Edmonds Judd

employment

Bonding agreements

Helping employers recoup training costs

Bonding agreements can be an incredibly useful tool for ensuring employers can recoup costs incurred for training staff.

Used improperly however, bonding agreements may be unenforceable and – in some circumstances – be a clear breach of the Wages Protection Act 1983 (WPA). We look at two of the most common issues with bonding agreements as well as what should be considered for enforceable agreements.

What is a bonding agreement?

A bonding agreement is a benefit given to an employee where you agree to pay for some or of the all the cost of further training in exchange for your employee agreeing to stay under your employment for a period of time; this is usually around one to two years after the training is complete. The result is an upskilled employee who has better qualifications and future employment prospects, and your business has the benefit of a more valuable employee who usually will stay for the period of the bonding agreement.

These arrangements can be recorded in the original employment agreement or in a subsequent document both the employer and employee sign which records the bonding agreement as a formal variation to the employment agreement that is already in place.

Wages Protection Act 1983

Section 12A of the WPA states that an employer may not ‘seek or receive any premium’ for employing a person. In a 2016 case[1], it was found that bonding employees to recoup recruitment costs, such as skills testing, was considered a breach of s12A as it was the employer who primarily benefitted, not the employee. Any bonding agreement for training, testing or costs incurred by the employer only would likely

be considered a breach of the WPA.

Workplace health and safety

All employers are responsible for ensuring that they provide a safe environment for their employees. For most businesses this means that, at a minimum, each workplace must have some staff trained in first aid. In more dangerous workplaces there must be additional measures, such as training employees in handling combustible materials or dangerous goods.

As an employer, if you have insufficient staff members trained in workplace safety and are required to provide training to up-skill existing staff in this area, it is unlikely that you could use a bonding agreement to recoup the cost of that training, as it is your responsibility to provide a safe workplace in the first instance. If any additional training goes above and beyond the requirement for safety, and significantly improves your employee’s future employability, a bond may be valid.

Making clauses work

There are many circumstances in which bonding agreements are appropriate and enforceable.

When considering a bonding agreement, the following three basic principles are a good guideline.

  1. Mutual benefit: the additional training being undertaken by your employee must be of a mutual benefit to you both. Another acceptable, but rare, situation is where the additional training is of sole benefit to your employee, such as up-skilling in a different field while continuing to work in the current role.
  2. Transparency of cost: costs should be agreed as much as possible up-front, including how and when those costs will be repaid if your employee leaves during the bonded term. If the costs cannot be recorded clearly in the agreement, for example accommodation costs while on training, your employee should be given reasonable notice of the cost before it is incurred and the opportunity to opt out or for you both to choose a cheaper alternative.
  3. Reasonability: the bonding term and repayment schedule should be reasonable in consideration of the costs incurred by the business. For the majority of bonding terms, a reasonable timeframe is somewhere between six months and two years, though there are certainly some circumstances where longer bonding terms are appropriate.

Like many elements of employment law, bonding agreements are very case specific. This means that in this article, we cannot cover all the issues that arise with them. Any issues in the workplace such as harassment or constructive dismissal can shake the foundation of a bonding agreement. Even when an agreement is considered enforceable, there is no guarantee you will be able to recover the funds from an employee who leaves your business.

If you are considering a bonding agreement, whether you are an employer or an employee, please contact us to discuss your specific needs.

[1] Labour Inspector v Tech 5 Recruitment Limited [2016] NZEmpC 167 EMPC 114/2016.


Business briefs

Unfair contract terms regime extended to small business contracts

The Fair Trading Amendment Act 2021, which was passed into law in August, bans unconscionable conduct in trade and prohibits businesses from having unfair contract terms in their small business contracts.

The Act amends the Fair Trading Act 1986 in two key ways.

  1. Unconscionable conduct: The legislation prohibits unconscionable conduct in trade. It does not define what ‘unconscionable conduct’ is, but it does provide a list of factors for the court to consider when assessing unconscionable conduct, including:
  • The relative bargaining power between the person engaging in the conduct and the person affected by the conduct
  • The extent to which the trader and an affected person acted in good faith, and
  • Whether unfair pressure or undue influence was used.
  1. Unfair contract terms: The Act extends the existing protections against unfair contract terms in standard form consumer contracts to include small business contracts.

The legislation defines this as a contract for the provision of goods or services between businesses where the value of the relationship between the businesses is less than $250,000 (including GST).

These two changes will come into force on 16 August 2022. This gives businesses just under one year to review their small business contracts to ensure they comply with the new requirements. The Commerce Commission is expected to release guidance on what unfair terms might look like for small business contracts.

Be aware, however, that some minor changes in the legislation are already in force.

If you would like some guidance on how this legislation affects your business, please feel free to contact us.

Many welcome new sick leave provisions

One employee’s sick leave may have doubled, but another employee’s sick leave may still only be five days. How does this work?

On 24 July 2021, minimum employee sick leave entitlements increased from five days to 10 days per year[1]. Key points for employers are below.

When does the entitlement start? Not all employees will get the increase in sick days at the same time. Employees will get an extra five days’ sick leave when they reach their next entitlement date. This is either after they reach six months’ employment or on their existing anniversary.

For example, if your employee’s anniversary date was 10 June, they become entitled to 10 days’ sick leave on 10 June 2022, but until then, their entitlement remains at five days.

What remains the same?

  • Employees who already get 10 or more sick days a year will not be affected by this change
  • The maximum amount of unused sick leave that an employee can be entitled to accrue remains at 20 days, and
  • The change applies to all employees whether they are full-time or part-time.

Remember, it’s your obligation as an employer to ensure you’re aware of your employees’ entitlements.

Changes to the retention money regime for construction contracts

The new Construction Contracts (Retention Money) Amendment Bill proposes to change the way contractors hold retention money under construction contracts.

The current regime allows contractors to mingle retention money with working capital, which can result in subcontractors missing out on money owed to them if the contractor goes into liquidation. This happened in the liquidation of Mainzeal Property and Construction Limited in 2013.

The proposed legislation aims to put clear rules in place around how retention money is to be held to provide protection for subcontractors.

Key changes: The Bill proposes that contractors must:

  • Place retention money on trust as soon as possible and keep it separate from other money or assets, and
  • Hold retention money in a trust account in a registered bank in New Zealand or in the form of complying instruments (such as an insurance policy or a guarantee).

The Select Committee is expected to report on the Bill in November 2021. Contractors will need to be prepared for the changes when the Bill passes, as failure to comply could result in significant fines.

[1] Holidays (Increasing Sick Leave) Amendment Act.


Postscript

Mature workers toolkit

The government’s business website has launched a ‘Mature workers toolkit’ to help employers to get workers aged 50 years-plus into small to medium-sized businesses.

The toolkit has a range of guidance, support tools and resources that employers can use to help attract, recruit and retrain mature workers. It includes:

  • A worksheet to help write compelling job advertisements
  • A build-your-own-policy for on-the-job learning
  • Tips on leading and working with mature workers, and
  • Case studies.

With more people working later in their lives, it’s important that the skills and knowledge of mature people are retained in our workforce. Seek NZ’s May Employment Report shows the demand for staff continues to increase. “Job ads increased by 5% month-on-month and are almost triple the volume that they were this time last year,” reports Seek NZ.

Fifteen per cent of our population is aged over 65; this is expected to increase to 20% over the next 20 years. It is important that the value this group of people gives to business is acknowledged not only by employers, but also by their staff.

To find out more, go here and search for Mature workers toolkit.

Bright-line test extended to 10 years

In March the bright-line test was extended to 10 years.

The bright-line test was established in 2015 to tax the profit made on selling residential property where sold within two years of purchase. The bright-line period was extended to five years for properties purchased from 29 March 2018.

Now, if you have a binding agreement to purchase on or after 27 March 2021 and you sell the property within 10 years, any profit will be subject to income tax.

For residential properties that are ‘new builds’ the five-year period still applies. Rules are currently being developed about which new builds qualify for the shorter bright-line period.

Do note however, in most (but not all) circumstances your family home is exempt from the bright-line test. The March 2021 announcement also saw changes as to how the family home exemption is calculated for properties subject to the bright-line test.

To know more about the bright-line test and how it may affect you, please feel free to contact us.


To jab or not to jab?

Your employee doesn’t want a Covid vaccination?

While many Kiwis are queuing up and eagerly awaiting their Covid vaccinations, not everyone is willing to take ‘the jab’. Recent headlines of sacked border staff who refused their Covid vaccinations have highlighted the difficulty many employers will face in deciding if their staff can reasonably be required to be vaccinated.

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Having a puff at work

Vaping now treated the same as tobacco smoking

New Zealand laws have finally caught up with vaping (also called e-cigarettes) that have, for some time, enjoyed freedom from the country’s strict tobacco regulation.

Since 11 November 2020, however, all vaping products and behaviours must now be treated the same as for tobacco products and smokers. All businesses and employers should be aware of the changes to SmokeFree legislation; for retailers of any vaping-related products these changes are especially important.

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Business briefs

Covid relief key expiry dates for businesses in 2021

In 2020, the government introduced a raft of legislation to provide temporary relief for businesses struggling to navigate the effects of the Covid pandemic. Some relief measures, such as the safe harbour for company directors, have already expired, while others will expire this year unless they are renewed. The key expiry dates for 2021 that you should be aware of are:

  • 26 March: Landlords and tenants of commercial premises who could not agree on rental arrangements during the 2020 lockdown period have until this date to access the government’s subsidised arbitration or mediation service to resolve the dispute.
  • 31 March: Measures allowing companies, incorporated societies and other entities to hold meetings online and make temporary exceptions to their rules.
  • 15 May: Provisions allowing for electronic signatures when signing security agreements that contain powers of attorney.
  • 22 September: The requirement for landlords to give 30 working days’ notice instead of 10 working days’ notice to end a commercial lease where the tenant fails to pay rent.
  • 31 October: The cut-off date for businesses to enter into the government’s business debt hibernation scheme has been extended until 31 October 2021.

The scheme allows businesses to have a month of protection from most creditors enforcing their debts, and a further six months’ protection if their creditors agree.

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Business Briefs

Remote working: the new normal

As a result of the Covid lockdown, many employees were required to work remotely, and some are continuing this arrangement.

Working remotely comes with some important considerations, particularly in terms of health and safety. If you are an employer, you should be:

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Postscript

Smoking in motor vehicles with children now banned

Smoking in motor vehicles when children under the age of 18 years old are present is now prohibited. The passing of the Smoke-free Environments (Prohibiting Smoking in Motor
Vehicles Carrying Children) Amendment Act 2020 has made this an offence.

Police will now have the discretion to issue on-the-spot fines of $50 for those who are caught smoking in cars with children, or they may issue warnings or refer people to stop-smoking agencies.

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The government’s Budget, presented by the Minister of Finance the Hon Grant Robertson on 14 May has addressed, in the words of the Minister, “a 1-in-100 year health and economic challenge” as it moves to rebuild the economy post-Covid-19.

“With the outbreak of Covid-19, New Zealand now faces a 1-in-100 year health and economic challenge. The pandemic continues to evolve, and it has already caused enormous social and economic disruption. It has required agility on the part of New Zealanders, the Government included,” said the Minister.

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Over the fence

Genuine reasons for fixed-term employment

Fixed-term employment agreements are a useful tool when, as an employer, you do not require a permanent employee but need an employee for a stated period of time, or until the conclusion of a specific project, or for a specified event.

The Employment Relations Act 2000 imposes specific requirements that must be complied with for a fixed-term employment agreement to be valid.

You must have ‘genuine reasons’ based on reasonable grounds for making the employment fixed-term.

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