In New Zealand, a written employment agreement is a fundamental requirement for every employment relationship. This legally binding document sets out the terms and conditions of employment, providing clarity and protection for both the employer and the employee. It must comply with the minimum standards set by the Employment Relations Act 2000 and other relevant legislation.
Ensuring that employment agreements are compliant and clearly drafted is crucial for preventing disputes and fostering a positive working relationship. Understanding the different types of agreements and the mandatory clauses they must contain is the first step in establishing a lawful employment framework in the country.
Types of Employment Agreements
Employment agreements in New Zealand primarily fall into two categories: individual employment agreements and collective employment agreements. Individual agreements are between an employer and a single employee, while collective agreements are negotiated between an employer and a union representing a group of employees. Within individual agreements, the most common types relate to the duration of employment.
| Agreement Type | Description | Key Characteristics |
|---|---|---|
| Permanent | Ongoing employment with no specified end date. | Standard type of employment; continues until terminated by either party or by law. |
| Fixed-Term | Employment for a specific period, project, or task with a defined end date. | Must have a genuine reason based on reasonable grounds; reason must be in writing. |
Fixed-term agreements can only be used where there are genuine reasons for the work to end at a specific time or upon completion of a specific task. The reason must be stated in the written agreement. Using a fixed-term agreement without a genuine reason can result in the employment being treated as permanent.
Essential Clauses in Employment Agreements
New Zealand law mandates that all written employment agreements must include specific information. These essential clauses ensure that the basic terms of employment are clear and agreed upon.
- Names of the employer and employee
- A description of the work to be performed
- The agreed hours of work, including the days of the week and start and finish times
- The location of work
- The wage or salary rate, or how it will be calculated
- How and when the employee will be paid
- A plain language explanation of the services available for resolving employment relationship problems
- A place for the employee to sign and date the agreement
In addition to these mandatory terms, agreements typically include clauses covering leave entitlements (annual, sick, public holidays, etc.), notice periods for termination, redundancy provisions, and other terms specific to the role or industry.
Probationary Periods
Probationary periods allow an employer to assess a new employee's suitability for a role within a defined initial period. In New Zealand, probationary periods are only valid if they are agreed upon in writing in the employment agreement before the employee starts work.
- Maximum Duration: While there is no strict legal maximum, probationary periods are typically 90 days or less. A period longer than 90 days may be viewed as unreasonable.
- Purpose: To allow the employer to assess the employee's performance and conduct.
- Termination during Probation: If an employer dismisses an employee during a valid probationary period, they must still follow a fair process, although the requirements are less stringent than for employees who have completed probation. The employee must be given an opportunity to respond to any concerns.
It is important to note that probationary periods cannot be used for employees who were previously employed by the same employer in a similar role.
Confidentiality and Restrictive Covenants
Employment agreements often include clauses related to confidentiality and, in some cases, restrictive covenants such as non-solicitation or non-compete clauses.
- Confidentiality: Clauses protecting confidential information are standard and generally enforceable if they are clear and relate to legitimate business interests.
- Restrictive Covenants: Non-compete and non-solicitation clauses aim to protect the employer's business interests after the employee leaves. Their enforceability is subject to strict legal scrutiny. They must be reasonable in scope, duration, and geographical area, and go no further than necessary to protect a legitimate proprietary interest (e.g., trade secrets, confidential information, customer connections). Overly broad clauses are likely to be unenforceable.
The courts will assess the reasonableness of restrictive covenants on a case-by-case basis, balancing the employer's need to protect their business against the employee's right to earn a living.
Contract Modification and Termination
Any changes to an employment agreement must generally be agreed upon by both the employer and the employee. Unilateral changes by the employer are not permitted. Significant changes may require a new written agreement or an addendum signed by both parties.
Termination of employment must follow specific legal requirements, regardless of whether it is initiated by the employer or the employee.
- Termination by Employer: Requires a valid reason (e.g., misconduct, poor performance, redundancy) and a fair process. A fair process typically involves informing the employee of the concerns, giving them an opportunity to respond, genuinely considering their response, and providing notice.
- Termination by Employee: Requires the employee to give the notice period specified in the employment agreement.
- Notice Periods: The required notice period should be clearly stated in the employment agreement. If not specified, a reasonable notice period applies, which depends on the circumstances.
Redundancy situations also have specific legal requirements, including consultation with the employee and considering alternatives before making a final decision. Failure to follow correct procedures for modification or termination can lead to personal grievance claims.
