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Hands across the Tasman: Employment agreements in New Zealand and Australia

Feature Articles

Cite as: Jan/Feb 2013 87 (1/2) LIJ, p.50

Australian practitioners in employment law must be cognisant of New Zealand's stringent legislative requirements if they are to provide effective service to clients whose interests encompass both countries.

By Chad Issa

With more trade occurring across the Tasman than ever before,1 knowledge of particular requirements in formulating employment agreements for employees in New Zealand and Australia has never been more important for Australian legal practitioners.

New Zealand’s Employment Relations Act 2000 (ER Act) is the main piece of legislation governing employment relations. The ER Act was amended on 1 April 2011 to require that all individual employment agreements between New Zealand employers and their employees be in writing.

This new obligation contrasts with the requirements for Australian employers who, under the Fair Work Act 2009 (Cth) (FW Act), are not required to provide employees with a written employment agreement, or to satisfy obligations as stringent as those imposed on their New Zealand counterparts, should they choose to provide employment agreements to employees.

This article will discuss the salient requirements of an employment agreement for employees whose work is not covered by a registered agreement (or similar) in either Australia or New Zealand.

NEW ZEALAND

One of the main governing principles of employment relations in New Zealand is that an employee and an employer must negotiate in “good faith” (ER Act, s4). Notwithstanding this overriding obligation (that is intended to facilitate workplace dialogue), the ER Act, together with the Holidays Act 2003 (New Zealand) and the Minimum Wage Act 1983 (New Zealand), stipulate certain clauses that must be included in an employment agreement. Specifically, a New Zealand employment agreement must be in writing (ER Act, s65(1)(a)), must include the names of the employee and the employer (ER Act, s(2)(a)(i)), and, at a minimum, must contain the following:

  • A description of the work to be performed;
  • An indication of where the employee is to perform the work;
  • An indication of days and hours of work;
  • Specifications of the remuneration payable;
  • An indication of how personal grievances are to be managed;
  • Specifications of payment for public holidays;
  • An indication of the employer's obligations when transferring their business, including negotiating on behalf of employees with the new business owner and the consequences if the employee is not hired by the new employer.

A failure to comply with the requirements of the ER Act may subject an employer to a penalty imposed by the Employment Relations Authority (a statutory authority that enforces employment relations obligations).

Description of the work to be performed

A description of the work to be performed by the employee must be included (ER Act, s65(2)(a)(ii)) either by way of a simple list of the main functions of the position or in the form of a more detailed job description set out in an attached schedule.

Where the employee is to perform the work

This can be a specified location, or if an employer has multiple locations and requires the employee to move between various workplaces, then this will need to be addressed (ER Act, s65(2)(a)(iii)).

Hours of work

An employment agreement must set out an indication of the hours an employee is to work (ER Act, s65(2)(a)(iv)) and fix, at no more than forty, the maximum number of hours (exclusive of overtime) to be worked in any week by the employee (Minimum Wage Act 1983 (New Zealand), s11B). Parties are free, however, to agree that the working week will be longer. If an employer and employee agree on weekly hours of 40 or fewer, then the parties to the employment agreement are required to endeavour to fit the working hours into five or fewer days of the working week.

If the parties do not include a clause dealing with payment for overtime,2 it becomes negotiable on an occasion-by-occasion basis.

Wages or salary

There is no obligation to provide extra payment for weekend work, shifts or long hours (ER Act, s65(2)(a)(v)). Other types of payments may be appropriate, such as qualification or service payments. However, this is discretionary and should be negotiated on a case-by-case basis.

Personal grievances

A plain language explanation of the services available for the resolution of employment relationship problems must be included in an employment agreement (ER Act, s65(2)(a)(vi)). Such a clause should detail what method of dispute resolution is to be used. It must also include a reference to the period of ninety days in which an employee is able to file a personal grievance.

Payment for working on a public holiday

An employment agreement must not state that an employee’s pay compensates an employee for any extra payment that they are entitled to for working on a public holiday (Holidays Act 2003 (New Zealand), s52). Existing employment agreements should be checked and amended to ensure a separate public holiday payment is payable, in addition to the employee’s usual daily pay, for work performed on a public holiday.

Employees who work on a public holiday must be paid the greater of either time and a half for the hours worked on that day or, among other things, the employee’s relevant daily pay (Holidays Act 2003 (New Zealand), s50). The “relevant daily pay” is the pay the employee would have received had they worked that day and includes overtime or commissions (if any) (Holidays Act 2003 (New Zealand), s9). In addition to the aforementioned payment, an employee who works on a public holiday that falls on their normal working day must be allowed an additional day off (Holidays Act 2003 (New Zealand), s56).

Employers’ obligations when transferring their business

The ER Act protects employees in the event of a restructure by mandating that an employee protection provision be included in an employment agreement (ER Act, s69OJ). Specifically, an employer must meet with the employee, provide them with information about the proposed arrangement and provide an opportunity for the employee to comment on the proposal. The employer must consider and respond to the employee’s comments.

Negotiations with a new employer

Where a business is in the process of being purchased, an employer must negotiate with the new employer as to whether affected employees will transfer to the new employer on the same terms and under the same conditions (ER Act, s69OI(1)(b)(ii)). An employment agreement must include a provision that the employer will seek to negotiate for the employee to transfer to the new employer on the same or similar terms of employment.

No transfer or employment

Where the employee chooses not to transfer to the new employer, or is not offered employment by the new employer, their employment agreement must provide them with protection (ER Act, s69OI(1)(b)(iii)). To that end, a provision must be included to the effect that the employee’s current employer will activate the restructuring entitlements of the employment agreement, including redundancy compensation (if any).3

Acknowledgement

An employer must advise an employee that they are entitled to seek independent advice about an intended agreement (ER Act, s63A(2)). In order to avoid doubt, an employer should include a clause in the employment agreement that expressly provides for this. It is not enough to pay lip service to this requirement. The employer must provide the employee with a reasonable opportunity to seek that advice and must respond to any issues raised.4

Copies of the employment agreement

The ER Act imposes strict obligations on employers to retain copies of:

  • finalised individual agreements; and
  • intended agreements supplied during bargaining (ER Act, s64).

If the employer has provided an employee with an intended agreement, the employer must retain a copy regardless of whether it has been signed, or agreed to, by the employee.

While the ER Act requires employment agreements, as a whole, to be in writing (ER Act, s65(1)(a)), the verbal terms of an employment agreement may nonetheless be enforceable.5 Australian legal practitioners should be particularly careful when drafting employment agreements, being sure to incorporate any representations their clients may make to an employee while offering employment.

The employment relationship

Practitioners should be aware of the point at which the employment relationship is legally understood to begin. An employment agreement can be formed before all terms are articulated6 and before an employee starts work. The definition of “employee” under the ER Act includes “a person intending to work” (ER Act, s6(1)(b)(ii)); therefore, a person can be deemed to be an employee even though the terms and conditions of their employment are yet to be finalised. Incorporating verbal terms into an employment agreement in Australia is quite difficult.7 However, in New Zealand, representations made prior to the acceptance of the employment agreement may be treated as if they are terms of the employment agreement and thus may be enforceable.8

The point at which the employment relationship begins becomes especially relevant if an employer seeks to include a trial period in an employment agreement. As part of an employment agreement, an employer and a new employee can agree that, for a period of no more than ninety consecutive days, the employment will be subject to a trial period (ER Act, s67A(2)(a)). During this period, the employer can dismiss the employee (ER Act, s67A(2)(b)) without the employee being able to file a personal grievance (ER Act, s67A(2)(c)). The timing for informing an employee that their employment will be subject to a trial period is crucial if the employer seeks to rely on such a provision.9

Breaching the employment agreement

The ER Act provides for penalties and the recovery of losses for breaches of employment agreements. Where an employer or employee does not satisfy any of the above requirements, or contravenes any other provision of the ER Act, they will be liable for penalties (ER Act, s134). Maximum penalties of up to $10,000 for individuals and $20,000 for corporations can be imposed for each contravention.

AUSTRALIA

The Workplace Relations Amendment (Transition to Forward with Fairness) Act 2008 (Cth) removed the option of making Australian Workplace Agreements and provided for a limited window for making individual statutory agreements in the form of Individual Transitional Employment Agreements. This option was not continued under the FW Act. Therefore, employees who are employed subject to an employment agreement will have their terms and conditions of employment largely governed by the common law.

The exercise of rights granted by employment agreements is subject to the provisions of the FW Act that, inter alia, include:

  • the National Employment Standards (NES), contained within the FW Act (Part 2-2); and
  • Modern Awards.
The NES

The NES is a set of minimum employment standards imposed by the FW Act that apply to all national system employees (FW Act, s61). A national system employee is employed by a national system employer (FW Act, ss13 and 14). Nearly all private sector employers, outside Western Australia, are national system employers.

An employment agreement may include terms that confer rights ancillary to those accorded under the NES, but such terms cannot be detrimental to an employee.

Modern Awards

Modern Awards operate on an industry or occupation basis and apply to all employees (or a class of employees) specified in a Modern Award. However, a Modern Award will not apply to employees who are high income earners (FW Act, s47(2)) – that is, have guaranteed annual earnings in excess of the high income threshold (FW Act, s329), which is currently $123,300.

By satisfying the high income threshold and meeting the requirements for the guarantee, an employee is effectively contracting out of the Modern Award provisions that would otherwise have applied, and thus may be employed on terms contrary to the relevant Modern Award.

Employment agreements under Australian law

Employment agreements (also known as common law contracts) must not impose terms or conditions that are less favourable than the safety net entitlements (FW Act, s542).

The FW Act provides for a safety net entitlement in employment agreements (s542). Any employment agreement that undermines the NES or a relevant applicable Modern Award will amount to a contravention of the FW Act and thus attract a “meaningful penalty”.10

Aside from providing a statutory safety net, the FW Act does not dictate the content or makeup of an employment agreement; these matters are largely subject to common law rules of contract law.

Although employment agreements do not have to be in writing11 and can be inferred by conduct,12 both employees and employers must be careful when making variations to an employment agreement. Where verbal variations are made to an employment agreement that is in writing and covers all necessary matters precisely, it becomes difficult (and sometimes impossible) to incorporate those verbal variations into the written agreement.13

Breaching the employment agreement

Any failure by an employee or employer to perform an obligation under an employment agreement will amount to a breach of that agreement.14 The obligation can be either express or implied into the employment agreement by law.15

Employers commonly breach employment agreements by not providing the required periods of notice when terminating an employment relationship. In this event, employees are able to seek damages.16

In addition to common law remedies, the FW Act allows statutory remedies for safety net contractual entitlements. The safety net contractual entitlement is defined (FW Act, s12) to include contractual provisions dealing with NES entitlements (FW Act, s61(2)) and the terms of any relevant Modern Award (FW Act, s139(1)).

Conclusion

Practitioners must ensure that their clients provide their employees with employment agreements that, at the very least, include the terms and conditions required by law in their respective countries. Failure to have a properly drafted employment agreement may prove gravely expensive.



CHAD ISSA is a lawyer with Mason Sier Turnbull.

1. Trans-Tasman trade has increased by an average of 8 per cent per year since 1983: Wayne Swan, “Address to Trans-Tasman Business Council”, 14 July 2011, Wellington, New Zealand.

2. There is no statutory requirement under New Zealand law for overtime to be paid to an employee at a higher rate of pay.

3. New Zealand’s Parliament currently has before it the Employment Relations (Statutory Minimum Redundancy Entitlements) Amendment Bill to provide a statutory entitlement to redundancy pay.

4. Blackmore v Honick Properties Limited (2011) 9 New Zealand ELC 93,980.

5. Warwick Henderson Gallery Limited v Weston (2006) 7 New Zealand ELC 98.

6. Baker v Armourguard Security [1998] 1 ER New Zealand 424.

7. Phillips v Ellinson Bros Pty Ltd (1941) 65 CLR 221.

8. Thomas v Royal Life Holdings (New Zealand) Limited (1993) 4 New Zealand ELC (digest) 98,213.

9. Smith v Stokes Valley Pharmacy (2009) Ltd [2010] New Zealand EMPC 111.

10. Fair Work Ombudsman v Proplas Industries Pty Ltd [2012] FMCA 130.

11. Save for Modern Awards that require it, such as the Pastoral Award 2010 [MA000035]; see clauses 10.2(b) and 10.3(c) in this regard.

12. Dietrich v Dare (1980) 30 ALR 407.

13. Phillips, note 7 above.

14. See for example North v Television Corp Ltd (1976) 11 ALR 599: an employee breach by committing serious misconduct.

15. Barker v Commonwealth Bank of Australia [2012] FCA 942.

16. Automatic Fire Sprinklers Pty Ltd v Watson (1946) 72 CLR 435.

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