How To Comply With the New Hours of Work Law

Changes to the Employment Relations Act come into force on 1 April 2016 that affect you if you want your employees to remain available to work at certain times but cannot guarantee them work during those times.

ELIMINATING ZERO-HOURS CONTRACTS

These changes have come about as a result of concerns that some employers were not guaranteeing any minimum hours of work for their staff, but requiring those same staff to remain available to work as and when required.

These have come to be known as “zero-hours contracts“.

While technically lawful until now, they are viewed badly because it could lead to a situation where the employee has no guaranteed income from their employer and yet is unable to freely look for work elsewhere because their employer demands that they remain available to them only.

To address this, the Employment Relations Act is being amended to:

  • require hours of work to be in writing if they must be performed on specified days or with specified start and finish times;
  • allow employers to require employees remain available to work only if they have genuine need, guarantee minimum hours and compensate the employee; and
  • introduce restrictions around cancelling shifts and preventing employees from seeking secondary employment.

The most important changes relate to how hours of work can be agreed between you and your staff. These changes are summarised below.

SPECIFIC HOURS OF WORK MUST BE AGREED IN WRITING

You don’t have to agree on specific hours of work with your employee (unless you want your employee to be available outside a minimum guaranteed number of hours, as explained below).

Where specific hours are uncertain or not agreed, you can just give “an indication of the arrangements relating to the times the employee is to work”. An example of this may be a general statement that the employee is to work 40 hours a week.

But if you want your employee to work:

  • on specified days of the week, or
  • with specific start and finish times,

then you must specify those things in the employment agreement including any flexibility that will apply if changes are needed from time to time.

HOW TO ENSURE EMPLOYEES ARE AVAILABLE TO WORK

If you want your employee to be available to work at certain times without committing to actually providing work for them during those times, then you must:

  • have genuine reasons for needing them to be available;
  • specify their hours of work, including some guaranteed hours, in their employment agreement; and
  • compensate your employee for being available outside those guaranteed hours and specify that compensation in their employment agreement.

If you fail in any of the above three respects, then you will not be able to demand that your employee be available to work at the times you desire and you cannot disadvantage them if they refuse to work during those times.

Guaranteed hours

A key aspect of the new requirements is that you must guarantee at least some minimum hours for your employee if you want them to remain available for work.

This gives your employee the assurance that they have at least some regular income each week that they can count on.

How many guaranteed hours must you give your employee? That is left for you to decide.

Though it seems you could conceivably offer just one guaranteed hour of work each week, the amount of guaranteed hours you provide may affect whether or not you will be seen to have genuine reasons for wanting your employee to remain available to work outside those guaranteed hours.

What are genuine reasons?

The changes to the Act suggest that you will likely have genuine reasons for needing an employee to be available to work during certain times if you can show:

  • the needs of your business cannot reasonably be met unless your employee remains available to work during those times (for example, your work can be weather dependent or vary according to customer demand);
  • the number of hours that your employee is required to be available is reasonable; and
  • the total period that your employee is required to be available is not out of proportion to the hours of work you have guaranteed to the employee (for example, you may not likely be allowed to guarantee one hour of work, but require your employee to remain available for a further 39 hours a week).

For example, builders may want their employees to be available to work all day on Saturdays to catch up on work that could not be done earlier in the week because of bad weather. That would appear to be a genuine need of the business.

But the needs of the business is not the only factor – the number of hours you require the employee to be available and how many hours you guarantee to pay them regardless of how much work they actually do, will also affect the assessment of whether your reasons are genuine.

What must be included in the employment agreement?

Not only must you have genuine reasons, you must also record in the employee’s written employment agreement:

  • what the agreed hours of work are for the employee, including the days of the week the work will be performed, the start and finish times of such work and any flexibility that may be required in relation to the days or start or finish times;
  • what number of hours you guarantee to pay the employee regardless of whether they work them; and
  • how you will compensate the employee for being available to perform work outside the guaranteed hours of work.

What is reasonable compensation?

The changes to the Act do not say how to compensate your employees for being available to work in addition to hours you guarantee to them. It is not even clear that the compensation needs to be a payment of money (though it does refer to the compensation being “payable”).

But whatever the compensation is, it must be reasonable taking into account “all relevant factors”, including:

  • the number of hours you want your employee to be available to work;
  • what proportion of hours you want the employee to be available that make up the agreed hours of work;
  • the extent to which your employee will be restricted by making themselves available to work;
  • what you normally pay your employee for work they perform; and
  • if the employee is paid a salary, the amount of their salary.

Be aware that just because your employee agrees to a level of compensation, their agreement alone will not make it reasonable. It must be objectively reasonable after taking into account “all relevant factors”.

So it is possible that you agree on compensation with your staff only to find out later that it was not reasonable by reference to the above factors, in which case your employee could justifiably refuse to make themselves available for work outside their guaranteed hours.

An example clause

Putting all of this together, here is an example hours of work clause that might be used by a builder who wants their employee to be available to work on Saturdays:

Your normal hours of work will be from 8am to 5pm, Monday to Friday, but you may also be required to work on Saturdays between 8am and 5pm if needed. Sometimes our work will be affected by weather, so your start and finish times and days of work may vary as directed. However, we guarantee to pay you for at least 20 hours of work each week regardless of how many hours you actually work. If you remain available to work during the above times, we will compensate you by paying you 50% of your hourly wage for each hour you remain available but do not work.

What if I pay my staff a salary?

If you pay your employee a salary, you can agree with them that they will be available to work during a range of hours and that their salary includes compensation for all hours worked.

However, the salary must still be reasonable. You can’t get away with paying a ridiculously low salary and asking the employee to be available at your every beck and call.

That is because the amount of the salary will be taken into account when the reasonableness of the compensation provided to the employee for making themselves available is being assessed. Again, the reasonableness of the compensation must be assessed against “all relevant factors”.

Here is some suggested wording that you could include for salaried staff, assuming you have paid them a reasonable salary:

You are paid a salary. You agree that your salary compensates you for all hours worked and all hours you are required to be available to work in addition to your guaranteed hours.

Employees can refuse to perform work

What happens if you want your employee to be available to work but do not comply with these new requirements?

The employee can refuse to perform work during a period when you have asked them to be available.

And if they are justified in their refusal because you have not complied with the law, then you cannot treat that employee adversely by doing such things as warning them, dismissing them or refusing benefits that you would have otherwise given them.

CONCLUSION

From 1 April 2016, you will need to take care to specify in your employment agreements any specific days of work and start and finish times for your staff.

Further, if you want your employees to remain available to work during times when you cannot guarantee them work, you need to give thought to how you will compensate them for being available and how the arrangement will be specified in your employment agreements.

If you are prepared to guarantee your employee’s total hours of work, then these changes will not greatly impact you. But even those employers who pay their staff salaries, and ask them to work outside their normal hours from time to time, will need to comply with these changes if they want to ensure their employees remain available to work.