While the Employment Relations (Restraint of Trade) Amendment Bill (“the Bill”) is yet to have its first reading in Parliament, what is apparent on current information is that it could significantly limit the use of employment related restraint of trade clauses in New Zealand, particularly for lower to middle-income earners.

Currently, the starting point with restraints is that they are generally considered contrary to public law, anti-competitive and therefore unenforceable.  Nonetheless, restraints can be valid in certain instances, particularly where an employer has what is known as a legitimate ‘proprietary interest’ and can prove that the restraint is no wider than what is reasonably necessary to protect that interest(s).  For example, an employer is entitled to protect trade secrets and/or a continuing business relationship, so long as it does so in a reasonable manner.

Over the years however, restraints of trade have been used liberally by New Zealand employers and have not infrequently been included for roles which may not in fact warrant them.  In turn, employees have been left in a difficult position when their employment ends, unsure of whether a restraint is enforceable against them and/or if they can or cannot accept a new role which might breach the restraint.

In drafting the Bill, Parliament have recognised a number of issues of public interest, including the two raised above, and has effectively sought to even out the playing field.

This includes:

  • seeking to prohibit the use of restraints for lower and middle-income employees (which would be achieved by providing that such clauses will have no effect if an employee earns less than 3 times the minimum wage); and
  • employers of higher income employees needing to carefully consider whether a restraint clause is actually required and to compensate employees appropriately where a restraint is imposed, both during and following termination (i.e. during the restraint period).

If the Bill passes through Parliament and receives Royal Assent, employers will need to work through a number of matters set out in the Bill where they are proposing that a restraint of trade clause apply to a new employee.  Employers will also need to turn their mind to whether restraints which apply to current employees will be effective and valid on the termination and the potential implications if they are not.

 

Many start-ups choose to utilise independent contractor agreements, volunteer agreements and/or offer equity to workers as opposed to paying wages, particularly when cash flow is an issue.  However, in the event the legal status of such a worker was challenged in the Employment Relations Authority (the ERA) by the workers themselves, or alternatively, the Labour Inspector, the evidence of the parties’ intentions and/or the existence of a signed agreement stating the worker is not an employee will not suffice from preventing a finding that the worker was in fact an employee.  Rather, the Courts will look to determine the ‘real nature of the relationship’ using several established tests to determine the legal status of the working relationship.

If the ERA found a worker to not be a volunteer or contractor, but an employee, that individual could be entitled to receive all minimum entitlements available to them by law, which include, but are not limited to:

  1. The Minimum Wage (currently $21.20) for each hour the employee worked since the commencement of their employment with the company;
  2. KiwiSaver payments;
  3. Annual leave (four weeks per year, however pro-rated if the employee is not a fulltime worker); and
  4. Sick leave.

Therefore, as raised above, while many start-ups pay their workers in shares or offer other non-waged arrangements, if an employment relationship is later found to exist with those workers, the payment of shares alone will not override the company’s statutory duty as an employer to pay the Minimum Wage + other entitlements owed.

Consequently, directors of start-ups and companies should be aware of the potential legal risks associated with using agreements which may not necessarily truly reflect the nature of the company’s relationship with their workers.  For example, in the event a worker’s relationship with the company was determined to be an employment relationship by the ERA and the relationship had lasted for several years, the remedies available to the employee for Minimum Wage payments alone could result in a not-insignificant sum being awarded to the employee.

In respect of Minimum Wage entitlements, where directors of companies who have in any way been “knowingly concerned” with a breach, or party to a breach of the Minimum Wage Act, can be held personally liable for the breach itself.  Recently, where such breaches have been established by the courts, employees have been permitted to pursue the directors of companies personally for compensation, even where the companies in question had been wound up and liquidated.

Finally, the personal liability of individual founders in start-ups is an interesting question, given that founders usually hold many different roles within their companies, for example, as directors, shareholders, volunteers, employees, contractors, etc. and therefore it can be difficult to assess exactly what type of liability could arise, particularly where there is more than one founder involved in the company.  However, as raised above, what is clear is that if the legal status of a worker in a company becomes an issue, the Courts will look to determine the real nature of the relationship, which could cause issues for start-ups, where for example, there has been an imbalance of work completed between multiple founders and a claim is made against the company.

If you require any assistance regarding anything raised above, please do not hesitate to contact our employment team.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers.

Do Call Agreements and Volunteer Working Arrangements Automatically Prevent Employment Status Being Confirmed in Religious Settings?

Historically, church ministers have often been provided with call agreements, rather than employment agreements.  Similarly, many churches rely on the use of volunteers on a day-to-day basis to work in a variety of different areas and either use a formal volunteer agreement or have verbal agreements with the individuals concerned.   However, while many consider that a historic legal precedent exists that ensures persons in such roles will be automatically recognised as religious volunteers and therefore cannot legally be recognised as employees, the mere existence of a call or volunteer agreement between a church and an individual will not necessarily preclude an individual or group from arguing or even establishing that they should be legally protected by employment law.

 

More recently, it has become clear in New Zealand that the Courts are seriously willing to consider whether ministers and volunteers in certain situations could be recognised as employees.

 

For example, in the 2022 case of Courage v Attorney-General Sued (On Behalf of the Ministry of Business, Innovation and Employment, Labour Inspectorate) the Employment Court found that while the religious context of a relationship is relevant, it is not determinative, and a presumption against the existence of an employment relationship does not exist in relation to religious individuals carrying out the duties of the Church.  In another recent case from 2017, Below v The Salvation Army New Zealand Trust, the Employment Court, in the context of a religious volunteer working relationship stated there was no presumption operating in New Zealand to restrict classes of workers from employment protection.

 

In both cases mentioned above, the Employment Court made it clear that automatic legal protection for religious institutions does not exist when it comes to assessing the nature of a working relationships with ministers and volunteers.  Rather, the Courts will first look at the true nature of the relationship and subsequently apply a number of legal tests to determine whether the workers are actually employees.  For example, the Courts will consider:

  1. the amount of control exercised an employee (the greater the control exercised over an individual, the more likely that person is an employee);
  2. whether the worker is “part and parcel” or fundamental to the organisation;
  3. in the event a worker was paid, how the worker was paid and the reason/intention behind payment; and
  4. other relevant factors relating to assisting the court to understand the true nature of the working relationship.

Consequently, while call and volunteer working agreements can be utilised by churches, we suggest that at a minimum, organisations who use such agreements, ensure they are aware of the relevant legal risks, including the possibility of their workers being recognised as employees, and consider getting advice on how the relationship will actually operate in practice and whether that will be more consistent with an employment relationship or not.

It is well established in New Zealand’s employment law that there are certain things employers must do prior to justifiably dismissing an employee.  These things fall into two categories, having a justified reason and following a fair process.  It is not unusual to find cases where an employee’s dismissal is found by the Employment Relations Authority or Employment Court to be unjustified, not because there was no basis to take action against an employee but because the employer’s process was significantly flawed.

For example, in some cases, employers who haven’t sufficiently investigated allegations or given their employee a fair opportunity to explain their side of things, have been found to have breached proper process, which has ultimately resulted in the ERA determining that their dismissal of an employee was unjustified.

However, if an employer has carried out a fair process and ultimately reached a decision to dismiss, are they also required to tell their employee their preliminary decision and give them the chance to feed back on the same, prior to making a final decision?

While there is no obligation in the Employment Relations Act to do so, increasingly preliminary decisions are now seen as best practice, namely employers should provide a preliminary decision to their employees, including all details of any proposed disciplinary action, and allow their employees to give their feedback.

This helps ensure that the employee has had a full opportunity to comment on all relevant matters before a decision is finalised, which not only reduces risks to the employer (for example, they may have misunderstood something the employee said, which might change the employer’s decision) but also promotes good faith between the parties.  Further, it enables the employer to think through their decision and the basis for it, in advance of taking final action, which is then binding on them.

If a preliminary decision is given however, it must not indicate that the employer has already made up their mind, as that will not constitute a genuine opportunity for the employee to provide feedback, including potentially changing the employer’s decision.  In other words, it should convey that the decision is preliminary only and the employer will consider all feedback provided by the employee on it before deciding whether to proceed with the decision or not.  Further, the employer must fully and genuinely consider the employee’s feedback on the preliminary decision before either confirming that decision or advising of a changed decision (such as to only issue a final warning, rather than to dismiss the employee).

In summary, we recommend that, once an investigation (into say misconduct) has concluded and a preliminary decision has been reached:

  • this should initially be sent to an employee in the form of a preliminary decision letter, with the option given to either choose whether the employee’s feedback is provided in writing or in person.
  • a reasonable amount of time is given to the employee between the preliminary decision being provided and feedback being due (this will be fact dependent but usually no less than 24 hours).
  • sufficient time is taken to genuinely consider the feedback, once it is received, prior to making a final decision (again this will be fact specific).

If you require any assistance regarding starting a disciplinary process or advice in respect of making a preliminary decision, please do not hesitate to contact our employment team.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers:

Looking to hire a contractor but not sure whether they might be an employee instead?  This article looks at the difference between employees and contractors and the tests that are used to help work out which is which.  It’s important to get it right as employees have minimum entitlements, such as the right to receive at least the Minimum Wage; leave entitlements and the right to only be terminated in certain circumstances and subject to a fair process.

What is the difference?

On the face of it, the definition of contractors and employees don’t seem too different.

An employee is a person employed by an employer to do any work for hire or reward under a contract of service (an employment agreement).  It includes a homeworker or a person intending to work but excludes volunteers and certain persons engaged in film production.

A contractor is engaged by a principal to perform services under a contract for services (an independent contractor agreement), earning income by invoicing the principal for their services.

However, where there is a dispute as to whether someone is a contractor or an employee, several legal tests are used to determine the dispute. Each test on its own is not determinative, they all must be assessed together to reach a conclusion.

Intention Test

What the parties intended is relevant to deciding whether the relationship is an employment one. Generally, intention involves looking at what the parties’ written agreement says. The title of an agreement and specific clauses within an agreement can suggest what the parties intended. Likewise, where an agreement does not have specific clauses is also relevant to intention. For example, an employee’s employment agreement would have clauses relating to leave including sick leave, annual leave, and bereavement leave, whereas this would not be present in a contractor’s agreement.

Control Test

The greater control an employer has over the individual the more likely that individual is an employee. Control will be assessed in relation to work content, hours and methods. Thus, an individual who is set specific tasks to do which must be done in a particular way and whose start times and end times are controlled suggests that they are an employee. If an individual can control their own start times or work on a specific project using their own methods, this is more consistent with a person being a contractor, rather than an employee.

Integration Test

If the work performed by the individual is “fundamental” to the employer, this suggests that the person is an employee.

This is indicated by factors such as team integration, being reimbursed for work-related expenses and wearing a uniform.  Conversely, an individual being paid by results and whose work is not fundamental to the business, but accessory to it, indicates they are a contractor, rather than an employee.

Economic Reality Test  

This test involves looking at the whole working relationship to determine the economic reality.

In particular, a contractor is a person in business on their own account. This means that the individual is not engaged on a continuous basis by one business but is self-employed and contracts out their services to businesses that need them for a particular project or period of time.

A contractor usually charges a fee for their services, whereas an employee is paid a salary or a wage. Employees are entitled to at least the minimum wage, however a contractor can be paid whatever rate is agreed to. An employee’s employer pays PAYE tax and ACC on the employee’s behalf, whereas contractors generally issue invoices setting out their fees and pay their own tax directly to Inland Revenue.

Other factors relevant to the economic reality test include GST registration, the ability to subcontract work, who wears the financial risk in the relationship, and whether the person can work for more than one entity. All those factors are more consistent with a contractor relationship.

Industry Practice

Industry practice can also inform whether an individual is an employee or contractor. While industry practice is not determinative, it can be considered by the Court especially when a custom or practice is well established. It could also help to show the intention of the parties.

Case Example – Employee

Southern Taxis Ltd v Labour Inspector

Southern Taxis Ltd (“STL”) operated a business in Dunedin and employed drivers described as “commission drivers”. The Labour Inspector alleged that four commission drivers were in fact employees and that in some instances they were not paid the minimum wage, holiday pay, sick leave or rest breaks.

The Court had to decide whether the commission drivers were employees or contractors.

Common Intention Test

There were no written agreements between the parties. There was also little evidence of discussions between the parties except that the drivers would be paid 40% of the takings.

Control Test

Each of the drivers operated under a roster which was prepared by STL. The roster would let the drivers know in advance what days of the week they would work and broadly which shift that driver would work. The drivers would have to work the shifts that they were rostered for and their work patterns were similar every week. This suggests a degree of control was imposed over the drivers.

The drivers had to log on and off as well as maintain contact with the dispatcher. A dispatcher would assign work to the drivers and, although the drivers could theoretically decline work, in reality they had no choice if they wished to be paid.

The Court found that the working arrangements of the commission drivers was more controlled than those of independent contractors.

Integration Test

The drivers drove vehicles owned by STL and the company would meet the expenses for the vehicles. Particular clothing was worn by the drivers and the drivers would operate according to a roster.

The Court found that STL relied on the availability of the commission drivers for its business operation. The test supported the conclusion that the commission drivers were employees.

Economic Reality Test

The Court found it was clear that the commission drivers were not in business on their own account as they did not own their own vehicles or pay running costs. They could not subcontract their work.

STL deducted PAYE so the drivers did not make personal tax payments to IR. Furthermore, the drivers were not registered for GST and did not render invoices.

The economic reality test pointed towards the commission drivers being employees.

The result

The Court found that the commission drivers were employees. The employees were paid varying amounts of approximately $13,000 to $32,000 for unpaid entitlements.

Case example – Contractor

Arachchige v Rasier New Zealand Ltd

This case concerned an uber driver, Mr Arachchige. He argued he was an employee of Uber after he was terminated.

Common Intention Test   

There was a services agreement between Uber and Mr Arachchige. This suggests that the relationship was not an employment one. In the agreement it stated that the parties did not have an employment relationship. The services agreement did not require exclusivity of the drivers and there was an lack of clauses expected in an employment agreement, such as performance expectations.

Control Test

Mr Arachchige had a lack of control over his client base and over determining what fare to charge. However, the Court stated Mr Arachchige could charge less than the quoted price but this would have been no value to him, as he had no ability to establish a relationship with the riders and thereby attract future work.

Mr Arachchige could decide to work in peak times and where he would work. He could also choose what car, phone, data plan, insurance and other business support he might use. Mr Arachchige also could share the vehicle with another person to reduce expenses.

Integration Test

Uber drivers carry out work integral to Uber. However, Uber had little control in the way in which drivers carried out their work. This was different from Southern Taxis Ltd where the drivers had little autonomy over the way in which they carried out their business activities.

Economic Reality Test/ Fundamental Test

Mr Arachchige could decide when he undertook his services. He provided all the necessary equipment needed including the vehicle. He was also responsible for his tax obligations.

Result

Mr Arachchige was not an employee of Uber. Thus, he could not claim the rights of employees, such as the right to bring a claim of unjustified dismissal.

Conclusion – Employees vs Contractors

There are various factors to consider when determining whether an individual is an employee or contractor. The Court uses four tests, as well as industry practice, to help answer this question. It is important for employers to get it right because employees are entitled to broader legal rights than contractors, including minimum wage entitlements.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers:

Employers have a duty to provide employees with a safe work environment, including from unwanted behaviour of a sexual nature.  Further, if an employee alleges sexual harassment by a co-employee or a customer, the employer must look into the allegation and, if satisfied that it has occurred, must take whatever steps are practicable to prevent any repetition of that behaviour.

In a recent case, the Employment Relations Authority found that an employee had been subject to sexual harassment in the workplace when the employer’s sole director placed a reciprocating sabre saw without the blade attached behind the employee’s bottom and turned it on saying “you would like that wouldn’t you.”

The employee gave evidence that he was offended by the director’s action and felt humiliated.  The director said it was a moment of “friendly banter” and the ERA held that it was likely he did not intend to cause offence because he saw it as a joke.  However, despite this, the ERA accepted that what the director had done was unwelcome and offensive and, although a one off, had a detrimental effect on the employee’s job satisfaction.

Consequently, the employer had not provided the employee with a safe workplace and had unjustifiably disadvantaged the employee.  The employee was awarded $3,000 as compensation.

What is sexual harassment? 

In the employment context, the Human Rights Act and the Employment Relations Act provide statutory definitions for sexual harassment.

An employee will have been sexually harassed in their employment if:

  1. Their employer or a representative of their employer directly or indirectly makes a request of that employee for sexual intercourse, sexual contact, or other form of sexual activity that contains—
    • an implied or overt promise of preferential treatment in that employee’s employment; or
    • an implied or overt threat of detrimental treatment in that employee’s employment; or
    • an implied or overt threat about the present or future employment status of that employee; or
  1. A co-employee or customer directly or indirectly makes a request of that employee for sexual intercourse, sexual contact, or other form of sexual activity that contains—
    • an implied or overt promise of preferential treatment in that employee’s employment; or
    • an implied or overt threat of detrimental treatment in that employee’s employment; or
    • an implied or overt threat about the present or future employment status of that employee; or
  1. There is:
    • conduct, words, visual material, or behaviour of a sexual nature, for example this could be sexual jokes; sexual videos; physical contact; persistent romantic or sexual requests;
    • which is unwanted, unwelcome or offensive (whether or not that is conveyed to the employer or representative);
    • it has a detrimental effect on the employee’s employment, job performance, or job satisfaction; and
    • whether by an employer, employer’s representative, co-employee or customer.

Under this point 3, while each of these elements must be satisfied, more often than not, it is the second and third points that raise the greatest questions.

In another case, Craig v Slater, the Court had to consider whether Ms MacGregor, a press secretary for Mr Craig, found certain conduct by Mr Craig unwelcome.  The Court held that, where there is a complaint of intentional sexual conduct or language and there is a power imbalance favouring the alleged perpetrator over the complainant, for example a manager and a subordinate, it is reasonable to draw a rebuttable inference that the sexual conduct or language was unwelcome.  In other words, in these circumstances, a Court may infer that certain conduct or language was unwelcome but the alleged “offender” can still disprove this presumption on the evidence.

In the case, therefore, the Court found some of Mr Craig’s actions were unwelcome but others were not.  For example, Mr Craig had sent a letter to Ms MacGregor, which contained statements such as, “ I have never even given you a hug. I actually regret that. There have probably been a couple of times I would have liked to…”.  While the Court found that the letter contained flirtatious elements, on the evidence, it could not be established that Ms MacGregor found the letter unwelcome at the time (even if, subsequently, she considered it was so). This is because, in response to the Craig’s letter, Ms MacGregor texted him, “Thank you so much for your letter”, “Oh dear. Thinking of you…”  and “. .. you really are wonderful. I hope theres (sic) time for me to loosen up your shoulders tomorrow…”

Similarly, in respect to an incident where there was some contact of a sexual nature, while Ms Macgregor gave evidence that the incident caused her to feel “scared and awful”, the Court was unable to accept that, as, following the incident,  Ms MacGregor sent a text to Mr Craig that stated “… you make my heart melt… Love ya. Nanite…”  Further, subsequent texts in the days after showed no antipathy towards Mr Craig and demonstrated that the personal relationship between Mr Craig and Ms MacGregor continued to be intimate.

However, in respect to statements made by Mr Craig to Ms MacGregor of a sexual nature over a subsequent 2 year period, the Court found that there were not welcomed by Ms MacGregor.  This was even though Ms MacGregor did not complain about the behaviour at the time as the Court accepted that Ms MacGregor was concerned about the effect of a complaint on her employment.

When considering the final element of sexual harassment – detrimental effect – the Court held that “In a workplace, professional or social setting, detriment, disadvantage or harm to a person subjected to an (unwelcome/unwanted) intentional sexually oriented act or remark is inherent in the unwelcome, unwanted or offensive nature of the language or behaviour employed”. In other words, where conduct is unwelcome/unwanted, there will be inherent detriment, disadvantage or harm to a person subject to such, such as “having to work in the strained, tense or demeaning atmosphere inevitably created by unwelcome sexual conduct or language.” 

Finally, the Court confirmed that there can be sexual harassment even if an “offender” does not know or intend that their conduct be unwanted or unwelcome or that it would cause or be likely to cause detriment.  Consequently, while intentional conduct or language of a sexual nature is first required, the focus then shifts to the response of, and consequences for, the person subjected to it – did they find it unwelcome/unwanted and did they experience disadvantage from it?

Further, even a one off incident can still constitute sexual harassment, it does not need to be repeated.  Even an isolated incident of sexual harassment in a workplace or professional setting, depending on its severity, could have long-term implications for a continuing work relationship.

Interestingly, while the Court noted that it is implicit in the current statutory definitions of sexual harassment that whether there was sexual harassment requires reference to the circumstances that existed at the time it is alleged to have occurred, the Court also accepted that this may change in light of greater societal awareness of the way in which employees may be disadvantaged by the exploitation of a power imbalance in a workplace.  In other words, an employee, subject to a power imbalance, might not turn their mind to whether certain actions are unwelcome at the time but later, on reflection, consider they were manipulated into a consensual sexual relationship.  That consideration, recognising the possible exploitation of a power imbalance, may therefore result in an extended definition of sexual harassment in the future.

Takeaways

Awareness of possible sexual harassment in the workplace has grown of late, particularly in the context of relationships where there is a power imbalance.  Employers not only need to know what sexual harassment is but also need to take steps to safeguard employees against it.  As a first port of call, employers should have a policy addressing sexual harassment, including what it is, practical guidance to reduce the chances of it occurring, and what employees should do if they believe they have been subject to sexual harassment.  All staff, including managers, should be familiar with this policy, at the start of their employment and throughout it.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers:

When an employee is not performing as expected, what should an employer do? Are there steps an employer should take or, conversely, not take?  This article considers this issue further, including some recommended steps at the start of an employment relationship, during and, if required, the end.

Starting point – the importance of the job description

It is much more difficult to manage an employee’s performance, and for an employee to know what is expected of them, if job descriptions and job expectations are not clear from the start.  What does success look like in the employee’s job?

At a minimum we recommend that all employment agreements have good job descriptions, which not only set out what tasks/jobs an employee will undertake but also what expected performance looks like.  For example, a performance objective might be “deliver projects on time and within budget”.

Probationary periods – are these useful? 

A probationary period is a period of time to enable an employer to “assess the suitability of the employee . . . normally in terms of skills, diligence and personality.”

Unlike 90 day trial periods, probationary periods can be for any length of time, although we often see them set at 3 months.  They can also be used if an employee is changing from one role in a business to another.   However, they must be specifically included in the employee’s employment agreement (whether for a new role or a changed role) in order to be utilised.

While a fair process must still be followed over a probationary period, particularly leading up to any dismissal, that process is qualified somewhat by the fact that the employee is considered to be “on notice” over this time that they are being specifically assessed and that permanent employment will only be confirmed if the requisite standards are met.

That means that the process does not have to be as stringent as it would be once a probationary period ends (or if there is no probationary period), although it does, as noted, still need to be fair. For this reason, probationary periods remain useful as part of the employment relationship.

However, we recommend that, where employers use probationary periods, they run for longer than 3 months, say, for example 6 months.  Sometimes issues with an employee’s performance do not surface straight away and, even if they do, employers are still required, over probationary periods, to do the following, which takes time:

  • Advise the employee of any concerns with performance, advise of any necessary improvements, and warn of possible consequences if performance does not improve; and
  • If performance does not improve, give fair warning of termination.

In addition, just because an employee is not meeting standards to begin with, this does not mean that, with additional time and assistance, they cannot later do so.  Therefore, it’s important to have sufficient time to assess an employee’s performance and assist them to improve, before the probationary period expires, rather than rush through this process.

When performance falls short – can employer have an informal discussion with their employee? 

Regardless of whether an employee has a probationary period or not, employers have a duty of good faith to bring to an employee’s attention areas where they are not performing as needed.  Raising matters also has the benefit of (more likely) identifying such things as if the employee actually understands what is expected of them, if they might need additional training, or if there are any issues with the employer’s processes, systems or workplace that might be impacting on the employee’s performance.  Further, in some cases, an informal chat may be all that is needed for an employee’s performance to improve.

To start with, raising performance concerns with an employee does not necessarily need to be done in a formal way.   A formal process is needed where there may be a disciplinary outcome, like a warning, to ensure fairness to the employee.  Formal processes are discussed further below.  Employers should also check the employee’s employment agreement and their policies, as these may set out certain steps that need to be followed where there are performance concerns.  In that case, those steps should be followed.

However, where an employment agreement/policy does not prescribe a particular process and an employer just wants to let an employee know, for example, that an employee’s performance is falling short in some way and to assist them to improve, then this can generally be raised in a less formal way.  It is prudent however to let the employee know at the start of any discussion that it is not a disciplinary process.   All discussions should also still be held privately, rather than in front of other employees.

In these discussions, the employer can explore with the employee:

  • what the employer’s expectations are, working to be as clear and precise as possible;
  • why they consider the employee’s performance is falling short;
  • is there anything affecting the employee’s performance, either at work or outside work, that needs to be addressed first;
  • does the employee understand what is expected of them; and
  • can the employer provide any additional assistance or training to help the employee improve.

A written record should be kept of these discussions.

The employer should then continue to check in regularly with the employee, giving additional feedback on their work and working with them to try and help them meet expectations.

Formal/disciplinary processes – when are these needed? 

Sometimes, however, despite informal chats with an employee, their performance still continues to fall short.  In that case, it is not helpful for either the employer or the employee to let matters drift on.

In these cases, we recommend an employer have one final discussion with their employee, letting them know that, if their performance continues below expectation, the employee may need to start a formal performance management process.  Sometimes this is enough to result in improved performance but it also ensures there are no surprises if an employer does need to move to a formal process.   Again, a written record should be kept of this discussion.

A formal performance management process is a process which involves certain steps to ensure that it is carried out fairly.  This is because the process could end in disciplinary action, including possible dismissal (depending on the circumstances).

At a minimum, the employer needs to:

  • Write a letter to the employee outlining the specific ongoing issues with the employee’s performance and proposed next steps and provide the employee with all relevant information (such as any documents which support the employer’s concerns).
  • In terms of proposed next steps, this will usually include setting out the further time period the employer proposes to give the employee to improve; the targets or objectives the employee need to meet over this time, and the further support the employer will give the employee. This is often referred to as a Performance Improvement Plan or a PIP.

Ideally performance expectations should be holistic to ensure that it is clear that performance needs to be achieved across the board.  This means that, even if an employee improves in one area, the PIP (if it proceeds) does not need to start again if the employee is not performing in another area.

  • Advise the employee that, if the proposed next steps proceed and the employee does not sufficiently improve, disciplinary action may be taken, up to and including possible dismissal (if this is a possibility).|
  • Give the employee a reasonable opportunity to consider the concerns raised and proposed next steps, including time to obtain independent advice, before the employer meets with the employee again.
  • Ensure the employee knows that they can have a support person with them at all meetings.
  • Arrange a meeting with the employee (and their support person) to give them an opportunity to respond to the concerns raised and the proposed PIP.

The employee’s response should then be considered and, if it does not address the concerns raised or raise other matters which reasonably need to be addressed first (e.g. issues with the workplace that may be affecting performance), then the next step would be to proceed with the PIP.

However, employers should take on board any comments the employee raises about the PIP, particularly about the length of time the employee has to show improvement, and amend the PIP if necessary.

The finalised PIP should then be confirmed with the employee, including any changes made as a result of the employee’s feedback.

During the PIP, the employer still needs to continue to give feedback and provide any additional training or support that is reasonably necessary.

However, if the employee is still not improving, progressive warnings can be provided by the employer. These warnings should be clear as to the issues and what could be the consequences if performance does not improve or if performance improves but then regresses again.  Further, warnings should be confirmed in writing, to reduce confusion about the warning given, and future expectations.

Unless an employment agreement and/or policies set out how many warnings should be given, it’s prudent to at least provide one written warning and one final written warning in the case of possible dismissal.

Even if an employee’s performance improves significantly, the PIP can continue to its conclusion, although no warnings would be given along the way.

Where a PIP meets these requirements, the employer may be justified at the end of the PIP in taking disciplinary action, up to and including dismissal, if the employee has still not met the required standard. The employer does have to show however that reasonable alternatives to dismissal were explored.

Alternatively, an employer may only issue a warning or extend the PIP, if, for example, the employee has shown improvement such that, with further time, it’s possible that they might meet the employer’s expectations.

Along the way we recommend that, as much as possible, the same personnel deal with performance issues, to help ensure consistency across the process.

Finally, a PIP can also be undertaken with or without a disciplinary process running alongside, such as where an employer considers there is a good likelihood the employee’s performance will improve without possible disciplinary action.  In that case, the PIP won’t refer to possible disciplinary action.

Case example – correct process

A case of where an employer used a fair and reasonable process is Yan v Commissioner of Inland Revenue:

  • Reasons for dissatisfaction were provided and were discussed with the employee;
  • Detailed explanations were provided regarding improvements required;
  • Performance management periods were defined;
  • There was comprehensive and objective assessment against targets;
  • The employee was allowed opportunity for feedback;
  • Feedback was considered before the employer took action; and
  • Alternatives to dismissal such as possible redeployment were considered.

Case example – incorrect process

The case of Trotter v Telecom Corporation of New Zealand provides an example of where a performance management process fell short:

  • The employee was given two weeks to improve for matters that the employer considered were severe performance issues;
  • No support or education was given;
  • The employer predetermined the dismissal, evidenced by them writing a letter of dismissal prior to the final interview. The final interview should have actually enabled the employee to demonstrate what steps he had taken to improve his performance and any further action he planned to take.

But doesn’t this all take too much time?

Following the correct process, does take time.  Sometimes employers ask us if there is a quicker way?  Can’t they just have an “off the record” discussion with their employee?

In some instances, employers and employees do, in the context of performance issues, reach a mutual agreement to end the employment relationship.  However, these sorts of discussions need to be handed very carefully because they can lead to legal liability.  Simply calling a discussion “off the record” is not enough.  We always advise employers to seek legal advice before they engage in any such discussions.

Takeaways

Having good performance processes not only improves the likelihood of having well performing employee but also helps ensure employees are treated fairly.  Make sure performance expectations are clear from the start and the employee is ‘set up’ to succeed as much as possible.  Where concerns arise, address these early and clearly and provide support and feedback along the way. Also make sure you follow your employment agreements and/or policies.   If performance still does not improve, this may ultimately be a justifiable reason to dismiss an employee, however, a fair and reasonable process still needs to be followed first to give an employee a fair chance to improve and to fairly warn the employee of what the consequences might be, if performance remains below par.  If an “off the record” discussion is being contemplated, make sure you get legal advice first.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers:

In the midst of a meeting to discuss an employee’s performance, the employee becomes agitated and upset.  They advise they are struggling in their role and then they announce their resignation.  Can the employer rely on this resignation or are they required to give the employee a “cooling off” period to consider their decision?

Two recent cases in the Employment Court have cast doubt on “cooling off” periods always being required after “heat of the moment” resignations by employees.

In the first case, Mikes Transport Warehouse Limited v Vermuelen, it was held that the key question is whether, looking at the facts from the perspective of someone standing in the employee’s shoes, it can be said that the employee resigned at the time, rather than simply whether the resignation occurred in a moment of distress, anger or frustration or whether a fair and reasonable employer could have accepted such a resignation.

In other words, just because a resignation occurred in those circumstances, this does not mean that it was not a valid resignation.  A resignation does not need to be justified, demonstrably sensible or well thought through.  However, would someone in the employee’s shoes at the time consider that their employment had ended?

The Court also noted that, if there are concerns about the circumstances of the resignation, these can still be considered in the context of the law of “constructive dismissal”, such as whether the employee was effectively compelled into resigning or given the choice between resigning or being dismissed.

Further, even if there is a valid resignation, this does not stop the parties later agreeing to the employer re-engaging the employee if that is what they want to do after a time of reflection.

The principles from Vermuelen were applied in Urban Décor Ltd v Yu. In that case, two employees said that they quit after a heated exchange with their employer, they then took their bags and left the workplace and did not return for the rest of the day. The employees did not clock out and no contact was made until after work. In addition, when contact was made, it did not indicate an intention to return to work. Mr Han sent the two employees dismissals letters early the next morning.

The Court held that, on an objective basis, “the facts support a finding that Ms Yu and Ms Jin resigned. Mr Han’s dismissal letters do not, and cannot, turn those resignations into dismissals; nor do his subsequent statements where he admits having dismissed them”.

Key takeaways

Despite the above, there is still merit in employers giving employees a “cooling off’ period if there is a heat of the moment resignation and then checking in with the employee to see if the resignation stands.  This is particularly given that an allegation of constructive dismissal is still a possibility.

However, what these cases do suggest is that, if an employer finds themself in a situation where they did not give an employee a cooling off period, this will not necessarily stop the employee being found to have resigned.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers:

Mr S was an employee, born and bred in New Zealand but of Indian heritage.  During the course of his 3 months’ employment, he was addressed using a racially derogative term by his employer, including in front of others, and, in another incident, his employer, again in front of others, ridiculed how “Indians bobbed their heads in their conversations”. The employer proceeded to show a You Tube video clip that made fun of Indians doing that. When Mr S raised these issues with a more senior employee, he told him it was not worth raising the issue with his employer and that it would be easier to instead tolerate the racist comments.

Mr S brought a personal grievance on the grounds of racial harassment.  Mr S’s employer maintained that they did not know that what they were saying was offensive and they never intended to hurt or offend Mr S.  They also claimed that Mr S joined in the office banter and referred to himself in a way that could be racially offensive and that Mr S himself made jokes about Indians on social media.  Mr S agreed that he participated in office banter but said it was his attempt to “take the sting” out of the comments and language being used.  He further said he didn’t speak up during his employment because his employment agreement contained a 90-day trial clause and he was concerned about the “authoritarian way” the business was run.  In relation to social media comments, he said that this was communications with close friends with whom he had a shared culture.

Was this racial harassment?

What is racial harassment?

Racial harassment is defined in the Employment Relations Act 2000 as a situation where an employer (or the employer’s representative) uses language that directly or indirectly:

  1. expresses hostility against, or brings into contempt or ridicule, the employee on the ground of race, colour, or ethnic or national origins of the employee; and
  2. is hurtful or offensive to the employee (whether or not that is conveyed to the employer or representative); and
  3. has, either by its nature or through repetition, a detrimental effect on the employee’s employment, job performance, or job satisfaction.

A similar definition is found in the Human Rights Act 1993.

An employee may raise a personal grievance with the Employment Relations Authority or lay a complaint with the Human Rights Commission in respect of any racial harassment they may have suffered.

Examples where racial harassment has been found

In the above example, racial harassment was established.  It was not a defence that the employer had not intended to offend.  Nor was it a defence that Mr S had not advised his employer of the offence and hurt he had experienced at the language used.  This was considered understandable where he was subject to a 90 day trial.  Further, the fact Mr S also participated in the office banter and made comments about Indians himself on social media was not determinative.  The Authority accepted he felt worn down by his employer’s language such that he could not combat it and felt he had to join in.  Further, the Authority appeared to accept Mr S’s explanation for his comments on social media.

In all cases, the Authority found that the employer’s comments were offensive and unwelcome.  It found Mr S was exposed, throughout the majority of employment, to language that brought him into contempt or ridicule on the basis of his race. He was offended and hurt by that language and the ongoing nature of his employer’s use of that language affected his enjoyment of his job.

As Mr S had not lost wages as a result of the harassment, he was not awarded lost remuneration but he was awarded $10,000 for hurt, humiliation and distress (this decision was in 2018 – a greater award might possibly be made now).

Other examples:

  • an employee who was called various negative descriptors on the basis of being Irish by a fellow employee, who was found to be a representative of the employer – these were examples of hostility and bringing the employee into contempt and ridicule on the grounds of his national origins, which caused distress to the employee and detrimentally affected his job satisfaction.
  • an employer who was found to have attributed issues in the employee’s written work to his race or ethnicity was also found to have racially harassed the employee. The employee was ridiculed on the grounds of his race or ethnic origin and there was no evidential basis to attribute issues with his work to his race or ethnic background.

Examples where racial harassment has not been found

  • an employer, as part of an informal performance improvement meeting, commented that the employee spoke better English than some other Indians and also noted his lack of an accent. It was held that, while the comments may have caused the employee some offence, they did not constitute racial harassment. This was because the comments were not made in a hostile or contemptuous way and they did not ridicule the Indian race or the employee.
  • an employee who was referred to by use of a racial slur by his manager was not racially harassed, as the employee engaged in similar language in the workplace – he was part of the “language culture”. While the language used was “racial language”, the Authority held that, in order for racial harassment to be made out, the language would need to be hurtful or offensive to the employee. In addition, that language would need to cause detriment to the employee’s employment, job performance, or job satisfaction.  In this case, there was insufficient evidence of this, it being apparent that the employee encouraged the use of the language, and in fact engaged in it, himself.

Takeaways

For racial harassment to be made out, the comments by the employer must be delivered in a hostile way or ridicule the employee on the grounds of race, colour, or ethnic or national origins of the employee. In addition, the comments must be offensive to the employee and must have a detrimental effect on the employee’s employment, job performance, or job satisfaction. This can be a relatively high standard to meet, shown by the above cases.

Nonetheless, employers should take allegations of racial harassment very seriously, including appropriately investigating concerns raised and taking all reasonably practicable steps to safeguard employees from being subject to the same conduct again.  Employers should also have a clear racial harassment prevention policy in place, developed in consultation with employees so as to reflect their workplace and which both employees and the employer are familiar with (rather than it being filed up away in a drawer, never to be looked at again).  One option is to provide a copy to employees at the start of an employee’s employment or attach it to their employment agreement.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers:

Sometimes a situation arises where an employee has built up a large annual leave balance.  Not only might this be a potential financial liability for an employer, given annual leave needs to be paid out at the end of employment, but health and safety concerns might arise, such as is the employee having adequate breaks from work?  An employee might conversely want to use their leave but find that their employer will not agree.  What can employers and employees do in this situation?

Annual leave rights and obligations are covered by the Holidays Act 2003.  The Act provides several ways in which accumulated annual leave can be addressed.

When can an employee take leave?

The Holidays Act 2003 states that “An employer must allow an employee to take annual holidays within 12 months after the date on which the employee’s entitlement to the holidays arose”. This does not create a positive obligation on an employer to ensure an employee actually takes the leave but it does mean that an employer must make it possible for an employee to be able to take leave within the 12 months it falls due.  Failure to do so could, for example, open up employers to action by the Labour Inspectorate; the imposition of a financial penalty; and/or a personal grievance claim.

Separately, employers can ask an employee to use their annual leave which has fallen due (e.g. within 12 months of employment starting and every 12 months after) and, if agreement is not reached, direct the employee to use their leave on no less than 14 days’ notice. However, employers cannot direct an employee to take annual leave in advance (e.g. annual leave which has not yet fallen due).

In trying to reach agreement, consultation and negotiation should be genuine.  While the following case was based on the employee’s employment agreement, the wording was not dissimilar to the requirements of the Holidays Act.

In the case, the agreement provided that timing of leave was to be agreed between the parties but, where agreement was not reached, was at the employer’s discretion. The employee, a urologist, accrued an abundance of annual leave over his employment. Following the employer locating a locum, they discussed with the employee the possibility of him taking leave for six months, commencing the following month. The employee was not keen on this idea due to timing and, after some discussion, the employer fixed the leave to be taken over the following five months. A claim for unjustifiable disadvantage was made out in the (then) Employment Tribunal because the employer failed to meet their obligation to consult and negotiate.  This was because they had not allowed the employee input into the timing of the locum’s visit and, in the circumstances, they had not genuinely consulting with the employee when fixing the timing of the leave.

Further in terms of agreement, if an employee suggests a proposal for when they will use their leave, such as one week now, one week in a month, and one week a month later, the employer must not unreasonably withhold consent.  In other words, if an employer declines, they must have reasonable grounds to do so.  In one case, an employer was found to be in breach of this where they declined consent to an employee who asked to take leave in 3 months’ time because the employer did not yet have an employee to cover the employee requesting leave.  In that case, the employee had been employed for over 12 months and had taken no leave to that point.  While this was not stated expressly, the Authority appeared to consider that the employer’s lack of staff cover was, in this case, not sufficient to reasonably decline the leave request.  However, in other circumstances, possible grounds could include when an employer cannot reorganise work among existing staff, the employer cannot recruit additional staff, or there is a planned structural change.

Finally  if an employee wants a longer break at one time, employers must allow employees to take at least 2 weeks’ leave as a continuous block in every 12 month period.

Paying out leave in cash

An employee can ask for one week’s annual leave to be cashed up but an employer cannot force an employee to do so.  Any request by an employee can also only occur once within one 12-month period. The employer does not have to agree to this, so long as they have considered it within a reasonable time and advised the employee of their decision in writing. There is no obligation on employers to provide a reason for their decision.

Can annual leave expire?

Annual leave entitlements do not expire if they are not taken.  The Holidays Act provides that an employee’s entitlement to annual holidays remains in force until either the employee has taken the entitlement as paid holidays or the leave has been paid out, such as on termination of employment. Thus, even if annual holidays are not taken within a 12 month period, employees are still entitled to the leave. This is despite what an employment agreement states; employers cannot contract out of the Holidays Act.

After employment ends

Where the employee’s employment ends, the employer will have to pay that employee:

  • 8% of their gross earnings since their last entitlement date, less any amount paid for holidays taken in advance; AND
  • The value of any annual holidays which have already fallen due but not taken, paid at the rate of the greater of ordinary weekly pay as at the date of the end of the employee’s employment or average weekly earnings during the 12 months immediately before the end of the last pay period before the end of the employee’s employment.

Why taking leave is important

Both employers and employees have a duty to take steps to protect employee(s) health and safety.  Taking breaks away from the workplace is one way to help safeguard employees against the effects of overwork, as well as to reduce the likelihood of fatigue related mistakes or incidences.  Employers and employees should therefore work together to make sure that regular breaks are taken, utilising some or all of the above mechanisms.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. Please feel free to contact us at Parry Field Lawyers: