Clarity still needed on legislative changes

Changes to employment law that were designed to prohibit zero hour contracts may increase costs for farmers and other businesses where work is performed on-call.

Under a zero hour contract (which is now banned), an employee agreed to be available for any work that was offered by their employer, but the employer did not guarantee any hours of work in return. In effect, an employee under a zero hour contract was constantly on-call, and received no certain income or payment in exchange for their availability.

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

To address the unfairness of zero hour contracts, Parliament unanimously passed the Employment Relations Amendment Act 2016, which came into force on 1 April 2016.

Among a swag of changes, the Amendment Act imposed new restrictions on availability provisions. On-call and standby clauses are common examples of availability provisions. 

One such restriction is that, now, an availability provision can only be included in an employment agreement that includes guaranteed hours of work. This effectively prohibits zero hour contracts.

There are two further restrictions on availability provisions. Now, 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, and
  • must provide reasonable compensation to the employee for making themselves available.

If the availability provision does not meet the above requirements then the employee can refuse to perform work in addition to their guaranteed hours.

For farmers and other business the obvious question is: what is reasonable compensation? (Or, how much more do I now have to pay for availability?)

For salaried employees, the answer may be that no extra payment is required. An employee who is paid a salary can agree with their employer that their remuneration includes compensation for their availability.

However, waged employees who perform work on-call will require an additional payment to compensate them for their availability.

The Employment Relations Act sets out factors that are relevant to the compensation that is required (such as the number of hours which the employee is required to be available, and any restrictions on the employee from being available), however, unfortunately, it does not provide any further guidance about how to determine whether that compensation is reasonable. 

In effect, Parliament have given employers a list of ingredients without providing the recipe. We have to wait for a dispute to reach the courts to see how they interpret the new law.

We expect it will be months before employers have any clarity (let alone any certainty) that they are providing reasonable compensation and their availability provisions comply with the law.

The content of this document is necessarily general and readers should seek specific advice on particular matters and not rely solely on this document. 

If you would like more information on any of the topics in this document, please contact your usual Auld Brewer Mazengarb & McEwen adviser. 

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Sean Maskill