In New Zealand, a written employment agreement is a legal requirement for every employee. This agreement forms the basis of the employment relationship, outlining the terms and conditions of employment and protecting the rights and obligations of both the employer and the employee. Ensuring these agreements are compliant with the Employment Relations Act 2000 and other relevant legislation is crucial for businesses operating in the country.
A well-drafted employment agreement provides clarity and certainty, helping to prevent disputes and fostering a positive working environment. It must accurately reflect the nature of the work, the agreed-upon terms, and adhere to minimum statutory entitlements.
Types of Employment Agreements
Employment agreements in New Zealand primarily fall into two categories: individual and collective. Individual agreements are made between an employer and a single employee. Collective agreements are negotiated between an employer and a union representing a group of employees. Within individual agreements, the duration of employment is a key distinction.
| Agreement Type | Description | Key Characteristics |
|---|---|---|
| Indefinite | Ongoing employment with no specified end date. | Standard type of employment; continues until terminated by either party or redundancy. |
| Fixed-Term | Employment for a specific period, project, or task, with a defined end date. | Must have genuine reasons based on reasonable grounds; end date must be clear. |
Fixed-term agreements must be used appropriately and not simply to avoid obligations related to indefinite employment. The reason for the fixed term must be stated in the agreement.
Essential Clauses
New Zealand law mandates that certain information must be included in every written employment agreement. These essential clauses ensure transparency and protect minimum employee rights.
- Names of the employer and employee
- A description of the work to be performed
- The place of work
- The agreed hours of work
- The wage or salary rate, or how it will be calculated
- How and when the employee will be paid
- A plain language explanation of the services available for resolving employment relationship problems
- A clause about what to do if the employee thinks they have been unfairly dismissed or have a personal grievance
- Details of public holidays and leave entitlements (though often referenced to the relevant legislation)
- Notice period for termination (or how it is calculated)
While these are the minimum requirements, agreements typically include other clauses covering aspects like duties, reporting lines, company policies, and confidentiality.
Probationary Periods
Probationary periods allow an employer to assess a new employee's suitability for the role and the company culture. In New Zealand, probationary periods are only lawful if they are agreed upon in writing in the employment agreement before the employee starts work.
- Maximum Duration: While there is no strict legal maximum, periods of up to 90 days are common. Longer periods may be viewed as unreasonable.
- Purpose: To assess the employee's performance and fit.
- Termination during Probation: If an employer dismisses an employee during a valid probationary period, the employee cannot raise a personal grievance for unjustified dismissal. However, they can still raise a grievance for other reasons, such as discrimination or harassment.
- Trial Periods: For employers with fewer than 20 employees, a specific 'trial period' of up to 90 days can be agreed upon. During a valid trial period, an employee cannot bring a personal grievance for unjustified dismissal.
It is crucial that probationary or trial period clauses are correctly drafted and implemented according to the law.
Confidentiality and Non-Compete Clauses
Employment agreements often include clauses designed to protect the employer's business interests, such as confidential information and client relationships.
- Confidentiality Clauses: These prevent employees from disclosing sensitive business information learned during their employment. They are generally enforceable if they are clear and protect legitimate business interests.
- Non-Compete Clauses (Restraint of Trade): These clauses restrict an employee's ability to work for a competitor or start a competing business after leaving employment. They are only enforceable if they are reasonable. Reasonableness is assessed based on:
- The legitimate business interest being protected (e.g., trade secrets, client connections).
- The duration of the restraint.
- The geographical area covered by the restraint.
- The scope of the restricted activities.
Courts will only enforce non-compete clauses to the extent necessary to protect the employer's legitimate interests. Overly broad or lengthy restraints are likely to be deemed unreasonable and unenforceable.
Contract Modification and Termination Requirements
Modifying an existing employment agreement requires the written agreement of both the employer and the employee. Unilateral changes by the employer are generally not permitted and can lead to a personal grievance.
Termination of employment must be carried out in accordance with the employment agreement and New Zealand law.
- Termination by Notice: Either party can terminate the agreement by giving the required notice period as specified in the contract.
- Summary Dismissal: An employer can dismiss an employee without notice for serious misconduct.
- Redundancy: If a position is no longer required, an employer may make an employee redundant, following a fair process.
- Termination during Probation/Trial: As noted above, specific rules apply.
In all cases of termination, employers must follow a fair process, which typically involves informing the employee of the reasons for potential termination, giving them an opportunity to respond, and genuinely considering their response before making a final decision. Failure to follow a fair process, even if there was a valid reason for termination, can result in a successful personal grievance claim for unjustified dismissal.
