Employment Agreements and Legislation

An employment agreement is a written contract between an employer and an employee. Every employee must have an employment agreement that sets out terms and conditions that govern the employment relationship.

An employee agreement must provide at least the same minimum terms and conditions and wages contained in the Employment Relations Act 2000. Both the employer and employee must agree to any changes to the employment agreement.

What to Include in An Employment Agreement

An employment agreement is the most effective way to clarify the terms and conditions of the employment relationship. It should outline fundamental aspects including employment status, particularly if the employee is engaged as a part-time or casual basis, remuneration and obligations. 

Setting out the conditions of employment in writing is likely to reduce the risk of misunderstanding or confusion. 

When drafting a letter offering employment together with an employment agreement it is useful to have them professionally reviewed to ensure the terms are sufficiently clear and compliant with current legislation. Doing so will also mitigate the risk of inadvertently incorporating unlawful terms. 

Although every employment agreement is unique and needs to reflect the specific employment relationship between the employer and the employee. There are specific conditions of employment that should be included in an employment agreement, regardless of your company size or industry. 

An employment agreement must include: 

• The names of the employer and the employee.

• Their position or job title/a description of the work they’ll do.

• Where they’ll work.

• What their agreed hours of work will be — or if there are no agreed hours, an indication of working time arrangements.

• How much they’ll be paid.

• That they will be paid (at least) time and a half for working on a public holiday.

• That the employee will be required to work on a public holiday (if this a requirement).

• What will happen if you decide to restructure or sell the company.

• What to do if there’s a problem in the employment relationship - including a note that personal grievances must be lodged within 90 days. 

Also consider provisions to deal with potential changes in the employee’s role or their scope of duties (i.e. will the same agreement still apply if the employee changes locations, roles, or duties?). Depending on the employee’s position, perhaps clauses preventing them from setting up a similar business close to their former employer for a period of time and/or stealing their clients. Though these clauses can be hard to enforce. 

Types of Employment Agreements 

How to engage workers in a manner that is right for your business will depend on your specific business needs. You should also consider the industry standards of each role and how the arrangement will affect your business financially. 

Below are the most common types of engaging workers: 

Full-Time Employment Agreements

Full-time employees have ongoing employment and generally work 38 ordinary hours per week. This may vary depending upon whether the relevant employee is covered by an industrial instrument. They are entitled to paid leave and are required to be given notice of termination. 

Part-Time Employment Agreements

Part-time employees have ongoing employment and typically work less than 38 hours a week. They usually work regular hours each week and are entitled to the same minimum employment entitlements as full-time staff. However, the part-time entitlements are on a ‘pro rata’ basis. 

Casual Employment Agreements

Casual employees work for an employer on a demand-only basis. Unlike a permanent agreement, casual employees have no firm commitment in advance of ongoing employment and generally work on an ad hoc basis (so the work hours are irregular). Casual employees are paid for the hours they work, and they can refuse shifts. Casual employees are not entitled to paid sick or annual leave, and their employment can generally be terminated at any time without notice.

Fixed-Term Employment Agreements

This is when an employee is hired for a specified period of time or to complete a specific task or project. Typically, the agreement ends either when a project is complete, or an event has passed (e.g. a peak season). Fixed-term agreements clearly outline the length of the employment period from start to end. Although this type of arrangement is often short-term, fixed-term workers still receive the same entitlements as permanent employees though notice is not required if the employment agreement ends at the end of the fixed-term. 

Independent Contractor

Independent contractors are typically self-employed workers who contract their services out to other companies. Contractors negotiate their own fees and working arrangements and they have the freedom to work for multiple employers at once. It’s important for an employer to clearly define whether the person they hire is a permanent employee or independent contractor as there may be risks to the business if the contractor turns out to be an employee. 

Termination of an Employment Agreement

An employment agreement can be terminated by either the employee (i.e. through a resignation) or the employer. 

Regardless of what triggered the termination, the correct procedure must be followed to ensure the process is fair and carried out in accordance with the workplace procedures. 

Depending on the circumstances, if an employee is dismissed or resigns, they may be entitled to be paid notice, and must be given their final payment, which includes any entitlements owed to them e.g. accrued but untaken annual leave. 

Make sure you clearly outline the terms relating to ending employment in your employment agreement and employee handbook. 

For more information on Employment Agreements call us for free initial advice on 0800 675 700.