Employment Agreements

Employment Agreements – A Time For Review

Recent developments in employment law give rise to a need to review and update employment agreements to ensure they are up to date.

90 day trial period clauses

You may be aware that the new Labour-led coalition government has proposed that 90 day trial periods will be limited to employers with fewer than 20 employees. This proposal, if adopted into law, will most likely not come into effect until sometime in late 2018. In the meantime, all employers can continue to use 90 day trial periods (provided the particular clause is valid).

90 day trial period clauses must strictly comply with legislation. If there are deficiencies in a clause, there is a risk that the clause is interpreted against the employer.

Trial period clauses may be invalid if they fail to specify when the trial period commences or state that they are for a period of “up to 90 days” or “not exceeding 90 days”. As a result of recent case law, we suggest that 90 day trial period clauses state that the trial period is for 90 calendar days and commences on the employee’s first day of work.

Our recommendation is for 90 day trial period clauses to include the following wording at the beginning:

The Employee is initially to serve a trial period of 90 calendar days beginning on the employee’s first day of work.

90 day trial period clauses are also required to:

(a) Be in writing;
(b) Specify the period in which the trial period is in force (ie. a period of 90 days); and
(c) State that if the employee is dismissed within the trial period they cannot bring a claim for unjustified dismissal.

Employers must still give employees notice that their employment is terminated, and we recommend that a shorter period of notice is specified in the 90 day trial period clause.

Trial period clauses can only be valid for new employees (i.e. if you re-employ the same person at a later time, you cannot rely on the 90 day trial period clause). It is also important that the agreement containing this clause is signed by both the employer and the employee prior to their first day of work. This should be insisted upon, bearing in mind the need to allow the employee sufficient time to seek independent advice on the proposed agreement. Planning is key.

Health and Safety

Given the new and extended obligations imposed under the Health and Safety at Work Act 2015, we recommend that your employment agreements include an up to date health and safety clause.

You need to ensure that any health and safety clause in your current employment agreements does not refer to previous legislation that may no longer apply.

To ensure your employment agreements remain compliant with current law and any further changes to health and safety legislation, we suggest that your health and safety clause refer, by way of an example, to your employees “working in a safe manner in compliance with all applicable Health and Safety Acts, regulations and codes of practice…”.

Consultation regarding any deductions from wages

If an employee is indebted to his/her employer, and the employer proposes to obtain repayment from the employee’s remuneration, the employer is now required to consult with the employee, specifically in relation to the proposed deduction and obtain their agreement, before deducting from the employee’s remuneration. The employee’s agreement should be recorded in writing.

If multiple payments are to be made over time, then this should be specified, but note that the employee can withdraw such consent in relation to the deductions.

Should the employment agreement provide for a blanket ability to make deductions from an employee’s remuneration, this cannot be taken to circumvent consultation requirements with the employee and this practically should take place.

Employment agreements could be amended to reflect consultation requirements, for example:

The Employer shall be entitled to make deductions, after consultation with the Employee, from the Employee's remuneration for any debt owing from the Employee to the Employer.

Zero hours contracts and availability provisions

A zero-hour contract is where an employee agrees to be available for any work offered by an employer, where the employer does not guarantee any hours of work in return, and the employer is obliged to work. In effect, an employee under a zero-hour contract is constantly ‘on-call’ and receives no certain income or payment in exchange from that availability. These are now banned.

A zero-hour contract is different to casual employment, which is still allowed, because a casual employee can decline any offer of work.

When the ban on zero-hour contracts was brought in, new restrictions on availability provisions were also introduced. On-call and standby clauses are common examples of availability provisions. An availability provision can only be included in an employment agreement that includes guaranteed hours of work. This effectively prohibits zero-hour contracts.

An availability provision can only be included in an employment agreement if there are genuine reasons based on reasonable grounds for including the availability provisions. Reasonable compensation must be provided to employees for making themselves available. If the availability provision does not meet these requirements, then employees can refuse to perform work in addition to their guaranteed hours.

So what is reasonable compensation, and how much more do employers have to pay for availability?

In practice, salaried employees can agree with their employer that their remuneration includes compensation for availability. However, the employment agreement must specify this. Waged employees who perform work on-call will now require an additional payment to compensate them for their availability, and this needs to be specified in their employment agreement.

The Employment Relations Act 2000 sets out factors relevant to the compensation that is required, such as the number of hours which the employee is required to be available, and the nature of the restrictions on the employee from being available. However, at this stage, there is little further guidance on determining what a reasonable amount of compensation is. This will be guided by case law.

For both salaried and waged employees who perform work ‘on-call’, it is imperative that their employment agreements contain guaranteed hours plus valid availability provisions. For salaried employees, their employment agreements should refer to their salary including reasonable compensation for being ‘on-call’. For waged employees, their employment agreements should specify an additional component of “reasonable compensation” to compensate them for their availability (for example, an availability allowance of a set amount each time additional hours are required).

Compensation for shift workers

There is now an obligation to pay reasonable compensation to shift workers if their shift is cancelled without the required notice, and employment agreements should be tailored appropriately.

An employer must not cancel a shift unless the employment agreement specifies the following:

(a) A reasonable period of notice that must be given before the cancellation of a shift; and
(b) Reasonable compensation, which must be paid to the employee if the employer cancels a shift without giving the specified notice.

In cancelling a shift, the employer must give the employee the notice specified under the employment agreement, or pay the employee the specified compensation as provided.

The period of notice to be given must be determined having regard to all relevant factors including:

(a) The nature of the employer’s business;
(b) The nature of the employee’s work; and
(c) The nature of the employee’s employment arrangements, including whether there are agreed hours of work in the employment agreement and if so, the number of guaranteed hours of work among those agreed hours.

Matters which must be considered in determining the amount of compensation to be specified are as follows:

(a) The period of notice specified in the employee’s employment agreement;
(b) The remuneration the employee would have received for working the shift;
(c) Whether the nature of the work requires the employee to incur any costs in preparing for the shift.

If the shift is cancelled and the employment agreement does not comply with these requirements, or the employee was not notified of the cancellation until the start of the shift, or the shift has begun but is cancelled, an employee is entitled to what they would have earned for working the shift.

Concluding comments

If you have any questions about the above or how you may be affected in your particular circumstance, please contact a member of Holland Beckett Law’s employment team to discuss. We would be happy to review your current employment agreements to ensure they are up to date and reflect best practice.