24 May 2022

Employment agreements are a key part of managing your relationship with employees. A good employment agreement can be the catalyst for getting this relationship off on the right foot. Many businesses grapple with the legal requirements for an Individual Employment Agreement (IEA) and are unsure about additional clauses that could be included to better suit their business.

Faced with confusion or a dispute, an IEA can be helpful in resolving matters. If your IEAs are not legally compliant, out of date, not suited to your business or industry or not in place at all, they can end up being more of a headache.

Ideally IEAs are put in place with employees before they start work. We also recommend your IEAs are regularly reviewed to check they include any legal updates or changes and are still suited to your business and your arrangements with employees.

Recent employment updates that impact IEA’s

In the past couple of years there have been several legal updates to be aware of. Depending on the wording and specific detail included in your IEAs, you may want to review the following clauses:

• Public Holidays: Matariki is now a public holiday.

• Sick Leave: minimum sick leave entitlements have increased from 5 to 10 days.

• Bereavement Leave: bereavement entitlements have been extended.

• Family violence leave: entitlements have been introduced.

Having an up-to-date IEA containing correct minimum entitlements helps to send the message that you are an informed and proactive employer, contributing to a great first impression.

What must be included in an IEA

Employers are legally required to give employees a written copy of their IEA. An IEA must include:

• The names of the parties and location of work.

• The type of work the employee will do.

• Hours of work.

• Pay rate and method of payment.

• A guide to resolving employment related problems, including that personal grievances must be raised within 90 days.

• An employment protection provision that applies if the business is sold or transferred.

• A statement that the employee will get (at least) time and a half payment for working on a public holiday.

Some of these requirements, like the names of the parties and the location of work, are straight forward. Other requirements, such as hours of work and payment for public holidays, are trickier and tend to cause the most confusion.

Hours of work, including considerations around availability and flexibility, have fairly strict legal requirements, in terms of what is and is not allowed. If your business wants employees to be available outside of their regular working hours or if you envisage an employee’s hours may change from week to week, you could consider using overtime and availability clauses. How you pay your employees will have an impact too. For example, salaries may allow for more flexibility than wages.

The law also requires that employers inform employees about their entitlements under the Holidays Act 2003 at the time they enter into an employment agreement, including their ability to take advice from the Ministry of Business, Innovation and Employment. While it is not mandatory, one way to practically satisfy this requirement is to detail the employee’s entitlements in the IEA:

• Annual Leave.

• Sick leave.

• Bereavement Leave.

• Family violence leave.

• Parental Leave.

What could be included in an IEA

In addition to the minimum legal requirements, employers could consider including the following:

• Trial periods or probational periods.

• Abandonment clauses.

• Health and safety requirements.

• Restraints of trade.

• Termination and notice periods.

• Information about disciplinary procedures and misconduct.

• Confidentiality.

• Conflict of interest and secondary employment.

Where applicable to your business, we recommend including these as they help to clarify expectations, avoid confusion and disputes. If a dispute does arise – the IEA is the first thing employers have in their back pocket to help resolve matters.

Trial periods, much like hours of work, have strict legal requirements – an employer must have 19 or fewer employees, and the parties must agree to it before the employee starts work. If an employer does not meet these requirements, they will not be able to use a trial period (despite what an IEA may state).

Restraints of trade are a thorny area and we recommend these are used with caution. An employer must consider whether they really have a legitimate business interest to protect. Simply wishing to prevent an employee from leaving your business to work for a competitor is unlikely to meet the threshold of a ‘business interest’. Relevant considerations when drafting these clauses include the employee’s role, their seniority and remuneration. For example, a senior sales manager is more likely to have a restraint of trade than a café waiter.

We recommend including information about disciplinary procedures and misconduct as it assists in setting expectations around standards of behaviour from the very outset of the employment relationship. However, setting your standards and culture requires taking deliberate, active steps throughout the employment relationship – much more than an IEA can deliver. Reinforcing standards of behaviour throughout the employment relationship, from modelling this behaviour yourself, to having ‘courageous conversations’ if things are not going well, are required too.

Next steps

If your IEAs need updating or you do not have IEAs in place with your employees, it is a good idea to sort this now, before it becomes an issue. Findex has can offer a broad range of advice and assistance including drafting templates that are individualised to your business and roles. We can advise on particular clauses and types of employment relationships through to providing tailored employment agreements. Get in touch with us today.