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First time employers: What you should know

So, you have recently started a business, and you are considering taking on some employees to help you build your business. It’s an exciting, stressful, and scary step; but it’s often worth it.

This is the first of a two-part blog, which will discuss your basic employment law and accounting obligations. The Comic Accountant, Sam Harith, and I aim to provide you with information to prevent common mistakes often experienced by new employers.

Part two will be posted on my blog, and on Facebook, once it is available. To ensure you are notified, either follow me on Facebook, or click the "Log In" link in the top right hand corner of this page. Once you create an account, you will be notified of new publications.

Individual Employment Agreements

The Employment Relations Act 2000 imposes an obligation on you to provide your employees with written employment agreement prior to commencement of employment. But please do not waste your money with this. You can download a free employment agreement template by using the MBIE employment agreement builder here.

Many lawyers will charge approximately $1,500 + GST for a template employment agreement. When I used to draft these agreements, I would take the MBIE template, and edit it using open-source employment agreements I found on Google and with employment agreements already on file.

It’s not difficult, and there is nothing stopping you from doing this; just make sure you do not change the MBIE template too much as other agreements may be out of date. You can look at your previous employment agreements, and those of your close family members. This may prompt you to consider what you want in your employment agreement, and how you want to present it.

Honestly, the biggest risk for new employers is not what their employment agreement does, or does not, contain; it is how they use it. One common example is the clause which usually says: “Either party may terminate this agreement by providing four weeks’ notice.”

No, this does not mean you can terminate an employee’s employment without cause, and without a fair process. It is simply stating the notice period requirements.

There are many other clauses which are commonly misinterpreted; abandonment of employment, medical incapacity, serious misconduct, restraint of trade, guaranteed minimum hours, etc.

When I advocate for an employee, I will usually only raise a claim of breach of employment agreement if the employer has changed the remuneration, hours, or tasks and duties associated with the role. If an employee’s employment has been terminated, I will rely on the principles of fairness, reasonableness and good faith as contained in the Employment Relations Act 2000. Frankly, I do not care what your employment agreement states: in most cases, common law principles will prevail.

Unless you require specific clauses for health and safety, drug testing, or any other industry-specific clauses, my advice is to spend that money learning about your obligations as an employer. Attend a short course on employment law, or engage a lawyer or HR practitioner for a few hours’ worth of coaching. In fact, many employment law practitioners will provide free short seminars on employment law obligations; perhaps a good time to connect with some on LinkedIn, or follow them on Facebook?

90-day Trial Periods

You may include a 90-day trial period if you employ less than 20 employees. This clause is one of the optional clauses contained within the MBIE employment agreement builder, link above.

90-day trial periods are useful for small employers, as it allows them the flexibility to employ an employee without vigorous interviewing processes. If an employee is on a 90-day trial period, the employer may terminate their employment without reason, and the employee will not be able to raise a personal grievance; caveats below.

These trial provisions are often tarnished in employment law, but they don’t have to be. As an employer, there are many things you can do to create a fair and reasonable trial period while also preserving the company’s interests:

  • You can choose to reduce the length of the trial period to a period that you believe will provide you with certainty that the employee is performing. The act states that the trial must not exceed 90 days, but there is nothing stopping the employer from implementing a 30-day trial period. Trial periods can cause great anxiety, and a shorter notice period can provide the employee with greater certainty.

  • You can provide the employee with a fair notice period. Many employers provide the employee with only one-week notice during the 90-day trial period, but this can be extended to provide the employee with greater certainty. The length of notice period will not impact your ability to rely on a trial period; you can provide notice on the 90th day.

  • You can set frequent meetings during the trial period to discuss the employee’s performance and integration into the team. It is important to be transparent, and if there are any issues you can give your employee the opportunity to fix them; rather than simply dismissing the employee.

  • You can withdraw the 90-day trial period at any time. If you believe that your employee is performing well and integrating into the team, you can write to your employee confirming that the 90-day trial no longer applies. This will provide the employee with certainty with their employment.

However, it is important that you implement the trial period correctly. The law does not take kindly to trial periods, and there are many ‘loopholes’ that an employee may be able to raise a personal grievance for:

  • You must ensure that the employment agreement has been signed by the employee prior to the commencement of employment. Failure to do so will cause the trial period to be invalid.

  • You must provide the employee with enough time to seek legal advice on their employment agreement. I recommend that the employer provide the employment agreement to the employee at least one week prior to the proposed commencement date. Failure to do so will cause the trial period to be invalid.

  • Do not materially alter the wording of the trial period clause provided by MBIE. There are a number of provisions that must be included for the trial to be valid. I recommend that you regularly update your template, using the template builder, to ensure that this clause is always up to date.

  • If the company has 20 or more employees at the time the employee’s employment commenced, the trial period will be invalid.

  • The probation period is not the same as a trial period, and you will be required to follow a fair and reasonable process if you wish to terminate an employee’s employment on this basis.

If in doubt, please seek advice.

Record Keeping and Privacy Act Requests

In accordance with the Employment Relations Act 2000, every employer must keep comprehensive wage and time records of its employees. The Holidays Act 2003 provides a similar expectation with regards to annual leave records. You can read more about the information you must record here: Employment Relations Act 2000 and Holidays Act 2003.

However, it is important to know that what the Employment Relations Act 2000 and Holidays Act 2003 won’t capture, the Privacy Act 1993 will. Technically, an employee is entitled to all personal information the employer holds. If an employee makes a request under the Privacy Act 1993, you will only have 20 working days to provide this information. Failure to do so may result in a complaint to the Privacy Commissioner.

Therefore, it is important that you keep thorough records of your employees; including their employment agreement, any changes to the employment agreement, medical certificates, warnings, or any other personal information you believe should be contained on file.

Please note: If you have anything contentious to say about an employee, do not do it in writing. Many employers do not know this, but if an employee makes a Privacy Act request, they may be entitled to every email that mentions them; irrespective of whether the employee’s name is specifically mentioned. If the email references a person, that person may be entitled to that information.

I have received emails as part of a Privacy Act request that specifically talk about dismissing my client. In these emails, a manager may talk about how they want to terminate an employee’s employment. I can see that the employer has then undertaken a witch-hunt against my client, creating bolstered allegations in an attempt to justify their decision. The issue with these conversations is that it shows predetermination, and any process undertaken after this will be flawed.

This may not be a problem you ever encounter, but it is a good habit to start.

Be a Good Employer

My final piece of advice is to be a good employer; one who acts fairly, reasonably and in good faith.

In providing advice to my employer clients, I often say; “It’s not what you do, it’s how you do it.”

An employee will seek advice if they feel aggrieved. The catalyst to a personal grievance may not be an unlawful process, but rather because they did not get a farewell morning tea like past employees had. It is only once they seek advice that the entire process unravels.

Once you have a personal grievance, it does not matter why the employee sought advice. The only question is: did you act fairly and reasonably in all the circumstances? This means, did you have a substantive basis to take the action you did? Did you conduct a fair and reasonable process in accordance with Section 103A of the Employment Relations Act 2000?

I do not believe that an employer should need to seek legal advice prior to making any decision; that is not the purpose of the Employment Relations Act 2000. However, an employer should understand the principles of the Act and should always seek to be a good employer. Again, I recommend attending short courses; they will prove invaluable.

If you need a hand, please contact me. I am always happy to provide initial free advice to assist you in making the right choices; whether that includes representation or not.


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