Key terms to include in your employment agreement in NZ

If you are entering into an arrangement with an employee, you must have a clearly written employment agreement. This allows both parties to be clear on what to expect from the employment relationship. A collective agreement may cover some employees if they are part of a union. Those employees can still agree to have additional terms and conditions in place with their employer. However, you must provide employees who do not have a collective agreement with their own individual contracts. This article outlines the key terms that you should include in your employment agreement.

Types of Employment Agreements

If the employee is not a union member, they must have an individual employment agreement. Alternatively, if a collective agreement covers the employee, they can also accept additional individual terms by signing a written contract. The main types of employment agreements include:

• permanent full-time or part-time;
• casual; or
• maximum/fixed-term.

Terms That You Must Include

The law requires you to include certain terms in your employment agreement, including:

• the name of your business and the employee;
• a description of the work to be performed;
• the employee's place of work;
• agreed hours of work, including the number of hours, start and finish times and the days of the week the employee will work;
• the agreed wage rate or salary (equal or greater to the minimum wage) and how you will pay it;
• the process to resolve employment relationship problems, including that the employee must raise personal grievances within 90 days; and
• the nature of the employment, such as fixed term, casual, or permanent.

Other Terms to Include

You must also include any other terms that you and the employee have agreed upon. These might include:

• the trial or probationary period;
• the notice period;
• how to deal with confidential information;
• managing intellectual property (IP); and
• a restraint of trade.

Trial Period or Probationary Period

You will often want to gauge whether the employee you intend to hire has the requisite skills to do the job. A trial period or probationary period can give you a fair opportunity to assess the employee's skills and abilities. You cannot impose a probationary period after a trial period.

However, you can only implement a trial period if you have fewer than 20 employees. You should specify the trial period provisions in writing in your employment agreement, outlining:

• a specified amount of days (not exceeding 90 days) that the employee is to serve a trial period;
• your right to dismiss the employee during that period; and
• that the employee is not entitled to bring a personal grievance or other proceedings in respect of the dismissal if you choose to terminate their employment.

It is also important to note that if you choose to implement a 90-day trial period, the employee must sign the employment agreement prior to commencing work. Otherwise, the 90-day trial period will be invalid.

Notice Period

The notice period outlines how many weeks' or months' notice the employee must give you if they resign. This period also applies to you, should you wish to terminate the employee.

You can also include a right to direct the employee not to report for work during their notice period and pay them in lieu.

If there is no notice period in the employment agreement, you need to give 'fair and reasonable' notice. This depends on the employee's:

• length of service;
• type of job; and
• how long it would take to replace that employee.

Additionally, if you include a 90-day trial period, you may want to include a different notice period for termination during this period.

Confidential Information

Employees often have access to confidential information during the course of their employment. Importantly, you will want to ensure that this information is protected. This can include documents such as:

• client lists;
• business plans; and
• trade secrets.

You need to have 'confidential information' clearly defined so it is clear to the employee what you are trying to protect.

Intellectual Property (IP)

The employment agreement needs to clearly outline that any IP developed, improved or created during the course of employment remains your property. Hence, in the event that an employee chooses to keep the IP for themselves, then it may be a breach of their employment agreement as well as the good faith obligations an employee owes to an employer. Nevertheless, you should clearly define what IP your agreement covers in the employment contract.

Restraint of Trade

You can use a restraint of trade clause to protect your business' commercially sensitive information, by restricting employee's business activities when they stop working for you.

There are two main types of restraint of trade clauses, including:

• non-competition, preventing your former employees from working for a competing business; and
• non-solicitation, restricting a former employer from soliciting their former clients, colleagues, contacts, etc.

To remain legally enforceable, restraint of trade clauses are usually limited by a:

• geographic area; and
• specific period of time post-employment.

Ultimately, a restraint of trade clause protects your business by preventing former employees from soliciting clients or working for a competitor. Nevertheless, you cannot unreasonably prevent an employee from seeking employment in that particular field.

What Happens if I Do Not Provide a Written Employment Agreement?

Employers must provide employees with a copy of their written employment agreement. If they do not, it may result in a fine of $1000 per employee. Although oral employment agreements are still enforceable, a written agreement is vital to ensure:

• both parties understand the terms of the contract; and
• there are no discrepancies if a dispute arises.

Key Takeaways

It is essential to have a well-drafted employment agreement in place with your employees. There are some terms that you must include, while others are highly suggested so that both you and your employee are clear on the relationship. It is advisable to include terms such as:

• the names of the parties;
• a description of the work to be performed;
• the place of work and hours of work;
• the wage rate or salary;
• how to resolve employment relationship problems;
• the nature of the employment;
• a defined trial period or probation period;
• the notice period;
• how to handle confidential information;
• intellectual property matters; and
• a restraint of trade.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.