining for an individual employment agreement has been unfair if certain circumstances are present and one of the parties to the agreement either:
1. knows of those circumstances; or
2. ought to know of those circumstances because they are aware of information from which it can be reasonably inferred that the prescribed current circumstances apply to the other person.
The circumstances are that one of the parties, at the time of bargaining for or entering into the individual employment agreement, is unable to understand adequately the provisions or implications of the agreement by reason of diminished capacity due (for example) to:
1. age; or
2. sickness; or
3. mental educational disability; or
4. a disability relating to communication; or
5. emotional distress; or
6. that person A reasonably relies on the skill, care or advice of person B or a person acting on person B's behalf; or
7. that person A is induced to enter into the agreement by oppressive means, undue influence or duress; or
8. in respect of an employee, the employee was not given a copy of the written employment agreement in advance of starting work or an opportunity to seek advice about it before signing it.
If a party to an individual employment agreement is found to have bargained unfairly the following remedies apply. The Employment Relations Authority may:
1. Make an order that the party in breach pays to the other party such sum, by way of compensation, as the authority thinks fit.
2. Make an order cancelling or varying the agreement.
3. Make such other order as the Employment Relations Authority thinks fit in the circumstances.
No other challenge about whether and employment contract is unfair or unconscionable is permitted.
It is likely that over time there will be Court cases defining clearly how this section will apply. Employers should take steps to ensure, before entering into an individual employment agreement, that the prospective employee understands the employment contract that he or she will enter into and receives adequate independent advice about the effects of the contract before starting work
Copyright The Lawlink Group Ltd 2000
Every effort has been made to ensure that this information is accurate. However, it is general introductory information only. It does not constitute legal advice and should not be relied on as such. Specialist legal advice should be sought in particular matters.
Kent France is an associate in the Lawlink firm of Wynn Williams. Kent has experience in arbitration, litigation, dispute resolution and employment law.
Web site: : Wynn Williams
Email: kent.france@wynnwilliams.co.nz
September 2000
July, 2001
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