5 Clauses You Should Have In Your Employment Agreements

If you employ staff, you need to have employment agreements. It is the law.

The Ministry of Business, Innovation and Employment (MBIE) offers an employment agreement builder. This is a quick way to build an employment agreement online. It is also free.

However, there are certain improvements you can make to any agreement, in order to cover possibilities that you may not have thought of.

Here are five clauses you won’t find in that standard agreement provided by MBIE, but that you should nevertheless consider including in your own employment agreements if you are an employer.

DEDUCTIONS

A deductions clause lets you deduct sums that an employee may owe you from their pay.

While the MBIE standard agreement includes a deductions clause, it is limited in scope. It only permits you to make a deduction where you have overpaid the employee because they took leave in advance. It does not give the employee’s consent to you making a deduction in any other cases where the employee may owe you money, for example, if they damage your property or do not return it on termination.

So here is a suggested deductions clause you could use instead:

“The Employer may deduct from the Employee’s pay any amount that the Employee owes the Employer, including the value of any overpayment, or unreturned or damaged property.”

GARDEN LEAVE

A garden leave clause is very useful if your employee resigns and tells you they are leaving to join a rival business.

In those cases, you may want the right to direct your employee to stay away from the workplace during their period of notice. But you can’t do that unless the employee agrees. And where better to record that consent than in your employment agreement?

Here is a suggested garden leave clause you could insert into your next employment agreement:

“The Employer may place the Employee on ‘garden leave’ for all or part of the Employee’s period of notice of termination. During a period of ‘garden leave’ the Employee will remain a paid employee of the Employer, but the Employer may require the Employee not to attend the workplace, contact any customers or other employees, or undertake any duties whatsoever.

TECHNICAL REDUNDANCY

A technical redundancy arises when you sell or transfer all or part of your business to another entity, and your employees continue to be employed by the new owner.

In those cases, you don’t want to be paying your employees redundancy compensation or be bound to give them a period of notice of the termination of their employment with you.

Redundancy compensation is not mandatory in New Zealand, so often that is not an issue.

However, the period of notice can be an issue if you want to give effect to the transfer or sale quickly, and the employees have agreed to move across. You could be bound to pay out their period of notice if they do not agree to waive it.

A technical redundancy clause can address this by making it clear what will amount to such a change, and whether redundancy compensation or notice will be payable or not.

The MBIE standard agreement includes a clause specifying that no compensation will be offered to the employee if they are only technically redundant. However, it does not deal with notice or the circumstances where an employee agrees to transfer across to the new owner, even if they are not on the same terms and conditions.

Here is a suggested modification of that technical redundancy clause to address these concerns:

“Where the Employee’s position of employment is redundant by reason of the sale, outsourcing, merger, or transfer of any part of the Employer’s business or operations, the Employee shall not be entitled to redundancy compensation or their period of notice on termination if they are offered similar employment by the purchaser, transferee, or merged entity, on terms of employment which are no less favourable than the Employee’s terms of employment at the time of the sale or outsourcing, or otherwise on terms that they accept.”

BUSINESS INTERRUPTION

The Christchurch earthquake in 2011 made us all realise how life can be severely interrupted by events outside our control.

Many businesses that were fortunate enough not to suffer personal injury or loss still had to cope with the fact that they were unable to resume operations for a period of time.

You might imagine other examples where businesses could equally be affected by supervening events. The risk of bird flu or other pandemics, where citizens are forced to remain at home, has been a very real threat in years gone by.

Clarifying both parties’ obligations in such events is prudent. You cannot afford to keep paying your staff indefinitely if your business is not functioning and drawing in revenue. Yet you would also be desperate not to lose staff either, because you will want to hit the ground running again as soon as you are able.

However, from your employees’ perspective, they will need funds to live on and cannot commit to remaining employed by you indefinitely in such circumstances.

Here is a suggested clause dealing with the possibility of an interruption to normal business. It gives you the ability to ask employees to work from elsewhere or to suspend them for a time, with the suggestion that you can agree with them to take some of that time as annual holidays:

“In the event that all or part of the Employer’s business operations are suspended as a result of an event beyond the Employer’s control (such as an epidemic, war, natural disaster, electricity failure, strike, or governmental action) (Interrupting Event), the Employer may request the Employee to undertake alternative duties, work from another location, or suspend all or part of the Employee’s employment. If the Employee is suspended, the parties may agree that the Employee will take accrued holidays or leave for the period of suspension, but the Employer will otherwise not be required to pay the Employee for any period where the Employee is not able to work due to the Interrupting Event.”

ACKNOWLEDGEMENT OF DISCLOSURE

Sometimes you may discover information about a new recruit that, had you known it beforehand, would have made you think twice about offering them employment.

Perhaps you find out they were dismissed from their prior job, or have a criminal conviction that is relevant to their suitability for their role (e.g. your new CFO has a conviction for fraud).

In such cases, you want to point to a warranty that the employee has made when agreeing to employment with you that assures you they have not withheld any crucial information. They should also acknowledge that by failing to make such disclosure, they risk being dismissed.

Here is an example clause you can use:

“By signing this agreement, the Employee acknowledges that the Employee has not deliberately failed to disclose any matter that could have materially influenced the Employer’s decision about whether to employ the Employee, and that the Employee may be summarily dismissed if found to have failed to make any such disclosure.”

CONCLUSION

The MBIE standard agreement is a great start to getting your employment agreements sorted.

Yet, you can make some changes to it that you may not be aware of.

I have highlighted five additional clauses that could prove useful to you in time.