Edmonds Judd

First Job

Are Uber drivers employees and why does that matter for you?

Commercial, Employment, First Job, Uncategorized, Your Own Business
0

A case from the Court of Appeal on Monday acts as an urgent reminder that you can’t contract out of the Employment Relations Act (the Act) and that includes by calling the relationship an independent contract when it is not. The case involved four Uber drivers and the companies that own and run Uber Drive and Uber Eats.

Uber argued that they were not employers but provided an introduction service. Interestingly, adapting to new ways of working, the Court held that the drivers were all employees when they were logged in to the Uber Drive App.

Using an independent contractor rather than taking on an employee is attractive because it cuts out a whole swathe of costs, paperwork, responsibility and inconvenience: holidays, sick leave, termination issues and PAYE to name a few.  If you get the nature of the relationship wrong however, it can have an enormous impact on the employer: investigation, prosecution, fines and penalties, PAYE arrears, holiday pay arrears and much, much more.

So how do we know when a relationship is actually employment if we can’t rely on what the parties themselves agree in the contract? The answer is section 6 of the Act. Section 6 requires the court to focus on the realities of the parties’ mutual rights and obligations. In particular: how is the relationship working in practice (especially if that differs from the contract)?

Three key issues that the Court must weigh up are:

  • the extent of the control over the worker,
  • the degree of integration of the worker into the business, and
  • the “fundamental test” of whether the worker is carrying on their own (independent) business.

 The Uber case in particular emphasised Uber’s control of the workers which included Uber controlling fare setting and performance management, and right to discipline. They looked at the practice as it varied from the contract: even though the drivers could theoretically choose when and where they worked, they were penalised for not working regularly. They were not an independent business as the drivers were restrained by Uber from expanding their business. For example, there was a ban on contacting clients independently.

This situation might not be substantially different from many ‘independent contracts’ on our farms or in a small business setting.

If you have an independent contractor and that worker only works for you (perhaps because you do not permit subcontracting or them taking on other jobs, or simply because the job takes up all available time), if you can dictate what that worker must do from day to day and how they do it, if you can discipline them, if they work on your site and you provide most of the equipment, then it might be time to take a second look and seek independent professional advice.

Nicolette Brodnax
Nicolette Brodnax, Special Counsel

Employee burnout

First Job, Health Issues, Your Own Business
0

Acknowledge and address this

The effects of burnout and work-related stress are an issue that both employers and employees should acknowledge and address.

 

Under the Health and Safety at Work Act 2015, organisations have a clear obligation to prevent harm not only to their employees’ physical health, but also their mental health.

 

 

What is burnout?

‘Burnout’ is the result of chronic workplace stress that is not successfully managed. The World Health Organization has stated burnout is an occupational phenomenon and it is not classified as a medical condition. Although burnout is not depression, it is recognised as a major risk factor for depression and anxiety.

 

Burnout affects people differently and the symptoms of burnout are varied. Some common symptoms include:

  • Exhaustion: Feeling drained and emotionally exhausted
  • Low productivity: Negativity about work or being unable to concentrate. This can affect the ability to carry out normal, everyday tasks at work
  • Increased mental distance from one’s job: Becoming cynical about work and distancing from one’s colleagues, and
  • Physical issues such as insomnia, headaches or stomach aches.

 

 

Employers’ obligations

You must be aware of your obligations to manage health and safety risks, including supporting any of your employees who are struggling mentally, and take steps to address the issues.

 

Prevention, as they say, is always better than cure, and in terms of preventing burnout you have a great deal of influence in setting the culture of your workplace. Burnout is often the result of an unhealthy workplace culture. Workplaces that have unmanageable workloads, unreasonable deadlines and lack of support can all contribute towards burnout. You should therefore proactively consider the following:

  • Are your employees given achievable goals?
  • Are there established processes to enable your employees to raise any issues and concerns they might have?
  • Is training provided to both your managers and employees on how to deal with mental health issues?

 

If a staff member discloses that they are struggling with burnout, you should take proactive steps to understand what is causing the issue and what is required to address it. It may be necessary to get advice from a medical professional (it is important to maintain confidentiality in line with your employee’s wishes and any privacy requirements).

 

In addressing your employee’s burnout, you should look for a solution that works for you both. It is prudent that all decisions and any agreements between you both are recorded in writing as evidence of the steps that have been taken.

 

Aside from the legal considerations of your health and safety duties, from a business perspective there is strong evidence that investing in the health and wellbeing of your staff provides a substantial return on investment. This is not surprising, given that burnout reduces productivity and is associated with high staff turnover. Taking steps to avoid employee burnout is good for business.

 

 

Feel burnt-out as an employee?

It is important you talk to someone at work as soon as possible. Although it may be difficult to talk about stress and burnout, it is vital that your workplace becomes aware of it and is given an opportunity to stop the situation from getting worse. By asking for help and support, it enables your employer to make necessary adjustments. This may include rebalancing the demands and responsibilities of your role, cutting back on unnecessary tasks or establishing a set of objectives to work towards.

 

 

A recent court case

Burnout was the issue in an Employment Relations Authority (ERA) case[1] in which an employee successfully argued that he was constructively dismissed because his employer had failed to provide him with a safe working environment.

 

The employee had raised concerns about his work-life balance and even informed his manager that he was ‘burnt out’ and could not continue due to being ‘broken by the workload.’ When his employer did not take prompt action to address these issues, the employee resigned.

 

The ERA held that it was reasonably foreseeable that the employee would resign unless his burnout concerns were addressed, and ruled that his employer should have taken more formal and proactive steps to understand their employee’s mental health situation. As a result, significant financial remedies were awarded to the employee, including $25,000 as compensation for hurt and humiliation.

 

 

Employers take note

Employers have a duty to protect their employees in health and safety issues, and this includes their mental health. A person’s work environment can have a significant impact on their mental wellbeing and, as a result, employers must take prompt, meaningful action should staff burnout arise.

 

If someone on your staff is struggling with burnout, it is important that they communicate this to you or their manager. For some guidance on steps to help avoid employee burnout, please contact us. We are here to help.

 

[1] Perry v The Warehouse Group Limited [2023] NZERA 773.

 

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Postscript

Commercial, First Job, House, Property, Rural, Your Own Business
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Incorporated societies: must reregister by April 2026

The clock is ticking for New Zealand’s 24,000 incorporated societies to reregister by 5 April 2026. Under the Incorporated Societies Act 2022, if your incorporated society does not reregister by this time, it will automatically cease to exist.

During the next two years, every existing incorporated society must decide whether to retain its incorporated status by seeking reregistration. If it opts to reregister, it must check that its constitution (the rules of the society) comply with the requirements of the new Act. This will almost always involve amendments being made to the constitution and, in a significant number of cases, an entirely new constitution being adopted.

There is quite a list of requirements to reregister. To learn more, go to:

www.is-register.companiesoffice.govt.nz If you need advice on any aspect of reregistering, please don’t hesitate to contact us.

Minimum wage increases

 On 1 April the minimum wage increased. This covers:

  • Adult minimum wage increased from $22.70 to $23.15/hour
  • Starting-out and training minimum wage rose from $18.16 to $18.52/hour

Remember that all rates are gross and before any lawful deductions such as PAYE, student loan repayments, child support, etc.

Make sure your payroll people, HR/finance teams and your accountant are all aware of these changes.

Before you dig

Whether you want to replace a fence around your property, are a contractor installing a new cable along a street or a new gas pipe, or are working for the council in resurfacing the road, it is vital that you check there are no cables or pipes below ground.

beforeUdig is an online service which enables anyone undertaking design and excavation works to obtain information on the location of cables, pipes and other utility assets in and around any proposed dig site.

It provides a ‘one stop shop’ for contractors to communicate about their planned activities with utilities and asset owners.

To find out more, go to www.beforeudig.co.nz/home.

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Trial periods vs probation periods

Commercial, First Job, Your Own Business
0

Both are useful for employers

Many New Zealand business owners know they can offer a trial period (usually 90 days) when hiring a new employee. A trial period is designed to ensure a new employee is a good fit for their employer.

An alternative to a trial period is a probation period. This is designed to set expectations clearly between you and your employee including the terms of the hire and when a final decision about the suitability of their employment is decided.

We explain the differences between trial and probation periods to enable you to better understand your options.

 

Trial period

A trial period, if successfully included in an employment agreement, will allow you to terminate the agreement in the first 90 days of employment without your employee being able to raise a personal grievance for the dismissal. Trial periods can, however, only be used in limited circumstances.

Until 23 December last year, using a trial period was only available to employers who had fewer than 19 staff. Now, under the new coalition government, this limitation was removed and trial periods can be used by all employers, regardless of size, for new employees.

 

Key requirements of a valid trial period are:

  • Only for new employees, not current or prior employees
  • 90 days maximum length
  • Must be documented in the written employment agreement, signed before your employee starts work and must contain a valid notice period, and
  • Must only be included in the agreement and exercised in good faith.

 

When exercising a right to terminate under a 90-day trial clause, you are not obliged to provide any reasons for the termination. It is important to note that your employee can still raise a personal grievance against the business if there are other causes for grievance during their employment, such as (but not limited to) discrimination or bullying.

 

Probation period

Unlike a trial period, probation periods have a much wider application in employment law.  Probation periods are an ideal way for employers and employees to ‘try out’ a new or expanded role while setting clear expectations that this may only be a temporary employment change, and what to expect if it does not work out.

Some of the common reasons you may want to use a probation period include making sure a staff member is appropriately skilled for their role, or to allow an existing employee to accept a promotion or lateral move in the business and to show they can do the job.

Key characteristics of a valid probation period are:

 

  • Can be used for existing OR new employees
  • The probationary period can be for any length of time, as long as it is clearly defined in writing, is reasonable considering the role’s complexity, and has an appropriate agreed notice period
  • The written agreement includes what may occur at the end of the probation period (termination, reversion to their former role and responsibilities, etc), and
  • That you as the employer must provide adequate support and training.

 

Throughout the probationary period you must be able to show that you have taken reasonable steps to support your employee in achieving success in their role. This includes frequent performance-based conversations, providing adequate training and support on new skills and tasks, discussing any areas for improvement and setting clear expectations of what ‘success’ looks like for their role.

Unlike a trial period, if you decide at the conclusion of the period to terminate the employment agreement, you must explain how you have fairly assessed your employee’s performance, why their performance was not sufficient for the role and your intention to end the employment relationship.

Your employee must then have sufficient time to respond. Any response must be considered before making a final decision to terminate the employment agreement. Unlike a trial period, your employee can still bring a claim for unjust dismissal if they feel you have not followed due procedure and come to a fair conclusion.

It is also critical to note that probation periods cannot follow after a trial period for the same or very similar role. If your employee moves multiple times within your business, on each subsequent role change you may be able to apply a new probation period.

Regardless of whether you are considering a trial period or probation period, it is important you talk with us before incorporating it into your employment agreements. To be effective and defensible against a personal grievance, both trial periods and probation periods must be documented correctly throughout the period’s lifecycle, from the employment agreement pre-commencement all the way through to the end of the period. Please don’t hesitate to contact us if you are considering a trial or probation period for any of your employees.

 

 

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Generative AI and copyright

Commercial, First Job, Latest news, Your Own Business
0

Are you taking the right precautions?

Many businesses have been using artificial intelligence (AI) for a long time to gather insights into their data and make strategic decisions. Recent generative AI improvements, however, have brought the power of AI into the public’s hands like never before. As a certain spider[1] once said: With great power comes great responsibility.

 

Generative AI technologies can now be used to create almost any type of content you can imagine; everything from a poem about pineapples to music in the style of Mozart and even three-dimensional models of motorbikes. However, the legal and human issues these technologies create are far less inspiring.

 

At its core, generative AI models are trained on large datasets of predominantly human-generated works to generate new works, that are ‘inspired’ from works within the training dataset. This approach raises several important legal questions, including:

  • Are companies allowed to train an AI model on content which they do not own? This is particularly significant considering much of the content is not in the public domain and is, arguably, covered by copyright
  • Once a model has been trained, who owns the content the model produces, and can it be used without infringing the intellectual property (IP) of others, and
  • Can you own and protect the output from an AI model?

 

There are also the ethical and fairness issues of using the creative works of others without compensation.

 

Many of these topics are currently being litigated in courts around the world, and while it would take a lengthy article to cover each issue in detail here, we discuss three key issues below.

 

  1. IP laws vary from country to country
    While there are international agreements on copyright provided under the Berne Convention, there are still significant differences in copyright law in different countries. This is particularly important when it comes to issues such as relying on ‘fair use’ as a defence to copyright infringement.

    Copyright is also only a small piece of the puzzle. Depending on how you use AI, you may need to also consider local and international laws covering moral rights, consumer protection such as the Fair Trading Act 1986 and the tort of passing off, breach of contract, violations of the American statute Digital Millennium Copyright Act 1998 and unfair competition laws – to name just a few.

 

  1. AI-generated content can still infringe the rights of others
    Even if an AI is tasked with creating new content, this does not guarantee that content can be used without infringing the rights of others. Most AI models have been trained on datasets that include works protected by copyright, patents, trademarks and registered designs. Therefore, before being used, the generated outputs should be reviewed to assess potential infringement issues.

 

  1. The use of a generative AI may prevent you from asserting copyright in the generated works
    Most guidance from overseas markets at this stage is that to be copyright-eligible, the creative work requires a human author. Prompting an AI to generate content is unlikely to meet the human authorship standard. The extent to which you can claim copyright on an AI-generated work is likely to be limited to a detailed analysis of exactly what the human inputs were when compared with the computer-generated outputs.

 

What can you do to reduce risk?

Despite these above issues, you can take practical steps to help reduce your risk in using AI-generated content. These include:

  • Searching to determine how different your AI-generated content is from existing, potentially protected works
  • Ensuring that key issues such as privacy and confidentiality are not breached by your use of the AI
  • Fact checking the outputs of the AI
  • Ethical use of the AI, including not using the AI as a tool to copy or mimic the art style of another person or company, and
  • Keeping detailed records of what the generative AI was used for, including details of prompts, intermediate outputs, manual edits and so on.

 

Since generative AI technologies can be used in a seemingly endless number of different applications, your risk exposure will depend on exactly what you are using these technologies for and what precautions you can take to reduce your risk.

[1] Spider-Man said this, but it has also been attributed to Winston Churchill.

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Time changed to raise personal grievance for sexual harassment

Commercial, First Job, Relationships, Your Own Business
0

Extended from 90 days to 12 months

The Employment Relations (Extended Time for Personal Grievance for Sexual Harassment) Amendment Act came into force on 13 June 2023. It has extended the timeframe in which a personal grievance (PG) can be raised when sexual harassment has occurred at work.

The timeframe now allows a PG to be raised within 12 months of the harassment occurring or coming to an employee’s attention, rather than the former period of 90 days. The purpose of this amendment is to allow sexual harassment victims more time to come to terms with what has happened before deciding whether or not to raise a PG.

Employment law fundamentals

Employment law in New Zealand is underpinned by the Employment Relations Act 2000; it promotes productive employment relationships and encourages employers and employees to act in good faith in all aspects of the employment environment. This is achieved by specific processes to help parties resolve employment disputes in a quick and flexible way, such as allowing an employee to raise a PG. A PG is a complaint that allows an employer and employee to address, amongst other things, a sexual harassment claim.

What is a personal grievance?

You may raise a PG against your current or former employer if you believe you have been treated unfairly or unreasonably. This includes situations where you think you have been:

  • Unjustifiably dismissed
  • Unjustifiably disadvantaged
  • Discriminated against in your employment
  • Sexually harassed in your employment
  • Treated adversely in your employment on the grounds of family violence, or
  • Racially harassed.

When deciding if an act or dismissal was justified, your employer, the mediator or the Employment Relations Authority must consider what a fair and reasonable employer could have done in all the circumstances at the time the dismissal or action occurred.

You can choose to raise a PG with your employer directly or via the Employment Relations Authority. To raise a PG, you have 90 days, or  12 months for instances of sexual harassment, from the date the action or dismissal occurred or from when you became aware of it. You can, however, raise a PG after the 90-day period has expired in other circumstances if your employer agrees.

Defining sexual harassment

Sexual harassment is unwelcome or offensive sexual behaviour that is either repeated or serious enough to have a harmful effect. It can be direct or indirect. Sexual harassment does not have to be physical; it can also be through written, verbal or visual materials/actions. You may only raise a PG for sexual harassment if it has occurred during the term of your employment. Sexual harassment is defined in sections 108 and 117 of the Employment Relations Act 2000.

Know your rights

It is important for both employees and employers to know their rights and obligations surrounding personal grievances. Employers should ensure their employment agreements are updated to reflect the above amendments.

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Postscript

Commercial, First Job, News, Your Own Business
0

Minimum wage increased on 1 April 2023

The adult minimum wage increased to $22.70/hour on 1 April 2023.

 

This is a significant increase, up from $21.20, and aligns with the 7.2% rate of CPI inflation in the year to 31 December 2022.

 

Also increased on 1 April were the training and starting-out minimum wage rates that are increased to $18.16/hour; this is 80% of the adult minimum wage.

 

For an employee who works 40 hours/week, the minimum wage rise to $22.70/hour means they earn an additional $60 each week before tax.

 

The government says it will review the minimum wage rate later this year.

 

Renew your employees’ pay rates

If you haven’t done so already, you should review your employees’ pay rates to ensure you are compliant with the new minimum wages. For employees on a wage this is a straightforward process as you only need to ensure that their wages are at least $22.70/hour. This is not the case for all employees, however, as it includes those on a salary whose current pay rates may be sufficient when they work overtime.

 

During busy times, salaried employees often work hours over and above their regular employment agreement hours. You should check the pay of these employees every pay period to ensure their pay divided by the actual hours they worked meets minimum wage requirements. If not, your employee’s pay must be topped up to at least the minimum wage, regardless of whether any term in their employment agreement says otherwise.

 

Failing to keep accurate time records could lead to a penalty under the Employment Relations Act 2000 or Holidays Act 2003.

 

You should also take the opportunity to ensure your time recording systems are accurate.

 

 

Improving the sustainability of your supply chain

All businesses in New Zealand should be working towards making their supply chain more sustainable – we all have a responsibility to help save the planet.

 

The Ministry of Business, Innovation & Employment states that about 70% of your business’s sustainability impact comes from your supply chain – so this is a good place to start.

 

Launched in February 2023, Docket provides a free (and short) online assessment, and practical tools and guides for you to see how well your business is caring for the environment and your team. Docket was created by the Sustainable Business Network in partnership with the government and the private sector.

 

To find out more, go here: https://sustainable.org.nz/docket/

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Driving on a limited licence

Commercial, First Job
0

Can be done, but strict conditions apply

Driving licences can be suspended for various reasons: excess demerit points, careless or dangerous driving, drink driving, causing an accident and many others.

 

Generally, if you commit one of the above offences your licence could get suspended for a period of three to 12 months, depending on the severity of the offence.

 

The question then becomes, what if your livelihood depends on you having a driving licence? Under the Land Transport Act 1998, the law allows you to apply for a limited licence.

 

Application process

To obtain a limited licence, you must satisfy the court of two factors.

 

First, you must show that you would suffer extreme hardship; a self-employed person who depends on driving to work is an example. If you cannot drive to work, you cannot earn an income, pay your mortgage, bills and other day-to-day essentials.

 

Telling the court that not having a licence would be an inconvenience to you is not enough. The devil is in the detail. Evidence must be provided of your annual income; weekly expenses; that taxi fares are unaffordable; why using public transport is not feasible; you (or your business) cannot afford to employ a driver for the suspension period; your friends or family members cannot drive you during the suspension period and so on. Consulting with us will make this process easier.

 

Second, you must illustrate that the people around you (your family or employer) would suffer undue hardship if you are unable to drive. ‘Hardship‘ (whether extreme or undue) is not limited to financial hardship. The court may grant a limited licence if evidence suggests that a driver may suffer emotional hardship in not being able to drive. For example, an elderly man, who lives alone and volunteers daily at his local sports club (cleans up the sports field, mows the grass, etc) may suffer mental and emotional hardship if he cannot go about his daily routine due to his suspension.

 

Restrictions of a limited licence

Keep in mind that ultimately the court still seeks to punish drivers who commit traffic offences. A limited licence means just that; it restricts what you can and cannot do during your suspension. You may only drive within a certain area, during a specific time period during the day and may not exceed a specific number of hours per day. Using the elderly man example above, he would only be allowed to drive within an area that includes his home, supermarket and his local sports club between X and Y hours and on Z days. Suspended drivers with limited licenses are supplied with a logbook to record this information.

 

If you commit a further driving offence or breach the terms of your limited licence during your suspension period, your limited licence will be terminated and your initial suspension will fall back into place.

 

Every situation is different

Every case has its unique circumstances and each application should be tailored to its facts and merits. If you would like to know more about limited licences and how to apply, please don’t hesitate to contact us.

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Keeping your employees during the ‘big quit’

Commercial, First Job, Your Own Business
0

Retention tools and some risks

Since 2021 and the lessening of the effects of the Covid pandemic, many countries have experienced an increase in staff turnover and lost productivity. This is informally referred to as ‘the great resignation’, ‘the big quit’, ‘brain drain’ and ‘quiet quitting’.

 

These trends are concerning as turnover and lost productivity present further challenges to businesses that may already be struggling in a weakening economy.

 

Employers can implement retention tools to minimise turnover and ensure employee engagement. As with all employment contractual changes, care needs to be taken to ensure that these do not result in unexpected consequences for either party. We look at the most common retention tools that employers might consider along with some alerts when using these incentives.

 

Incentives are variations to the employment agreement

All incentives are a variation to your employee’s individual employment agreement. When considering any form of incentive, you must ensure that all changes are consulted on, and agreed to, by your employee. The agreed changes should be documented appropriately, usually with your lawyer’s assistance, and signed by both parties.

 

You must document and record all changes to employment terms and benefits. When employment variations are made and you don’t keep accurate records and act in accordance with those records, you are at risk of a personal grievance claim from your employee. In addition, inaccurate recordkeeping can attract penalties from the Labour Inspector for not complying with the Employment Relations Act 2000 and the Holidays Act 2003.

 

When considering an incentive for your employee, consultation regarding tax consequences, including fringe benefit tax (FBT), with your accountant or tax advisor is essential.

 

Cash and performance-based bonuses

The most commonly used, and arguably most straightforward tool to increase employee engagement and performance short-term, is a cash bonus. This payment can be made as a lump sum for existing performance, or it can be a bonus based on agreed and documented requirements for future performance.

 

If you pay a discretionary cash bonus, one costly mistake you could make is to unintentionally increase your employee’s ‘gross earnings.’ If a payment is not correctly identified as a discretionary additional payment, then the increase to their ‘gross earnings’ can also affect payment required for their other entitlements such as annual leave.

 

In landmark cases in 2020 and 2021[1], the court considered whether or not a bonus scheme was part of ‘gross earnings’ for an employee. Originally the bonuses were considered part of the ‘gross earnings’ and the company had to pay out significant additional annual leave entitlements. On appeal, this was overturned.

 

Ultimately, the court decided that a primary indicator as to whether a bonus counted as ‘gross earnings’ was whether the employer retained discretion to not pay the bonus, even if the performance targets had been met. Importantly, the law was clear that the payment needed to be a true ‘discretion’, and merely labelling or titling it as ‘discretionary’ did not suffice.

 

Being careful on how this payment is documented and ensuring it is ‘truly discretionary’ will help prevent unnecessary increased annual leave payments. If it is discretionary, you will need to ensure it’s recorded as such in your payroll system.

 

Retention bonus

Another common tool is a retention bonus where your employee is guaranteed a lump sum cash payment at the end of a retention period (often between 12-36 months).

 

All agreements should contemplate what happens if your employee decides to leave during their retention period. This could be a resignation, dismissal due to poor performance or, if the market required, your employee’s role/position may be made redundant. The nature of the event giving rise to the dismissal will likely determine whether the bonus is paid or not, and if paid, whether partially or in full.

 

Retention bonuses can also become payable on the occurrence of a prescribed event. Regardless of when payment is made, the impact on annual leave must be considered in the same way as for a performance bonus.

 

Bonding clauses

Another way to retain your employees is to provide payment for further education or formal qualifications in exchange for your employee staying for a period of time after the training or further education has been completed. If your employee leaves, they might be asked to repay some, or all, of the training costs covered.

 

While bonding clauses can increase employee engagement as well as enhancing the value of your employee to your business, when considering bonding clauses you should seek specific legal advice to ensure the bonding clause is enforceable. The enforceability is dependent on many factors including fairness to your employee. If the bonding clause is deemed to be unfair, you may not be able recover the training costs already paid when your employee leaves earlier than their bonded term.

 

Shares or equity in the business

One of the most effective long-term retention tools for key employees is to offer shares in the business. These shares can be restricted so that the value the employee receives for the shares is minimal if they leave within a prescribed period. If they stay longer than the prescribed period, they can sell the shares for their actual value. This is an excellent tool as not only does it provide a good incentive for your employee to stay, but it also incentivises them to grow the value of the business during their tenure.

 

This process should always be guided by your lawyer; there are several steps and the requirements will be unique to each business. For new shareholders, a shareholders’ agreement should be prepared that covers all shareholder rights such as pre-emptive rights for the majority shareholder (the main business owner) to buy back the shares and voting rights of all the parties. Often this process will require a valuation of the business, and there will be significant considerations regardless of the structure implemented.

 

Meeting the market

Looking at the wider labour market and demands for particular roles will help you identify employees who are most at risk of leaving. Often, if employees are in short supply, the market remuneration will have increased and you should consider meeting the market rates to reduce staff temptation to leave.

 

Other incentives that can make an employer competitive are increased annual leave, wellbeing payments, health insurance, allowing personal use of work phones or vehicles, flexible working and interest-free or low interest loans (some of which have FBT consequences).

 

Have a highly engaged culture

Ultimately, retaining staff is a complex area that involves much more than just financial incentives. Ensuring your workplace has developed a highly engaged culture that supports your employees’ individual needs and that your employees feel valued will all help with your overall retention strategy.

 

With the rapidly changing employment market it can be understandably challenging to retain key staff. If you have an employee you think you are at risk of losing, think about what retention tools will mean the most to that person; and remember to talk with us about what steps you should take before offering any incentives.

 

[1] (Metropolitan Glass & Glazing Limited v Labour Inspector, Ministry of Business, Innovation and Employment [2020] NZEmpC 39 and subsequent appeal of that decision in Metropolitan Glass & Glazing Limited v Labour Inspector, Ministry of Business, Innovation and Employment [2021] NZCA 560).

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Contract compliance

Commercial, First Job, Your Own Business
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Fair Trading Amendment Act 2021 now in force

 

If you have customer contracts, inter-business contracts or contracts valued under $250,000, the Fair Trading Amendment Act 2021, that updated the Fair Trading Act 1986, should be on your radar. The changes came into effect on 16 August 2022.

 

Unfair terms, unconscionable behaviour and direct sales are all targeted in the updated legislation that includes an expansion on the regulation of ‘unfair terms’ impacting all consumer contracts and standard, trade and small contracts. This means all businesses should be reviewing these changes to ensure they comply with the 2021 Act to avoid penalties.

 

In this article, we focus on the ‘unfair’ contract term changes as these will impact almost all businesses.

 

What is an ‘unfair’ contract term?

Contract terms that are now considered ‘unfair’, and therefore unenforceable, are any terms that meet all of the following requirements:

 

  • The contract or term causes a significant imbalance in the parties’ rights and obligations arising under the contract
  • The term is not reasonably necessary to protect the legitimate interest of the party who is advantaged by it, and
  • The term would cause detriment (financial or otherwise) to a party if it were applied, enforced or relied upon.

 

There are a few exemptions to the above requirements, including where the contract specifies a transparent price term, upfront price, defines the main subject matter of the contract or is expressly permitted by another law.

 

Examples that could be considered unfair include terms that:

 

  • Refer to other hidden or ambiguous terms and conditions, such as committing your customer to ‘standard terms that will be provided with the supply of goods’
  • Prevent someone from taking legal action
  • Give one party a unilateral ‘final decision’ status
  • Make your customer bear all the risk
  • Restrict your customer from transferring their rights under the contract (i.e.: non-transferable), and
  • Allow you to transfer your contract without their consent.

 

If it is unclear whether a term is ‘unfair’, the Commerce Commission can make that determination or ask the court to do so. In making its decision the Commission or court is required to consider any matter it considers relevant; the two most important matters are, however, the contract as a whole and the unfairness of the term.

 

Does this apply to your contracts?

This legislation applies to a vast number of contracts including consumer contracts, standard contracts, in trade contracts and small contracts. While most people understand that a consumer contract is one engaged between a business and a customer, to properly understand if any of the contracts you use in your business come under this legislation, it is important that three key terms – ‘standard’, ‘in trade’ and ‘small’ – are clarified.

 

Standard contract 

A ‘standard contract’ is any contract in a templated form. This template is not subject to negotiation and is more of a ‘tick box’ of a contract. Most terms of trade and standard issued terms and conditions would be considered a ‘standard form contract’.

 

In trade contract

Using an ‘in trade contract’, you or your business must undertake any trade, business, industry, profession, occupation, activity of commerce or undertaking related to the supply of goods, services or interests in land.

 

Small contract 

‘Small contracts’ are contractual business relationships that result in less than $250,000 in anticipated value in the first 12 months of the relationship.

 

In addition, and importantly, almost all independent contractors will be caught up in these changes. Contractors should review their agreements to ensure they remain compliant with the legislation.

 

Penalties

If your contract, or terms of trade, is considered unfair, a court may determine any number of remedies should be applied including:

 

  • Removal of the clause
  • Refunding money or pay damages
  • Preventing the business from using the clause in any way, and
  • Fines of up to $200,000 for an individual or $600,000 for a company or body corporate.

 

If a clause is considered unfair in a standard contract, there is a risk it could extend to all the contracts issued by your business and every consumer or business negatively impacted by that clause could be entitled to a remedy.

 

The new law reflects the reality that many small businesses are sole traders or small family-owned businesses that require more protection from unfair contractual terms than large corporations. On the flipside, it also means all businesses should take additional care to ensure their contractual terms are fair and reasonable, and comply with the legislation.

 

If you are uncertain if your contracts are compliant or would like to discuss this change, please contact us.

DISCLAIMER: All the information published in Commercial eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Commercial eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650