Employment agreements are the basis of any relationship between employer and employee. Every year, the Employment Relations Authority and Employment Court hear hundreds of cases because of employers making mistakes or breaching their obligations relating to employment agreements.

The penalties in these cases regularly run into the tens of thousands of dollars. In one recent case, an employer was ordered to pay nearly $80,000 after failing to provide employees with employment agreements and treating them as contractors.

From my experience the 6 most common mistakes employers make are:

1.    Failing to have an employment agreement…

A written employment agreement is compulsory for every employment relationship. This applies to all types of employment from permanent full time to part time and casual.  

Without exception, you should always sign an employment agreement with any employee before they begin work, regardless of how long they will be with the business or how many hours they work per week.

A recent decision has found that an employee could raise a personal grievance after the 90-day time limit, because the employee was never provided with an employment agreement. This meant that the employee was unaware of the 90-day time limit and was therefore permitted to bring the claim out of time.

2.    Failing to sign the agreement before the employee commences work…

If an employee begins working before an agreement is signed, they automatically become a permanent employee. Fixed terms do not apply as there must be a clause in the agreement setting out the reason for the fixed term, and this has to be agreed before the employee commences work, or with the employee’s consent at a later time.

90-Day Trial periods do not apply as those terms have to be agreed and signed before the employee ever works for an employer. If an employee commences work and then either the employee or employer sign the agreement later, it is too late. The employee has already been employed.

In a recent case, an employee was ordered to pay $13,500 after relying on a trial clause that was included in an employment agreement. The agreement was signed after the employee had commenced work for the employer and was therefore invalid.

3.    Failing to keep copies of agreements…

All too often an employer will have got an agreement signed but not be able to locate a copy in their records. Employers are obliged by law to keep a copy of every signed employment agreement (and give a copy to the employee).

Employers are also obliged to keep a copy of every draft agreement given to an employee to consider. This is so even if an agreement is later signed.

These copies can be retained in hard copy or electronically.

4.    Failing to sign the correct type of agreement…

There are two major errors here.  Firstly, employers often fail to distinguish between the types of employees such as permanent (whether full time or part time), fixed term, and casual.

Treating someone as casual when they are working fixed hours on a regular basis can result in them becoming permanent employees with fixed hours.

Treating someone as being on a fixed term when there is no reasonable justification for the fixed term can result in them becoming a permanent employee.

A recent Court decision held that the lack of funding for a role is not a good reason for the fixed term nature, as a loss of funding can be dealt with by redundancy provisions. True fixed terms are for covering for a one-off project, or absences like sickness or parental care leave (maternity leave), not to provide “disposable” workers when there is ongoing work on a succession of projects.

Secondly, employers wrongly categorise people as contractors instead of employees. There are many steps to deciding if a worker is really a contractor or an employee in disguise.   

In a recent case, an employer was fined for treating a young employee as a contractor for 10 months. The employer was ordered to pay KiwiSaver contributions, holiday and sick pay, and compensation, totalling almost $20,000.

You should make sure that you understand the difference and sign the appropriate contract of services for an employee, or contract for services for a contractor. See our guide to distinguishing an employee from a contractor here.

5.    Failing to consult before making changes…

Employment agreements cannot be unilaterally altered. An employee’s consent is needed. Therefore, do not put things in the agreement you want to change without consultation e.g. codes of practice or policy manuals.

Have a general clause that the employee will abide by all rules and policies, and then provide a copy of the manual. Do not build its clauses into the agreement.

Do not try to change clauses without an employee’s consent (after consultation). Recent circumstances have seen many employers unilaterally changing hours and pay. The outcome of these moves will be seen as cases reach the ERA, but do not expect it to go well for employers who cannot show genuine consultation and agreement.

In one such example, an employer initially offered a worker employment, and then later attempted to change her employment status to that of a contractor. The Employment Relations Authority stated that this unilateral change in the employment agreement was not permissible, and that the worker was still an employee.

6.    Failing to have the necessary clauses…

It is also important that the employment agreement contain all necessary clauses. You cannot rely on a clause that is not in an agreement, and you cannot try to impose one afterwards.

In a recent case an employee was suspected of drug use. The agreement that the parties signed did not have a drug testing clause. The employer tried to implement and enforce a drug testing policy after the allegations were raised.

The Employment Relations Authority held that employers cannot implement and apply policies after an incident has occurred. The employer was ordered to pay the employee $23,000 in lost wages and compensation. If the drug testing clause was in place first the issue could have been avoided.

There are also lots of clauses that are mandatory in employment agreements. Some have a particular required wording and will not be valid if that wording is not used.

The importance of having well written employment agreements, and a reliable process for signing them and retaining copies, cannot be overstated.

If you are unsure about the content in your employment agreements, or have concerns surrounding your employment process, it is wise to speak with a professional experienced in the area.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.


Alan Knowsley & Matthew Binnie