Review Employment Agreements or Risk Being Caught Out


Employers who have not reviewed their employment agreements since April 2016 risk being caught out by recent changes to employment law.

In 2016, the Government made sweeping changes to the Employment Relations Act 2000 (Act) designed to prohibit “zero hour contracts”. Amongst the changes were new rules about hours of work, and availability provisions.

Grace Period Ends 1 April 2017

The legislation introducing those new rules, which came into force on 1 April 2016, included a grace period, which ends on 1 April 2017.

During the grace period, only employment agreements that were entered into after 1 April 2016 had to comply with the new rules. After the grace period ends, all employment agreements will have to comply.

Employers have until 1 April 2017 to ensure their employees’ employment agreements comply with the new rules (and, if not, to transition employees onto compliant agreements).

Hours of Work

The Act (section 67C) now requires that, if any employer and employee agree to set hours of work, those hours of work must be recorded in the employee’s individual employment agreement, collective agreement, or additional terms to the collective agreement.

Hours of work means any of:

-       the number of guaranteed hours of work,

-       the days of the week work will be performed,

-       the start and finish times of work, and

-       any flexibility in the above.

Most individual employment agreements already include an ‘hours of work’ clause. For employers reviewing these agreements, it is important to ensure that the hours of work clause correctly records all of the above agreed elements of hours of work.

Collective employment agreements, which can cover many employees, might not record each employee’s agreed hours of work. If an employee has agreed hours of work that are not recorded in their collective employment agreement, then those agreed hours of work must now be recorded as “additional terms and conditions of employment” under section 61 of the Act.

Practically, this will often mean a letter recording the employee’s hours of work which is signed by both the employer and employee and then stored on the employee’s personnel file.

Availability Provisions

An availability provision is any provision in an employment agreement under which an employee is required to be available for work, but the employer is not required to provide work (section 67D of the Act).

Forced overtime clauses and stand-by or on-call clauses are common examples of availability provisions.

There are now strict rules about when an employer can require an employee to be available for work. Essentially, to include an availability provision in an employment agreement:

-       the employment agreement must include guaranteed hours of work,

-       the employer must have genuine reasons based on reasonable grounds for including the availability provision, and

-       the employment agreement must include reasonable compensation for the employee’s availability (salaried employees           can agree that their salary includes reasonable compensation for their availability).

If there is an availability provision in an employment agreement, and that provision does not comply with the Act, then the employee can refuse to perform work in addition to their guaranteed hours (section 67E of the Act). If an employee refuses to perform additional work because their employment agreement does not include a valid availability provision, the employer is prohibited from treating them adversely (section 67F of the Act).

A practical question employers should consider is whether they need to be able to require employees to be available for work. For example, if an employer has a forced overtime clause, but in practice overtime is always worked by agreement, then that employer should consider replacing the forced overtime clause with one that says that overtime will be worked by agreement between the parties.

Questions about Availability Provisions

Whenever a new law is introduced there is always some uncertainty about how it will be applied by the courts. Unfortunately, there are two areas of significant uncertainty regarding availability provisions:

  1. whether clauses that allow flexibility in hours of work (for example, a clause that allows the employer to change roster patterns) are availability provisions?
  2. what is reasonable compensation for availability?

Two related cases about the interpretation of the availability provision requirements have been removed to the Employment Court (Doran v Carrick Holdings Ltd [2016] NZERA Auckland 371 and Fraser v McDonald's Restaurants (New Zealand) Ltd [2016] NZERA Auckland 370). We expect that these decisions will provide much needed clarity about availability provisions.  

Other new rules

These are not the only new rules that were subject to the grace period. New rules about secondary employment provisions and the cancellation of shifts for shift workers also come into force for all employment agreements on 1 April 2017.

Conclusion

Employers should already have updated their employment agreement templates to comply with the new rules. If you have not updated your templates, you should do so urgently.

Employers should now look to transition their employees on old agreements (entered before 1 April 2016) onto employment agreements that comply with the new rules. 

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Sean Maskill