An employment contract is your frontline tool for clarity, compliance, and workplace harmony. While it may seem like paperwork to some, a well-drafted employment agreement sets the tone for the entire working relationship. In New Zealand, the legal framework is clear: every employee must have a written agreement. But going beyond the minimum isn’t just smart—it’s essential for building trust, protecting your business, and fostering a stable, transparent workplace.
More Than Just a Legal Obligation
Under the Employment Relations Act 2000, employers are legally required to provide all employees with a written employment agreement. It’s not optional. Failing to do so can result in infringement fees of $1,000 per employee, and penalties of up to $10,000 for individuals or $20,000 for corporate employers. But beyond avoiding fines, there’s a bigger picture here. A contract that clearly sets out rights, responsibilities, and expectations reduces the risk of disputes and misunderstandings. It also adds an immediate sense of professionalism and structure to your onboarding process—something every business benefits from.
What Must Be in the Contract: The Non-Negotiables
The law mandates several key clauses that must be included in every individual employment agreement. These core elements help ensure both parties know where they stand from day one.
- Identifying the Parties: Both the legal name of the employer and the employee must be stated.
- Job Description: The role, title, or a detailed description of the work to be performed must be included. Flexibility can be built in, but clarity is key.
- Place of Work: Whether it’s an office, home, or hybrid model, the primary location(s) must be indicated.
- Hours of Work: These may be fixed or flexible but should include the number of hours, start/finish times, and days of the week expected.
- Pay Details: The salary or wage, how it’s calculated, how often it’s paid, and any applicable deductions must be specified.
- Public Holiday Pay: A clear statement that employees will receive at least time-and-a-half for working public holidays is required.
- Dispute Resolution: The agreement must outline how employment problems will be resolved, including the 90-day limit for most personal grievances and 12 months for sexual harassment claims.
- Nature of Employment: Whether the role is permanent, fixed-term, or casual must be clear. For fixed-term roles, a genuine reason and end date must be documented.
- Employment Protection: If the business is sold or work is contracted out, there must be a clause outlining how employees are protected in such scenarios.
Best Practice Additions
While the law lays down the foundation, it’s the additional clauses that provide real strength and foresight.
- Notice Periods: Define how much notice is required from both parties for resignation or termination. Specify if this differs during trial periods or in misconduct cases.
- Trial or Probationary Period: If you’re a small business (fewer than 20 employees), a 90-day trial period can be used, but it must be written into the contract and signed before employment begins. Otherwise, a probationary period can be included with evaluation criteria clearly outlined.
- Confidentiality: Protecting sensitive information like client lists and trade secrets is vital. Define what constitutes confidential information and set expectations around handling it.
- Intellectual Property (IP): Clearly assign ownership of any work, content, or inventions created during employment to the employer.
- Restraint of Trade: Reasonable non-competition and non-solicitation clauses can protect your business after an employee leaves. Ensure these are limited in time and geography to stay enforceable.
- Rest and Meal Breaks: While not legally required in the agreement, it’s helpful to confirm entitlements, especially if your company offers enhanced break policies.
- Custom Clauses: Depending on your industry, consider including terms around flexible work, shift changes, training budgets, or allowances for phones, travel, or insurance.
Drafting with Care and Keeping it Alive
It’s not enough to write a contract and file it away. Contracts should be:
- Written in Plain English: Avoid legalese. Make sure the employee can understand their obligations and entitlements.
- Regularly Reviewed: Update agreements when roles evolve, company policies change, or legislation is amended.
- Well-Documented: Keep signed copies of all versions. This protects both parties if there’s ever a dispute.
- Legally Reviewed: Especially for complex clauses like restraints or fixed-term justifications, get legal advice to ensure compliance.
Final Thoughts
If you’re an employer, now’s the time to review your contracts. Are they current? Do they comply with the law? Do they reflect the realities of your workplace? And if you’re an employee, don’t hesitate to ask questions or seek clarification before signing.
At the end of the day, employment contracts aren’t just bureaucratic hurdles—they’re the foundation of a fair, productive, and sustainable working relationship. Getting them right from the start is one of the most valuable investments any business can make.