The Employment Relations Act 2000 required for the first time that an individual employment agreement must be in writing. Every employee will be covered by an employment agreement — either individual or collective. 

Getting the agreement right at the start of a relationship can save heartache further down the track and will help focus employers on what they are really after and employees on what it is the employer wants from them. The employees requirements will also be dealt with. So it is well worth putting in the effort to get an agreement right. Draft up what you want and then take legal advice on how to turn this into a legally effective contract.

Employment agreements for all employees, regardless of their station, need to contain certain details. These include a description of the work to be performed by the employee and an indication of the times the employee is to work. Wages or salary must be covered, along with a plain-language explanation of the services available for sorting out employment relationship problems. Notice of the right to raise a grievance within 90 days must also be included.

Different rules apply for workers whose work is covered by a collective employment agreement negotiated between the employer and a union. However, most workers these days do not perform work covered by a union agreement. The main exceptions are workers in central or local government or schools.

In addition, an employer is obliged to provide any intended worker with a copy of the proposed agreement under discussion. They advise the worker that they are entitled to seek independent advice about it and give them a chance to do that. It is prudent to record a statement in the agreement that the employee has been afforded these rights. From there an employer must consider any issues the intended worker comes back with. After that the agreement can be settled.

These are the bare-bones provisions that you will expect in any individual employment agreement. It is important however, for the employer to do much more than the minimum if they want to make the most of their first opportunity to help the employee understand what will be required and to get the best return from the services that employee provides. Employers, should be aware of their business needs when offering employment. Attention should be given to whether the person is employed on a fixed-term agreement or an indefinite agreement and the employer needs to be well aware of the limitations on employing someone on a fixed-term basis.

Thought might be given to putting a probationary clause in the agreement. It is generally important to set targets and provide for a bonus payment if they are met. Provisions dealing with the protection of the employer’s confidential information and perhaps a restraint of trade preventing the employee from working for a competitor could be included. Redundancy clauses are also useful. They set out if there is any entitlement to redundancy compensation and what that will be, and may set out the redundancy process.

Clauses dealing with the various sorts of leave the employer is obliged to, or wishes to, grant would normally be included. Annual leave, leave for statutory holidays, sick leave, bereavement leave, parental leave and leave for long service are all possibilities. Provisions dealing with termination of employment, including defining serious misconduct, should be included. Clauses dealing with poor performance and what the sanction for this will be should also be covered. In this area of an agreement, a list setting out examples of serious misconduct should state it is non-exhaustive, because it is near impossible for an employer to predict all types of behaviour it may encounter. A suspension clause should be included to give an employer the contractual right to suspend a worker and the process for doing so.

Changes to legislation require a provision dealing with continuity of employment when the employer’s business is restructured by contracting out. This is one area where it is essential to take advice. Just because an employer wants a particular provision does not always mean that it is legally permissible to include one. For example, to include a legally binding clause restraining an ex-employee from working for the competition requires there to be some proprietary right that is being protected. It is more likely to be effective in the case of a rocket scientist than a shop assistant.
   
The consequences of not having a written employment agreement include the right of an employee to seek a monetary penalty against the employer. The maximum penalty for an individual employer is $5000 and in the case of a company or corporation it is $10,000, so it is important that this legal requirement is complied with at the earliest opportunity.

Invariably, many employment disputes come as a result of not having the rules and requirements of the employment relationship spelt out in writing. A recent case before the Employment Relations Authority shows the pitfalls. In the case of Meredith v Gengy’s Investments Ltd, Mr Meredith was employed as a manager of a restaurant in Henderson, Auckland on a three-month trial period. The employer dismissed Mr Meredith in a letter to him stating: “I appreciate your work efforts and the hard work you have undertaken on behalf of Gengy’s restaurant but after careful consideration I wish to inform you that I feel you do not fit the requirements that this difficult and demanding position entails. I wish you success in your future endeavours, and wish to thank you for all your efforts.” The authority, in determining this case noted that the terms and conditions of Mr Meredith’s employment were never set out in any written agreement as they should have been. Further, though the authority accepted that there was a three-month trial, there was significant divergence of opinion as to whether or not the employment was permanent or whether it was for a fixed term of three months.

As it stood, because the agreement was not in writing the employer had breached its obligations under the Employment Relations Act 2000 and the confusion over the fixed term was simply exacerbated. The fact that none of the written requirements of the act were complied with, and that a genuine reason for the fixed term was never identified in writing to the employee, meant the employment should be treated as permanent. The authority raised some serious concerns about the failure to deal with Mr Meredith in this three-month trial period. The employer had held that there were a number of performance concerns but the authority openly disagreed with this before conduding that the trial of Mr Meredith for a three-month period was not a fair one and. that his conduct did not give his employer sufficient grounds to dismiss him.

It felt that a fair and reasonable employer would have made its standards much clearer to Mr Meredith, given him reasonable deadlines to meet in showing that he could perform to the standard required, and objectively measure his performance against those standards. The authority went further, to say that standards should have been made clear and warnings issued, before the conduct of concern could be regarded as blame worthy. There was considerable confusion as to whether or not Mr Meredith was being dismissed for performance issues or because the employer (incorrectly) believed that it could simply dismiss him after the three-month period.

The employer was found liable and required to pay money to Mr Meredith. The small snapshot of this case identifies why it is so important for an employer to have an employment agreement in writing. A clear process regarding duration of employment (and whether or not it was fixed-term or permanent, as well as standards and processes to address poor performance) could quite readily have resolved all of these concerns for the employer, ultimately avoiding legal liability.

It seems nonsensical that seven years on from the introduction of the requirement to have employment agreements in writing an employer would choose not to do so, given the dangers so readily apparent from the moment a dispute arises. My advice for employers is to invest time and money at the beginning of an employment relationship to get a proper agreement in place. Gengy’s restaurant would have improved its profitability if it had done so.

•    Peter Cullen is a partner at Cullen Law, a Wellington firm specializing in employment law.

The Dominion Post, Oct 18 2007.