Employment Law Update - February 2012
Friday, 17 February, 2012
Getting Employment Agreements Signed
Consider this common scenario. After conducting interviews for a job vacancy, the employer settles on the appropriate candidate, offers the applicant the job which is accepted. Often the offer is made in person, by phone or by way of correspondence with mention of a few of the essential employment conditions only. Once the employee has arrived and started work, the employer sets about organising a written employment agreement and asks the employee to sign an agreement days and possibly weeks after commencing employment. Any risks for the employer in that situation? Plenty.
For starters, the Employment Relations Act requires employers to provide the proposed employment agreement to an employee ahead of commencement of employment and with sufficient time to obtain advice. Failure to do so exposes the employer to a penalty.
Probably of greater concern is the impact of that sequence of events on important provisions such as the 90 day trial clause or restraint of trade obligations.
In relation to trial periods, we have commented in earlier Updates on the strict approach the Courts take (see for example Employment Law Update September 2010 Smith v Stokes Valley Pharmacy (2009) Ltd case). In that decision, the Employment Court held that a trial period could not apply because the employee was asked to sign the agreement containing the trial period two days after commencing employment. In those circumstances the employee was no longer a “new” employee and the 90 day trial period could not apply.
That position has been reinforced by a further Employment Court decision released late last year. The Court held again that a trial period could not apply if the employee has already commenced work by the time the agreement is signed. In this more recent case (Blackmore v Honick Properties Limited) the request was made of the employee one hour after commencing employment. Again the Court’s rationale was that the employee had already started employment and was no longer a “new” employee (even though he had only been working for one hour).
Similar considerations will apply in relation to restraint of trade clauses. In order to be enforceable, consideration must be present. The offer of the job itself can amount to sufficient consideration. Again therefore, where the sequence involves the employee commencing work prior to any agreement being signed, by the time the agreement is signed at a later date, the employee is already in an employment relationship (in the absence of another benefit) and there will be no consideration for the restraint of trade obligations accepted in an employment agreement signed after employment has begun.
These issues highlight the need to ensure that a prospective employee is provided with an employment agreement as part of any job offer and sufficiently far ahead of the job starting to enable the employee to obtain advice. Asking an employee who has already started to sign a written agreement at a later date, is fraught with danger. The employee would be entitled to refuse and the enforceability of key provisions will be in question.
Employee Indemnity
There is a well established principle which requires an employer to indemnify an employee for losses, costs or liabilities the employee incurs in the course of employment. However, a recent Court of Appeal case (Katz v Mana Coach Services) confirms that there are some limits to the scope of that indemnity.
In the Katz case, the employee was a bus driver who was involved in an accident for which the employee was responsible. The employee was prosecuted for a traffic offence and pleaded guilty. She then sought recovery from the employer of the legal costs associated with her court appearance on the basis that her employer was obliged to indemnify her when “acting in the execution and reasonable performance of duty”.
The Court of Appeal agreed with the employer that there was no justifiable right to an indemnity because the employee’s conduct (careless driving) fell outside the reasonable performance of duties.
The case highlights that while there is a duty on an employer to indemnify employees, it is not without limits. Any employer is entitled to enquire into the circumstances and ensure that any claim for indemnity does not involve conduct that is outside the reasonable performance of the employee’s duties.
Could v Would
The Employment Court has now considered for the first time the change in legislation concerning the tests for dismissal by an employer. The amendment last year altered the test to the less stringent standard of whether the dismissal is an option a reasonable employer “could” use as opposed to the earlier stricter test of “would”.
Two cases have been heard together recently in the Employment Court involving the Ports of Auckland. In considering the cases, the Court has reflected that the change in wording from the amendment means that dismissal can be justified if it is within a range of lawful responses by the employer as opposed to the only lawful response. Although the distinction is recognised, employers facing a decision about dismissal still need to exercise the same level of care. The different test that now applies is not likely to translate into a dramatically different approach to the review of any employer’s actions on dismissal than was previously the case. The distinction between “could” and “would” will often be subtle.
Recent cases do, however, suggest that the change in legislation in relation to reinstatement may have a more significant effect. Reinstatement is no longer a primary remedy and the amendment has been interpreted by the Courts to suggest that a wider enquiry may be undertaken including an assessment of the effect of reinstatement on other employees and third parties.
For further information please contact:
Simon Menzies
Phone: 07 834 6682
Email: simon.menzies@harkness.co.nz
Joan Forret
Phone: 07 834 4662
Email: joan.forret@harkness.co.nz
Andrea Twaddle
Phone: 07 834 6684
Email: andrea.twaddle@harkness.co.nz
Jaime Bright
Phone: 07 834 6677
Email: jaime.bright@harkness.co.nz
