Employment agreements are fundamental to the employment relationship in New Zealand, setting out the terms and conditions that govern the relationship between an employer and an employee. A legally compliant and well-drafted agreement provides clarity for both parties, outlining rights, responsibilities, and expectations. It is a mandatory requirement under New Zealand law for all employees to have a written employment agreement.
These agreements must meet minimum standards set by the Employment Relations Act 2000 and other relevant legislation, covering aspects such as minimum wage, leave entitlements, and dispute resolution processes. Ensuring compliance is crucial for businesses operating in New Zealand to avoid potential legal challenges and maintain fair employment practices.
Types of Employment Agreements
In New Zealand, employment agreements primarily fall into two main categories: permanent and fixed-term. The type of agreement used depends on the nature of the work and the intended duration of the employment relationship.
| Agreement Type | Description | Key Characteristics |
|---|---|---|
| Permanent | Ongoing employment with no specified end date. | Most common type; continues until terminated by either party or by law. |
| Fixed-Term | Employment for a specific period, project, or task, with a clear end date. | Must have genuine reasons for being fixed-term; end date or event must be specified. |
Fixed-term agreements are only permissible if there are genuine reasons based on reasonable grounds for the work to end at a specific time or upon the occurrence of a specific event. Simply wanting to trial an employee is not a valid reason for a fixed-term contract; a probationary period should be used instead.
Essential Clauses Required in Employment Contracts
New Zealand law mandates that all written employment agreements must include specific clauses. These minimum requirements ensure that employees are informed of their basic terms and conditions of employment.
Mandatory clauses include:
- Names of the employer and employee: Clearly identifying the parties to the agreement.
- Description of the work to be performed: Outlining the employee's role and responsibilities.
- Place of work: Specifying where the employee will primarily work.
- Hours of work: Detailing the agreed working hours or how they will be determined.
- Wage or salary rate: Stating the pay rate or salary, and how it will be paid (e.g., hourly, weekly, fortnightly).
- Public holidays: Referencing the employee's entitlements regarding public holidays.
- Leave entitlements: Referencing entitlements such as annual leave, sick leave, and bereavement leave.
- Rest and meal breaks: Outlining the employee's rights to breaks.
- Notice period for termination: Specifying the required notice period for both the employer and employee to end the agreement.
- Process for resolving employment relationship problems: Including a plain language explanation of the services available for resolving disputes, such as mediation and the Employment Relations Authority.
While these are the minimum requirements, agreements often include additional clauses covering aspects like confidentiality, intellectual property, training, and company policies.
Probationary Periods
Probationary periods, often referred to as trial periods, allow an employer to assess a new employee's suitability for a role within a specified initial period. In New Zealand, a specific type of trial period, the 90-day trial period, is available to employers with fewer than 20 employees.
Key points about probationary and trial periods:
- 90-Day Trial Period (for employers with fewer than 20 employees): If agreed to in writing in the employment agreement before the employee starts work, this allows the employer to dismiss the employee within the first 90 calendar days of employment. If dismissed under a valid 90-day trial period clause, the employee cannot bring a personal grievance for unfair dismissal. They can still raise a personal grievance for other reasons, such as discrimination or harassment.
- Probationary Period (for all employers): Employers of any size can use a standard probationary period. This period allows the employer to assess the employee's performance and suitability. If the employer decides to dismiss the employee during or at the end of a standard probationary period, the dismissal process must still be fair and follow the principles of natural justice, including giving the employee an opportunity to respond to concerns.
It is crucial that any probationary or trial period clause is clearly written in the employment agreement and agreed upon before the employee commences work.
Confidentiality and Restrictive Covenants
Employment agreements often include clauses to protect the employer's business interests, such as confidentiality and restrictive covenants (like non-compete or non-solicitation clauses).
- Confidentiality Clauses: These are standard and generally enforceable. They prevent employees from disclosing sensitive business information learned during their employment, both during and after their employment ends.
- Restrictive Covenants (Non-Compete/Non-Solicitation): These clauses aim to restrict an employee's activities after leaving the company, such as working for a competitor or soliciting former clients or employees. Their enforceability is not automatic and is subject to scrutiny by the courts.
For a restrictive covenant to be enforceable, it must be:
- Reasonable: Both in terms of its duration, geographical area, and scope of restricted activities.
- Necessary: To protect a legitimate proprietary interest of the employer (e.g., trade secrets, confidential information, client connections).
- Not contrary to the public interest: It should not unduly prevent the employee from earning a living or stifle competition unreasonably.
Courts will interpret these clauses narrowly and may modify or strike them down if they are deemed unreasonable or too broad.
Contract Modification and Termination
Any changes to an employment agreement must be agreed upon by both the employer and the employee. Unilateral changes by the employer are generally not permitted unless the agreement contains a specific clause allowing for variation in certain circumstances (which must still be exercised reasonably). Best practice is always to document any changes in writing and have both parties sign the variation agreement.
Termination of employment can occur in several ways:
- By Agreement: Both parties mutually agree to end the employment.
- By Notice: Either the employer or employee gives the required notice as specified in the employment agreement or the minimum statutory notice if the agreement is silent.
- Summary Dismissal: Dismissal without notice for serious misconduct. This is a high threshold and must be handled carefully following a fair process.
- Redundancy: Termination due to the employer's genuine business reasons (e.g., restructuring, downturn in work). A fair process must be followed, including consultation with the employee.
- Frustration of Contract: Where an unforeseen event makes it impossible to perform the contract (e.g., long-term illness preventing the employee from working).
Regardless of the reason for termination, employers must follow a fair process, which typically involves informing the employee of the issues, giving them an opportunity to respond, and genuinely considering their response before making a final decision. Failure to follow a fair process can result in a successful personal grievance claim for unfair dismissal, even if there was a substantive reason for termination.
