By Hayley Boud
This post is aimed at assisting employers in the process of hiring staff.
Duty of good faith
There is a requirement under the Employment Relations Act 2000 (ERA) for both the employer and employee to act in “good faith” in their relationship toward one another.[1] This includes the hiring process. Failure to comply with the duty of good faith, could result in a penalty.[2]
Individual Employment Agreement
You must provide your employees with a written agreement (contract) that details the terms and conditions of the employment. There is a requirement that the contract meet minimal statutory standards.[3] These include providing the employee with their own copy of the contract, the opportunity to seek legal advice and the opportunity for the employee to genuinely bargain during the hiring process.[4]
Probationary periods
You may specify in the employment contract that an employee will serve a period of probation after commencing employment.[5] This will enable you to assess whether the person is suitable for the role. However, you cannot terminate the employment simply because you have a probationary period within the contract. You must have good grounds for dismissal and the dismissal must be carried out fairly and in good faith.[6]
90 day trial periods
You may specify in the employment contract that a 90 day trial period applies. However, this only applies to new employees and cannot be applied where the employee was previously employed by you (even if they are doing a completely different job or only worked one day). It is also important to ensure the clause is written carefully in order for the 90 day trial period to apply. The clause must state that the employee does not have the right to bring a personal grievance claim should the employee be dismissed during the 90 day trial period.
If you decide to terminate the employment during the trial period, you must give notice of termination and conduct the termination in good faith to avoid legal liability.[7]
Restraint of trade clauses
You may wish to include a restraint of trade clause in the employment contract. This is done where you need to protect your commercial interests by limiting the competition resulting from an employee starting a similar business venture. However, any restraint of trade clause must be “reasonable” and is only enforceable at court to the extent that it protects your proprietary interest; mere business competition is not sufficient.[8] For example, a clause stating the employee cannot work in the same field of business for twenty years after terminating his/her employment or within a 100km radius of your business would be considered unreasonable and not upheld in court.
Legal requirements when hiring casual staff
Casual employees work when needed. They have no expectation of ongoing employment. Casual employment is irregular, unpredictable, for limited periods of time which are dependent on the demand for work.[9]
Where an employee has an obligation to perform work that is offered by the employer, it is unlikely that the employment is casual. In that case, it is more likely to be considered a permanent employment. A consistent and predictable pattern of work is also more likely to be considered permanent employment.[10] Therefore, if you use a roster system to offer work, or you expect employees to work the hours offered, or your employees work consistently predictable hours, it is unlikely the true nature of the relationship will be that of casual employment.
Where you do have casual employees, it is important to know that casual employees are entitled to the same treatment as permanent employees during the work periods. This includes the right to a fair termination process[11] and statutory entitlements under the Holidays Act 2003 and the same minimum requirements as other individual employment agreements.
You may wish to use labour hire agency workers as an efficient method of hiring staff with industry specific skills for a short duration. While these employment arrangements are common, they give rise to a risk of creating an unintended employment relationship. Consequently, that worker would be entitled to the ERA protections such as personal grievance claims.
To avoid creating unintended employment relationship, it would be prudent to meet with the agency and worker at the inception of the hiring process to ensure a mutual understanding of the contractual arrangement. It may also be prudent to ensure the labour hire agency deals with discipline and dismissal. It is also recommended that you review the employment relationships regularly to ensure you continue to adhere to the relevant legal requirements.
The difference between an employee and a contractor
An employee has a contract of service with an employer[12] while an independent contractor has a contract for service with a principal.[13] In determining whether a person is an employee or contractor, courts will consider all the relevant matters including the intention of the parties and the written and oral terms of the contract.
A person is likely to be considered an employee if that person is dependent on you for work, cannot subcontract, takes no financial risk, has no opportunity to personally profit from good performance and does not provide his or her own tools or equipment when performing work. A person is also likely to be considered an employee if they are closely involved in the day-to-day running of your company, reports to you (or your management staff) regularly and is paid an hourly rate. Also, if you (or your management staff) have control over what work is done, when it is performed and the methods used, he/she is more likely to be considered an employee rather than a contractor.
Protecting yourself against a personal grievance claim
An employee may bring a personal grievance claim (PG) for unjustified dismissal, being disadvantaged in the employment by an unjustifiable action of the employer, discrimination, sexual or racial harassment, being subject to duress, or by an employer’s failure to comply with the ERA when restructuring.[14] A successful PG claim may result in an employee’s reinstatement, reimbursement for lost wages (up to three months), compensation for humiliation, loss of dignity, injury to feelings or loss of other monetary benefit.[15]
The most common ground for a PG claim is unjustified dismissal. The employee only has to prove a dismissal occurred. An employer must be able to prove on the balance of probabilities that the employee’s dismissal was justified. A dismissal will be deemed justified if the employer’s actions were what a fair and reasonable employer could have done in all the circumstances at the time of the dismissal.[16] This applies to all stages of the dismissal.
The decision to terminate the employment must be both substantively justifiable and procedurally justifiable in that the process adopted must be fair and reasonable. While there can be more than one fair and reasonable response by the employer, following the correct procedure is critical. There are minimum requirements that must be fulfilled:
- An employee should be given notice of the specific allegation of misconduct;
- The employee should be given a real opportunity to explain or challenge the allegation;
- The employer must consider any explanation in an unbiased manner; and
- The employee must be informed that dismissal could be the outcome of any planned investigation.
Therefore, to avoid a PG claim it is advisable to ensure you conduct a proper investigation before making a decision to dismiss an employee. You need to ensure you have raised the concerns you have with the employee; ensure you have provided the employee with sufficient opportunity to respond; and genuinely considered any explanations made by the employee. You may also need to investigate further if the employee has provided you with more questions. Failure to meet any one of these requirements may render the dismissal unjustified. However, minor failings of the procedure will not be fatal.
As an employer, it is essential you develop appropriate codes of conduct surrounding the hiring and dismissal process in accordance with the ERA and adhere to these closely to avoid a PG claim. It is also essential you develop codes of conduct around health and safety and human rights to avoid a PG claim. Furthermore, it is advisable as an to operate in good faith which includes being “active and constructive” in your relationship with your employees which is critical to protecting yourself from a PG claim.
For more information please contact us on 07 838 0808 or hayley@ghlaw.co.nz
[1] Employment Relations Act 2000, ss 3(a) & 4(1)(a).
[2] Section 4A.
[3] Section 65.
[4] Section 63(2).
[5] Section 67.
[6] Section 67(1)(b); Nelson Air Ltd v New Zealand Airline Pilots Assn. [1994] 2 ERNZ 655 at 6.
[7] Smith v Stoke Valley Pharmacy [2101] NZEmpC 111.
[8] Transpacific Industries Group (NZ) Ltd v Harris [2013] NZEmpC 97 at [44].
[9] Lee v Minor Developments Ltd t/a Before Six Childcare Centre (2008) AC/5208.
[10] Jinkinson v Ocean Gold (NZ) Ltd (2009 6 NZELR 813.
[11] James v New Zealand Vineyard Estates Ltd BC201069020, 30 April 2010.
[12] ERA, s 6(1)(a).
[13] TNT Worldwide Express v Cunningham [1996] 3 NZLR 681 at 684.
[14] ERA, s102.
[15] Section 103.
[16] Section 103A(3).