Making Variations Employment Agreement

Posted on: Nov 12, 2013

The world doesn’t stand still, it’s constantly moving and so it the environment in which businesses operate.  Hence, it is very common that the circumstances under which you employed someone may change, and you therefore need to make amendments (or variations) to an employment agreement.

The problem is, you cannot simply issue new employment agreements containing different terms and conditions to existing employees.  It is unlawful to unilaterally make changes to an existing employee’s terms and conditions of employment, and therefore the trick is to ensure to get your employee’s agreement.

Existing employees

An employer is not entitled to unilaterally insert a new clause into an existing employment agreement. As a general rule, contractual terms cannot be varied without the consent of both of the contracting parties. An employer has the right to manage his or her business and the line between the employer’s right to manage, which does not require the consent of an employee (but does require consultation), and a variation of contract, which does require the consent of an employee, can sometimes be hard to draw.  Certain terms and conditions are more protected than others – for example, the wage to be paid and hours of work are clearly important terms of the agreement and the employer cannot unilaterally reduce the employee’s wage rate or hours of work.

Any variation to the contract must be done by agreement and in conformity with any provision in the employee’s employment agreement about how the agreement is to be varied. The Employment Relations Act 2000 provides that when bargaining over a variation to the terms of an individual employment agreement the employer must:

• give the employee a copy of the intended agreement (not just a copy of the proposed variation) under discussion
• advise the employee that he or she is entitled to seek independent advice about the intended agreement, and
• give the employee a reasonable opportunity to seek that advice, and consider any issues that the employee raises and respond to them.

The employer must keep copies of a finalised individual agreement, and of intended agreements supplied during bargaining for a variation.

There is no law setting out an exact consultation process to follow when entering into an agreement to vary an existing agreement, but the following process is suggested. The process must be fair and equitable.

1. Check the employment agreement for any relevant provisions, including provisions on the process to be followed on how a variation is to be carried out.
2. Write to the employee and ask him or her to attend a meeting (time and date) to discuss the proposed change.
3. In the meeting, tell the employee what the proposed changes are and provide a copy of the proposed new agreement.
4. Tell the employee when you hope to introduce the new arrangement, provided they agree to it.
5. Emphasise that the employer understands it cannot vary the employee’s contract without the agreement of the employee and ask the employee to consider the matter and to consider any other ideas he or she may have to solve the problem or avoid the change.
6. If it is a possible outcome that without the changes the employee’s position may become redundant, warn the employee that if an appropriate solution cannot be found, the employee’s position might become redundant.  This is important information for him/her to know before making their decision as to whether or not to agree to the proposed changes.  Don’t use redundancy as a threat however; only say this if it is actually a reality.

At the meeting, go through the proposed agreement with the employee and explain the reasons for the need for change as far as is reasonable. Give the employee plenty of time to discuss the matter and tell the employee he or she is entitled to seek legal advice. Agree to meet a few days later.

If agreement can be reached, the new agreement should be recorded in writing and the employee asked to sign the agreement. If it is a reduction in pay or benefits, or a restraint of trade has been put in place, the employer should give some “consideration” to the employee in return for the employee giving something up to ensure that the new agreement is binding.  The employee should be given a letter with the new employment agreement and stating when it will come into force.

If the employee refuses to accept the variation, the employer could make the employee’s position redundant provided it first follows a fair and proper procedure and can show clear evidence of the commercial necessity for the redundancies.

New employees

Employers are entitled in add conditions into their employment agreements with any new employees provided they are on an individual employment agreement.  It doesn’t matter if new employees have different terms and conditions to existing employees.  The Employment Relations Act 2000, section 65(2) sets out the required contents of an employment agreement but otherwise provides section 65(1)(b) that the agreement may contain such terms and conditions as the employer and employee think fit.

An employment agreement must at least contain the following clauses:

• the names of the employee and employer concerned; and
• a description of the work to be performed by the employee; and
• an indication of where the employee is to perform the work; and
• an indication of the arrangements relating to the times the employee is to work; and
• the wages or salary payable to the employee; and
• a plain language explanation of the services available for the resolution of employment relationship problems, including a reference to the period of 90 days in section 114 within which a personal grievance must be raised

It is wise to include many other clauses to this document, as it forms the fundamentals for the employment relationship.  For help drafting specific clauses to suit your business, or for a simple template document for you to start with, please contact the team at Paul Diver Associates.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.