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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 contract. 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 (ie: fixed term, casual, 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.

If you agree that your employee will serve a probationary period, you must include this in the employment agreement.

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. 

It is much clearer for both sides if you clarify the notice period in the employment agreement.

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.

IP

The employment agreement needs to clearly outline that any IP developed, improved or created during the course of employment remains your property. IP also needs to be clearly defined under the agreement.

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.

Employers must provide employees a copy of their written employment agreement. If they do not it may result in a fine of $NZ1000 per employee.

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.

If you need help drafting or reviewing an employment agreement tailored to your business operations, contact LegalVision’s employment lawyers on 0800 005 570 or complete the form on this page.

FAQs

What Should I Include in My Employment Contract?

Your employment contract should include your employee’s name, a description of the work they will perform, agreed hours of work, their wage rate or salary and the nature of their employment. It is also a good idea to include information on the employee’s trial or probationary period, their notice period, how to deal with confidential information and a restraint of trade clause.

Is an Employment Agreement the Same as a Contract?

Yes, an employment agreement is the same thing as an employment contract. However, these two documents are different from an offer letter, as they create a legally binding relationship between you and the employee.

What is a Non-Competition Agreement in an Employment Contract?

A non-competition agreement is a type of restraint of trade clause. It will prevent your employee from working for a competing business if they leave your position of employment.

Why Should I Have My Employees Sign an Employment Agreement?

You can indeed employ someone without asking them to sign an employment contract. However, you should definitely sign a written agreement with your employee. This will help both of you to understand and clarify the relationship of employment, which will be particularly helpful if any disputes arise.

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