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GRACE PERIOD ENDS: AVAILABILITY AND SECONDARY EMPLOYMENT RULES NOW IN FORCE
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1 April 2017 marked the end of the transition period for ensuring all existing employment agreements comply with the new rules relating to availability and secondary employment provisions under the Employment Relations Act 2000 (‘the Act’).

While the new rules were introduced to target unfair employment practices such as zero hour contracts, they are already impacting far beyond these areas, including many professional and other white-collar full time jobs.

Availability provisions

Clauses that require employees to be available to accept work will now be unenforceable unless the employment agreement specifies guaranteed hours of work. This requirement effectively does away with zero hours contracts.

Employers must have ‘genuine reasons based on reasonable grounds’ for including an availability provision, and for the number of hours of work specified. Availability provisions must also provide for ‘reasonable compensation’ to employees for making themselves available.

Rather than defining what will be a proper reason or setting out a compensation formula, the Act simply identifies various factors to be considered in determining each question. These factors include the number of ‘available’ hours compared to the agreed (or guaranteed minimum) hours.

For employees that are remunerated by salary, employment agreements can state that the employee’s remuneration includes compensation for their availability. However, the agreement must still contain an availability provision, and there must be ‘genuine reasons based on reasonable grounds’.

Secondary employment

Employers can no longer restrict their employees from undertaking secondary employment, unless they have ‘genuine reasons based on reasonable grounds’ for doing so, and these are stated in the employment agreement. Such reasons may include protecting commercially sensitive information, intellectual property rights or the employer’s commercial reputation; or preventing a real conflict of interest that cannot otherwise be managed.

Even where an employer has genuine reasons for including a secondary employment provision, the Act provides a second hurdle in that the prohibition or restriction on secondary employment must be necessary in light of those reasons. 

Shift cancellation

The Act introduces restrictions on cancelling shifts, which now cannot be done unless the employment agreement specifies a reasonable period of notice, and reasonable compensation unless that notice is given. The employee will be entitled to the pay they would have earned for working the shift if there is no such clause, or no notice of cancellation is given. For more detail, see here.

Practical difficulties

The recent changes leave many unanswered questions:

  • Do employment agreements have to specify the hours the employee must be available?
  • What ratio of guaranteed to available hours will be ‘reasonable’?
  • Does compensation for an available hours clause have to be paid separately, or can it be built into the employee’s remuneration?
  • Will variations to employment agreements seeking to achieve compliance be enforceable if they do not provide for additional consideration, such as a one off payment?

Risks

Employment agreements based on the pre-existing law will not comply with the above requirements. This carries a number of risks for employers, including not being able to:

  • require employees to carry out work beyond their standard core hours
  • prevent employees taking on additional part time work
  • cancel shifts without paying substantial compensation.

Employers who breach the new rules will also be liable for a penalty of up to $20,000 per breach.

Conclusion

These changes have been low-profile, compared to some changes to employment law in recent years. However, they present a headache for employers across the spectrum.

If your employment agreements need reviewing, or you have any questions regarding the new laws, please contact Greg Cain, Anthony Drake or Michael O’Brien.

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