An Employment Contract is a legally binding contract that forms the foundation of the working relationship between an employer and an employee. It is the roadmap for fair and legally sound employment.

An Employment Contract clearly defines the terms and conditions of a job, outlining the rights and responsibilities of both parties, which includes essential details such as compensation, holiday entitlements, work duties, and more. 

An Employment Contract may also be known as: 

• Hiring contract 
• Work contract
• Job contract

Employers, managers, and human resources professionals should use Employment Contracts when hiring, managing, and welcoming new employees to their teams. Written contracts ensure clarity and help prevent misunderstandings. 

Employees vs. independent contractors

An Employment Contract is specifically designed for employees. It's not the appropriate document for hiring contractors or the self-employed, who operate differently from employees and earn income by invoicing for their services. 

In addition, most employment laws don’t apply to contractors. 

Yes, Employment Contracts are legally required by New Zealand law. Employers must issue an official contract 30 days after the employee's start date. Failure to comply can result in an infringement fee of $1000 and additional penalties of up to $10,000 for individual employers and up to $20,000 for corporations. 

New Zealand law also ensures that minimum employee rights are upheld, even if the Employment Contract doesn’t include them. This includes entitlements like the minimum wage and annual holidays.

Some unions have collective agreements. These agreements between employers and employees function similarly to Employment Agreements but for larger groups. Unionised employees covered by a collective agreement can also agree to individual terms separately.

There are several types of employees. In New Zealand, most employees have the same or similar entitlements. However, their employment contracts may outline different terms. 

New Zealand residents can create their Employment Contract with LawDepot’s step-by-step questionnaire and customised template. We will guide you through each step, prompting you to fill in all relevant information, including: 

1. Employment type, such as permanent, fixed-term, or casual
2. Start date of employment
3. Employment location
4. Employer and employee details, including names and addresses
5. Job title and a description of duties
6. Details of any trial or probationary period
7. Compensation details, including salary or wages and pay frequency
8. Information on KiwiSaver contributions
9. Work hours, including daily and weekly expectations
10. Leave and vacation entitlements
11. Restrictive covenants, such as confidentiality, non-solicitation, or non-competition clauses
12. Requirements and procedures for termination of employment

New Zealand has a comprehensive framework of laws protecting employee rights and governing employment relationships. Employers should be well-versed in the legislation that applies to their businesses and employees. Some of the most critical employment laws include:

Restrictive covenants, also known as restraint of trade clauses, are terms within an Employment Contract that aim to protect the employer's business interests by limiting certain actions of the employee during and after their employment. These clauses often have limitations on time and geographical area to be legally enforceable.

For a restrictive covenant to be valid in New Zealand, it generally must:

• Not be detrimental to local commerce
• Not unreasonably hinder an employee's ability to pursue their career
• Be considered reasonable and genuinely necessary to protect the employer's legitimate business interests

Some examples of restrictive covenants include: 

Confidentiality clause

Non-compete clauses prevent employees from using their employer's information to gain a competitive advantage in the same field. They function similarly to a Confidentiality Agreement.

Non-solicitation clause

Non-solicitation clauses prevent employees from soliciting or recruiting an employer’s clients, customers, or other employees.

Non-compete clause

Non-compete clauses prevent employees from using the employer’s information to gain a competitive advantage in the same field.

During employment, you might need to change an employee's contract. However, you cannot unilaterally change the fundamental terms of an Employment Contract without your employee's consent. Fundamental terms typically include wages, work hours, and employment type (full-time, part-time, permanent, etc.).

Furthermore, any changes made cannot result in less favourable terms than the legal minimum standards defined by New Zealand law.

Once a verbal agreement has been made with your employee, you may use a Contract Addendum. It is a valuable tool for changing an existing contract without drafting a new document. The addendum must be signed by both the employer and the employee and attached to the original Employment Agreement.

If one party in an Employment Contract breaches its terms, the other typically has legal recourse. The consequences depend on the breach’s severity.

Employee breach

Examples of employees breaching their employment terms may include lateness, failure to perform assigned duties, and unauthorised absences.

An employer might give a warning to encourage an employee to fix minor breaches. If the behaviour doesn't improve, the employer may issue a termination letter, signalling the end of employment.

More severe breaches can justify immediate termination. These can include actions such as:

• Violating a confidentiality policy
• Threatening co-workers
• Theft
• Misrepresenting qualifications

In cases of potential employee breach, seeking guidance from Employment New Zealand is advisable to ensure fair and lawful procedures are followed.

Employer breach

Employers may breach employment terms by creating unsafe workplace conditions, discriminating against or harassing employees, wrongful termination, failing to pay wages, or engaging in illegal practices. Furthermore, an employer breach may consist of any action that violates the legal minimum entitlements or the terms of the Employment Contract itself.

If an employer fails to uphold their responsibilities, there can be legal repercussions. A judge may order the employer to pay damages and cover legal fees.

For instance, if an employer withholds an employee's pay, they may be required to go to the Employment Relations Authority (ERA) or court to cover the unpaid wages and potentially compensate the employee for any resulting losses.

Employees facing a breach of their Employment Contract can take steps to protect their rights. This includes: 

• Seeking guidance on how to proceed from Employment New Zealand
• Raising a personal grievance
• Take the matter to the Employment Relations Authority (ERA)

The employer or the employee has the right to terminate an Employment Contract. Employees who want to quit typically provide their employer with a resignation letter. Depending on the terms of the contract, a specific amount of notice in advance may be required.

When an employer terminates the contract, they must also provide notice as specified in the Employment Contract. Sometimes, the employer may choose to put the employer on agreed paid leave instead of notice. However, if the employee's actions constitute "serious misconduct," notice may not be required.

If the employer and the employee mutually agree to end the employment relationship, they can formally terminate the contract. This agreement should end the original contract by confirming both parties are released from their respective obligations. Both parties must sign this termination agreement to make it legally binding.