In 1894, New Zealand’s Industrial Conciliation and Arbitration Act (ICAA) was enacted and remained in place for 80 years. Under the ICAA, the Court of Arbitration heard and determined both disputes of interest (bargaining for new agreements) and disputes of right (interpretation and application of agreements).
That division of function between those institutions lasted with some changes until the enactment of the Employment Contracts 1991 (ECA). The ECA abolished, in varying degrees, mandatory union membership and central wage fixing, and opened up the procedures for all employees to challenge an employer’s action, including dismissals, by bringing a ‘personal grievance’ for unjustified disadvantage or unjustified dismissal. The ECA introduced the Employment Tribunal and the Employment Court to hear disputes of right.
The regime set up under the ECA largely survives under the Employment Relations Act 2000 (ERA) and its amendments, although there is some scope for the determination and imposition of terms and conditions in extreme cases during collective bargaining. The ERA replaced the Employment Tribunal with the Employment Relations Authority, an investigative statutory body. However, the Employment Court remains as an appeal and trial court of record. A wide duty of good faith was introduced with the ERA together with a mandatory system of mediation where 80 per cent of disputes are now resolved.
Today, the ERA remains the primary employment statute in New Zealand along with others covering holidays, the minimum wage, wage protection, equal pay, parental leave, privacy, protected disclosures, health and safety, accident compensation and superannuation (known as KiwiSaver).
The institutions that deal with employment relationship problems are the Mediation Service, the Employment Relations Authority and the Employment Court.
The focus of the ERA is on resolving employment problems as quickly and as close to the point of origin as possible. The ERA aims to achieve this by promoting mediation in every instance. One of the aims is to reduce the cost of litigation by providing easy access to services to help the parties sort out their differences.
Where a matter is not resolved at mediation it may be heard by the Employment Relations Authority, which has a wide jurisdiction.
The Authority is an investigative body that resolves employment relationship problems through an inquisitorial process of establishing facts and making a determination according to the substantial merits of the case, without regard to technicalities. Its aim is to promote good faith behaviour and it is required to act as it thinks fit in equity and good conscience, but may not do anything that is inconsistent with the ERA or with the relevant employment agreement.
Parties who are dissatisfied with the determination from the Authority may elect to challenge it by having the matter heard by the Employment Court. The party can elect whether or not it wants to have the challenge to the Authority’s decision heard de novo, which is a fresh consideration of the matter and evidence. Most challenges to the Court are de novo.
The Employment Court is a court of record and follows the traditional adversarial model as opposed to the inquisitorial model adopted in the Employment Relations Authority. Decisions of the Employment Court may be appealed to the Court of Appeal, but only on an important point of law, and the Employment Court’s interpretation of the construction of an individual or collective agreement may not be challenged. Any decision of the Court of Appeal on an employment law issue may be appealed to the Supreme Court provided it is an important point of law.
II YEAR IN REVIEW
In 2016, the Employment Standards Legislation Bill was passed into law via amendments to the Employment Relations Act 2000, the Wages Protection Act 1983 and the Parental Leave and Employment Protection Act 1987. The changes mostly took effect from 1 April 2016.
The new law bans ‘zero hours’ contracts and provides a system of minimum notice for shift cancellation or pay in lieu of notice of shift cancellation. It also restricts an employer’s ability to prevent employees from undertaking work for other employers, requiring genuine reasons, based on reasonable grounds, before a clause restricting secondary employment is included in an employment agreement.
Unreasonable wage deductions are prohibited and consultation is now required before a deduction is made under a general deductions clause.
The main changes to the parental leave scheme are an extension of paid parental leave to 18 weeks and the new eligibility of primary carers for paid parental leave, as opposed to biological or adoptive parents only. This means that primary carers such as grandparents might now be eligible for parental leave.
Unemployment has fallen to 5.3 per cent.
III SIGNIFICANT CASES
In Xtreme Dining Ltd t/a Think Steel v. Dewar  NZEmpC 136, the full bench of the Employment Court determined that s124 Employment Relations Act 2000, which allows for a reduction in remedies for contributory conduct where an employee had a personal grievance, could not be used to extinguish a remedy altogether. This means a 100 per cent reduction may no longer occur.
In A Ltd v H  NZCA 419, the Court of Appeal found the Employment Court had applied procedural tests for the justification of a dismissal that were too stringent. This judgment gives employers a little bit more scope to conduct investigations, as there is more than one way a fair and reasonable employer may conduct an investigation into an employee’s conduct.
In ASG v Hayne  NZCA 203, the Court of Appeal found an employer could use the fact of an employee’s conviction that had been supressed by the criminal courts in an employment investigation. The Court found there was no publication of that information where it was disclosed to the employer, so long as the employer had a genuine interest in knowing about it. This decision is being appealed to the Supreme Court.
IV BASICS OF ENTERING INTO AN EMPLOYMENT RELATIONSHIP
i Employment relationship
Under the ERA, employers are required to provide individual employees with written employment agreements and are required to hold on file a signed employment agreement.2 It is best practice to provide a proposed employee with a copy of the proposed employment agreement and to obtain from him or her a copy of the signed employment agreement as evidence of the acceptance of the offer of employment.
Prospective employees should be given a reasonable period of time to obtain independent advice before signing an employment agreement.3
If an employment agreement is not given to an employee before the commencement of work, and if the employee refuses to sign the employment agreement offered to him or her, the employer must retain a copy of the agreement offered to the employee.4 It is best practice to also retain evidence supporting when the agreement was offered and any response given by the employee as to why he or she will not sign it. Fines can be imposed on employers who do not. However, the absence of a written employment agreement does not necessarily mean that no employment relationship exists.
Agreements with unions are called collective agreements and must also be in writing and ratified by the union’s members.
Good-faith bargaining applies to both bargaining for an individual employment agreement and a collective agreement. The parties must consider and respond to each other’s proposals and be responsive and communicative. The collective bargaining regime is more prescriptive than the regime for bargaining for an individual employment agreement.
Fixed-term employment agreements are lawful, provided there is a genuine reason based on reasonable grounds for the agreement to be of a fixed term.5 In addition, the reasons for the fixed term and advice as to when the fixed-term employment will come to an end must be spelled out in a written employment agreement. Fixed-term agreements cannot be used to assess an employee’s suitability for permanent employment.
There are two types of employment agreement. Individual employment agreements are between an individual employee and an employer. Collective agreements are between a union and an employer and cover employees who are members of the union.
Individual employment agreements must contain the names of the employer and employee, a description of the work to be performed, hours of work, pay rates, the place of work, an employment relationship problem-resolution clause6 and a clause setting out the process the employer will follow in restructuring situations.
Collective agreements must name all the unions and employers who are party to the agreement; contain a coverage clause and a variation clause; must set out when the collective agreement will expire (a maximum of three years); and must also contain an employment relationship problem-resolution clause and a clause setting out the process the employer will follow in restructuring situations.
Individual employment agreements can be varied by agreement between employer and employee. Collective agreements can be varied in accordance with the variation clause all collective agreements are required to contain. This is usually by a vote of affected union members.
ii Probationary periods
Trial periods are only for new employees and must be agreed in writing before the employee starts work. Trial periods are permitted for a maximum period of 90 days. If an employee is dismissed during a trial period, the employee cannot bring a personal grievance for unjustified dismissal. However, rights to pursue other types of grievance, such as sexual harassment or discrimination, remain available.7
The ERA also recognises probationary periods. The key difference between a probationary period and a trial period is that an employee dismissed during a probationary period still has the right to bring a personal grievance for unjustified dismissal. However, the courts have recognised that the employment of an employee on a probationary period is less secure.
iii Establishing a presence
Overseas companies are required to register in New Zealand under the Companies Act 1993. Registration must occur within 10 days of the company commencing its business activities in New Zealand. A failure to register is an offence. Registration occurs by sending the prescribed form to the Registrar of Companies. Therefore, a company that is not registered in New Zealand cannot employ anyone.
It is possible to engage contract labour from a labour hire company in New Zealand. The employer remains the labour hire company, but it some circumstances the client can be deemed to be the real employer, so care needs to be taken with such arrangements.
V RESTRICTIVE COVENANTS
Restraints of trade are governed by the common law. Restraints of trade can be lawful if they are in the public interest. A restraint of trade is only lawful if it exists to protect a proprietary interest, such as a trade connection or trade secret, and is not merely to prevent competition. The restraint must also be reasonable in terms of geographic coverage and the length of time for which it applies. The employee must be given some consideration in exchange for the restraint. If the restraint is included in the employment agreement from the commencement of employment, the offer of and terms and conditions of employment can constitute consideration for the restraint. If the restraint is sought to be included during the term of the employee’s employment, specific consideration must be paid.
Irrespective of whether or not there is a restraint of trade, there is a common law obligation on employees to keep the employer’s confidential information confidential both during employment and following termination of employment. What amounts to ‘confidential information’ depends on the facts of each case, including the nature of the employment, the nature of the information and whether the employer impressed upon the employee the confidential nature of the information.
A period of 12 months is at the upper limit of enforceability of a restraint of trade and the Employment Relations Authority or Employment Court will look at the ability of the person being restrained to earn a living during that period.
In assessing whether a restraint of trade is necessary, the Employment Relations Authority or Employment Court will also look at whether the employer’s interests can be protected by other provisions of the employment agreement such as confidentiality, intellectual property, non-solicitation of clients, non-solicitation of employees and contractors and garden leave (whereby the employee remains in employment for a period but is directed not to attend work).
The Employment Relations Authority and Employment Court are becoming more open to upholding restraint of trade provisions, even where there are robust confidential information provisions, to protect the employer from the risk of ‘inadvertent disclosure’.
i Working time
Wages are governed by the Minimum Wage Act 1983 and the Wages Protection Act 1983. The Minimum Wage Act sets a minimum level below which pay rates for employers and employees cannot go. Other than that, pay rates are as agreed. The adult minimum wage is currently NZ$15.25, but the minimum wage is usually reviewed by the Minister of Labour on 1 April of each year. The Wages Protection Act prevents deductions from wages without an employee’s consent and prevents the employer from stipulating the manner in which wages are spent.
There are no maximum working hour regulations, except for certain occupations such as truck drivers and airline pilots. However, health and safety law recognises fatigue as a hazard and excessive working hours could be in breach of health and safety law. Similarly, there are no limits on the amount of night work that may be performed but night work that causes a hazard through fatigue could be in breach of health and safety law.
There is no legal requirement to pay overtime, although employees are entitled to time-and-a-half for work on a public holiday. However, the employer and employee can agree that overtime will be paid. Sometimes, time in lieu is granted instead of overtime but this all depends on the agreement between the employer and the employee.
VII FOREIGN WORKERS
Employees who are not citizens or permanent residents require a work visa. In order to obtain a work visa, the employer must usually show there are no locals who can do the job. However, there are certain skill shortage lists and employers intending to employ foreign workers on skill shortage lists may find it easier to obtain work visas.
There are fines for employers who hire foreign workers without a work visa. Employers should have secure and robust systems and processes in place for checking a potential employee’s immigration status and retaining copies of the documentation that was checked. When employing foreign workers it is best practice to require the employee to update the employer in regard to any changes to his or her visa status. The employment should also be conditional on the employee obtaining and retaining a lawful right to work in New Zealand.
There are no fixed limits on the number of foreign workers an employer may have, nor are there any particular restrictions on the length of time a foreign worker can be employed for. It all depends on the work visa.
New Zealand employment and tax law applies to all foreign workers.
VIII GLOBAL POLICIES
Internal discipline rules are not required by law. However, it is not uncommon for discipline rules to be set by an employer. An employer is entitled to promulgate its own rules and these do not need to be approved by the government. It is best practice to consult with employees and unions when new rules are introduced during a term of employment, but unless the rules are in breach of an employment agreement or the employment agreement requires employee or union consent to the rules there is no requirement to get agreement to rules from employees or unions.
It is also best practice for employers to have specific policies around sexual harassment and the like. These can provide a defence to certain claims. They are also useful in establishing that an employer has taken all practicable steps to ensure the safety of employees at work.8
English and Maori are the official languages in New Zealand, but English is so widely spoken that it is usually sufficient to draft rules in English. Sometimes rules are translated into foreign languages in workplaces with many foreign workers.
Rules do not necessarily need to be signed by an employee, but it is best practice to get the employee to sign them. It will assist in proving (if it is in issue) that the employee knew the rules he or she was required to comply with (and has not).
Disciplinary rules and procedures are sometimes incorporated into employment agreements. Best practice is to contain these in separate policies, as that enables the employer to amend the rules without requiring the agreement of the employee. Any rules, policies or procedures should be referred to in the employer’s employment agreement.
If the employer does have a specific disciplinary procedure outlined either in the employment agreement or in a separate policy, that is the starting point and that is the process that the employer must follow.
Employment agreements and other documents do not need to be translated, but if an employee does not understand the content of an individual employment agreement and the employer is aware of this, a claim for unfair bargaining could arise.
Translation is recommended in some workplaces, but English is spoken by the vast majority of New Zealanders.
In proceedings before the Employment Relations Authority or the Employment Court, if the use of English is a problem, an interpreter may be required.
X EMPLOYEE REPRESENTATION
Employees are entitled to form and join unions. The ERA promotes collective bargaining and recognises the right to freedom of association. The ERA provides protection to union representatives in the course of their union activities and prevents dismissal, disadvantage or discrimination in employment on the grounds of involvement in the activities of a union.
Unions are incorporated societies that must be registered with the Registrar of Unions. Unions must be at arm’s length from the employer and one of their objects must be to promote members’ collective employment interests. A minimum of 15 employees is required to form a union. However, most employees join an established union if they join a union at all. Union density is higher in the public sector than the private sector, with about 20 per cent of private sector employees being members of a union and about 50 per cent of public sector employees being members of a union.
Union representatives are usually known as delegates. There is no fixed ratio in terms of the number of union delegates required for group of workers, although sometimes these can be set by agreement between employer and union in a collective agreement.
Election procedures for representation and the length of a representative’s term are in accordance with the union’s own rules. A union’s rules must be democratic and reasonable and must not be discriminatory, prejudicial or contrary to law.
Union delegates have special protection. The employer cannot discriminate against them for their involvement in the activities of a union. Union delegates may also be entitled to Employment Relations Education Leave, which is leave to attend training on how to be a delegate. Union delegates are frequently used as representatives in collective bargaining.
Union representatives may access an employer’s workplace with the employer’s consent, which cannot be unreasonably withheld. Access must be exercised in a reasonable way at reasonable times and union representatives must comply with any existing health and safety or security rules in the workplace.
If a union initiates bargaining with an employer, the employer must bargain in good faith for a collective agreement with the union. However, there is no absolute requirement to enter into a collective agreement. Parties to collective bargaining are required to meet to bargain, to consider and respond to each other’s proposals and should not undermine the bargaining or the authority of representatives. However, employers may opt out of multi-employer collective bargaining without taking any of these steps.
XI DATA PROTECTION
i Requirements for registration
Data protection in New Zealand is governed by the Privacy Act 1993. There is no requirement to register with a data protection agency or other government body, but employers should appoint a privacy officer who is responsible for ensuring the employer’s compliance with the Privacy Act.
The Privacy Act sets out information privacy principles (IPPs). These are rules about ‘personal information’, which is information about an identifiable individual. The Privacy Commissioner has oversight of the Act and can investigate complaints of a breach of privacy. Employers are subject to the Act.
Generally speaking, employers must seek personal information directly from employees, but may obtain personal information about an employee from another source with the employee’s consent or where the employer genuinely believes that collection from another source would not prejudice the interests of the individual.9 Employers should ordinarily tell an employee why they are collecting personal information and should not use personal information for reasons other than those for which it was collected.10
In most circumstances employees have a right to access personal information that the employer holds about them and the employer must keep personal information secure.11
Employers must also keep wage and time records and holidays and leave records about employees.12 This information must be kept for six years from the date the information was entered into the employer’s records.
ii Cross-border data transfers
The Privacy Commissioner may prohibit a transfer of personal information from New Zealand to another state (which includes not only countries, but also parts of countries) if it is satisfied that the personal information has been received from an overseas state and will be transferred to the third state where it will not be subject to a law providing comparable safeguards to the Privacy Act; and that the transfer would be likely to lead to contravention of the basic principles of national application set out in the OECD guidelines.
Before exercising the discretion to prohibit a transfer, the Commissioner must consider:
- a the matters set out in Section 14 of the Privacy Act;
- b whether or not the proposed transfer of personal information affects, or would be likely to affect, any individual;
- c the desirability of facilitating the free flow of information between New Zealand and other states; and
- d any existing or developing international guidelines relevant to transborder data flows (including the OECD guidelines and the EU Data Protection Directive).
iii Sensitive data
‘Sensitive data’ is not a defined term in New Zealand law. The Privacy Act deals with personal information; information about an identifiable individual.
iv Background checks
Employers are allowed to check prospective employees’ references. However, they must obtain a prospective employee’s permission to do so. Providing a previous employer’s name and contact details as part of an application for employment is deemed to be consent for the prospective employer to contact that referee. If an employer checks an applicant without his or her consent, this could be a breach of the Privacy Act.
Criminal record checks are also allowed, with an employee’s permission. It is important to bear in mind that these checks can take some time as the police must provide the records. Accordingly, best practice is to allow sufficient time to complete the checks before an employee commences work. An offer can be made conditional on satisfactory police checks being received.
Employees do not have to declare criminal convictions in certain circumstances. The Criminal Records (Clean Slate) Act 2004 allows employees to answer negatively to a query as to whether the employee has any criminal convictions if they have not had any convictions for seven years, if they have never been sentenced to a custodial sentence, if they have paid any fines or completed any community sentence, if they have never been disqualified from holding a driver’s licence and if they have not been convicted of a ‘specified offence’. Specified offences are generally serious sexual offences.
The ‘clean slate’ scheme does not apply to justice sector employment, employment that involves national security or employment that involves education of or caring for a child or young person.
Under the Credit Reporting Privacy Code 2004 employers can only access credit information where a job involves significant financial risk to the employer.
XII DISCONTINUING EMPLOYMENT
An employee cannot be dismissed without good cause. The question of whether a decision or dismissal was justifiable must be determined on an objective basis, by applying the test set out in Section 103A(2) of the Employment Relations Act 2000: whether the employer’s actions, and how the employer acted, were what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred.
Instant or summary dismissal can occur for serious misconduct. Otherwise, dismissal should be on notice and the period of notice is as specified in the employee’s employment agreement. Payment in lieu of notice is permissible where that right is provided in the employment agreement, or with the employee’s agreement.
Serious misconduct, ongoing poor performance, medical incapacity or redundancy can all justify dismissal.
An employer must follow a fair procedure before deciding whether to dismiss. This generally involves raising concerns with the employee, allowing the employee to respond, investigating the matter and reaching a decision free from bias or predetermination.13
There is no requirement to notify the government or unions of a dismissal. There is no requirement to pay severance or provide rehire rights unless this is agreed in an employment agreement. Social security from the government is available to dismissed employees in the form of an unemployment benefit, although there is a 13-week stand-down for employees dismissed for serious misconduct or misconduct. This 13-week stand-down can be waived if the employee brings a personal grievance.
Employees may bring personal grievances for unjustified dismissal, unless they are dismissed while they are employed on a trial period.14 The employee must notify the employer of the grievance within 90 days of the dismissal.15
Remedies available for a personal grievance include reinstatement (which used to be the primary remedy, but is no longer), reimbursement of lost remuneration, and compensation for distress, hurt and humiliation.16
Mediation of a personal grievance is virtually compulsory before the grievance can be brought before the Employment Relations Authority.
Settlement agreements can be entered into to resolve personal grievances. Approximately 80 per cent of personal grievance cases referred to mediation result in settlement. This is documented through the execution by both parties and a mediator of a confidential settlement agreement that is in full and a final settlement, confidential and binding on both parties.
An employer and employee can enter into a settlement agreement outside of the mediation process and frequently do so. In those circumstances, the settlement agreement can be forwarded to the Mediation Service, which is operated by the Ministry of Business, Innovation and Employment (formerly the Department of Labour). A mediator will contact both parties and check they understand the terms of settlement and the consequences of settlement (that no further action can be taken by either party), before signing the agreement him or herself.
Where a settlement agreement is signed by a mediator, it has greater enforceability in accordance with the ERA.17
In New Zealand, there is no legislative definition of redundancy, although a statutory test applies to the justification for all dismissals. A commonly applied definition is a situation where an employee’s employment is terminated by the employer, the termination being attributable, wholly or mainly, to the fact that the position filled by the employee is, or will become, surplus to the needs of the employer. Redundancies are commonly challenged for procedural defects such as a lack of consultation, failure to consider alternatives, the fairness of criteria in selecting those to be made redundant and the giving of proper notice.
There is no common law or legislative right in New Zealand to redundancy compensation. However, it is possible to include a clause in an employment agreement that provides for redundancy compensation which must be paid where the employee under that agreement has been made redundant.
Employers must consider whether there are any other roles to which the employee can be redeployed within the business. If there is another suitable role that is identified, redeployment to that role should be offered as part of a fair process.
It is unlawful to dismiss an employee for involvement in the activities of a union or on one of the prohibited grounds set out in the Human Rights Act 1993 (unless an exception applies). These grounds include things such as race, religion, gender and sexual orientation. There are certain exceptions, such as dismissals based on age where age is a genuine occupational qualification, for example for safety reasons.
XIII TRANSFER OF BUSINESS
The ERA provides protection to certain categories of employees known as ‘vulnerable employees’ (such as cleaners, catering staff, caretaking or laundry staff, including in specified areas) where their employer proposes to restructure its business so that their work is to be contracted out to a new employer. Vulnerable employees are usually employed in sectors where contracting out occurs frequently and undermines their terms and conditions of employment. Employers who employ 20 or fewer employees are exempt from the requirement to employ the employees of the outgoing contractor.
These employees are entitled to elect to transfer to the new employer on the same terms and conditions of employment with service treated as continuous. If the new employer makes the employee redundant for reasons relating to the transfer, the employee may be entitled to bargain for redundancy entitlements and have those fixed by the Employment Relations Authority if agreement cannot be reached.
The Act also provides that all other employees must have an employee protection provision included in their employment agreement.18 That employee protection provision outlines the process that the employer will follow in the event that part of or all of their business is sold, transferred or contracted out. It is designed to provide some protection to the employee in business transfer situations.
In 2017, the Supreme Court should determine a couple of cases of interest to employers concerning payment at the minimum wage for home carers and the ability of an employer to use information suppressed by the criminal courts.
1 Bridget Smith is a partner and Tim Oldfield is a senior associate at SBM Legal.
2 Section 64, Employment Relations Act 2000.
3 Section 63A(2)(b), Employment Relations Act 2000.
4 Section 64, Employment Relations Act 2000.
5 Section 66, Employment Relations Act 2000.
6 Section 65, Employment Relations Act 2000.
7 Section 67A, 67B, Employment Relations Act 2000.
8 Section 6, Health and Safety in Employment Act 1992.
9 Section 6, Principle 2, Privacy Act 1993.
10 Section 6, Principle 3, Privacy Act 1993.
11 Section 6, Principles 5 and 6, Privacy Act 1993.
12 Section 81, Holidays Act 2003.
13 Section 103A(3), Employment Relations Act 2000.
14 Section 67A, Employment Relations Act 2000.
15 Section 114, Employment Relations Act 2000.
16 Section 123, Employment Relations Act 2000.
17 Section 149, Employment Relations Act 2000.
18 Section 69OJ, Employment Relations Act 2000.