Employment Law Update
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Restrictions on Restraints of Trade
The Employment Relations (Restraint of Trade) Amendment Bill, which passed its first reading on 26 July 2023, is an important bill to keep your eye on. The Bill would prohibit the use of restraint of trade clauses in employment agreements for low to middle income employees and introduce significant restrictions for restraint of trade provisions generally.
Essentially, the Bill intends for restraint of trade provisions to have no effect for employees whose average weekly earnings are less than three times the minimum wage (defined as the ‘threshold weekly rate’ in the Bill). Subject to changes to the minimum wage, the Bill would mean restraint of trade provisions would only have effect for people currently earning over $2,724.00 per week (gross, 40-hour work week) or $141,648.00 (gross) per year.
Further, if an employer wants a restraint of trade to be enforceable for higher income employees, the Bill requires the employer to compensate the employee (separate from any salary, wages or other benefits) an amount equal to at least half of the employee’s average weekly earnings for each week (or part week) that the restraint of trade provision applies after their employment ends. The employer must also have a proprietary interest which the restraint of trade provision protects. The Bill would also cap the duration for any restraint of trade to no more than 6 months.
If the Bill is passed into law, its proposed changes to the enforceability of restraint of trade provisions would begin applying to existing individual employment agreements six (6) months after its commencement. The Bill also sets out specific provisions in relation to collective agreements – where a collective agreement is in force immediately before the commencement of the Bill (if passed), the above changes would apply to any collective agreement negotiated between Employers and the Unions which replaces that previous agreement.
Introduced on 22 September 2022, the Bill is currently at the Select Committee stage and the Education and Workforce Committee are now accepting and hearing submissions on it. Submissions will remain open until 11.59pm on Monday 18 September 2023.
The following links would be useful if you are considering making a submission:
How to make a submission – New Zealand Parliament (www.parliament.nz)
A recent case of note
Acceptance of a Record of Settlement
Parties to an employment relationship frequently use section 149[1] Record of Settlement (RoS) agreements to resolve disputes and to reach full and final settlement of an employment relationship problem. The parties may reach such an agreement via without prejudice negotiations or attending mediation. Provided the parties agree, getting a Record of Settlement signed off is usually a straightforward process.
But what happens if you have agreed to the terms of a Record of Settlement in principle, but decide against signing the formal RoS? Or another executive/officer within your company has agreed to the terms, but you don’t want to do so?
The recent case of Harding v Ziwi Limited[2] explored this issue. Mr Harding was employed by Ziwi Limited (Ziwi) and received share options in Amazonia Midco 1 Holdings Limited (Amazonia). The two companies described themselves as being associated companies, and ultimate ownership of 100 per cent of the shares in Ziwi are owned by Amazonia.
Ziwi took steps that were going to impact Mr Harding in his role which led to him raising a personal grievance against Ziwi. The parties entered negotiations to resolve the dispute between them and as a result, Ziwi and Amazonia put a settlement offer to Mr Harding.
Mr Harding did not accept the companies’ offer and sent a counteroffer by email, via his lawyer. A word document version of this was requested and provided. In reply to this, the lawyer for both Ziwi and Amazonia sent a Record of Settlement which contained similar terms to what Mr Harding had set out in his earlier email, but with ‘marked up’ changes. The lawyer also said: ‘[…] if Mr Harding approves of the agreement, please send us a signed version and we will get it signed and executed.’
Mr Harding agreed to this and returned a signed copy of the agreement. Ziwi countersigned the agreement. Mr Harding was then informed all signatories of Amazonia were overseas, but it would be signed and because the parties had an agreement in principle, Mr Harding’s lawyer could vacate their scheduled mediation. Despite this, Amazonia eventually refused to sign the agreement and disputed that there was a binding and enforceable agreement.
The Employment Relations Authority found the Record of Settlement was binding and enforceable on Mr Harding, Ziwi and Amazonia. It found the general rule that Amazonia was to be bound by the acts of its Counsel (its’ lawyers) applied and that there were no circumstances present to displace this proposition. It also found Mr Harding accepted the offer from Ziwi and Amazonia by accepting the tracked changes in full and without alteration, and confirmed this by signing the agreement. Mr Harding’s lawyer then communicated Mr Harding’s acceptance by sending the signed agreement to Ziwi and Amazonia.
Some key take-aways from this case:
- Lawyers and employment advocates need to make sure they obtain clear instructions from their clients when engaging in negotiation or establishing the terms of a potential RoS;
- Both employers and employees need to ensure when making an offer or counteroffer of settlement, it is on terms they are happy with and they have the appropriate authority to make such an offer. Generally, if the other party accepts your offer, you will be bound to uphold it.
Something to reflect on…
Mental Health and Performance Management
The process of managing an employee’s performance can be difficult and challenging, particularly for an employer with limited managerial/HR resources. However, recent cases demonstrate the necessity for an employer to adapt and rethink their planning and actions when an employee who is being performance managed presents concerns related to their mental health.
Formal performance management is a process usually carried out through a Performance Improvement Plan (PIP). This is a mechanism for an employer to formally review and manage an employee’s performance. It may ultimately end in the termination of employment for poor performance. A PIP needs to accurately and clearly communicate the concerns the employer has about the employee’s performance, provide recent examples of performance failings, and state the standards of performance expected of the employee in their role.
A PIP usually also outlines any training or additional support the employer will provide to the employee to assist them to reach the expected level of performance.
An employer’s first port of call before considering formal performance management/a PIP should be informal coaching. Coaching and feedback is through informal and regularly scheduled private 1-on-1 meetings and providing feedback on the job on a regular basis. It’s important to communicate concerns in a timely and constructive way, to turn issues around through open and respectful communication. If informal performance management is not effective in lifting the employee’s performance to the required standard, then an employer may consider a formal approach.
If you are a manager considering implementing a formal performance management process, it is important to check the following before doing so:
- Does the employee have an accurate and up-to-date Position Description which clearly sets out the duties and expectations for their role?
- Have the employee’s responsibilities, Key Performance Indicators (KPIs) and lines of reporting/accountability been clearly communicated?
- Has the employee received training necessary to fulfil their responsibilities?
Has the employee received informal coaching regarding their performance, appropriate supervision and support?
Throughout the life of a PIP the manager should clearly communicate and check the employee understands what is expected of them to meet the performance expectations, and provide a reasonable opportunity/timeframe for the employee to improve. Work needs to be given to the employee to enable them to improve. EAP should be offered. Formal review meetings should be scheduled at regular intervals. If performance is not meeting an appropriate standard this should be advised at these meetings. It is commonly accepted a first and final warning is to be given before any termination for poor performance. Termination is on notice.
If an employee raises a personal grievance, the employer’s actions will be subject to scrutiny by the Employment Relations Authority. An adverse finding against an employer arising from performance management and any subsequent unjustified dismissal could expose the employer to the risk of the employee being reinstated to their position, where their performance issues may persist.
Mental Health Considerations
If an employer begins formal performance management with an employee, that employee may raise concerns of anxiousness, stress, or raise specific mental health issues. The 2018 Employment Court case of FGH v RST[3]dealt with this issue head-on. The first time the parties came before the Employment Court, the central issue was around the informal and formal performance management of an employee whose anxiety and ADD condition were negatively impacted by performance management. The Court considered what active steps an employer, being aware of the conditions, should take to explore the medical issues. The Court did not accept the employee’s allegation that she was bullied but held the employer needed to engage with the employee in relation to their condition and take steps to obtain adequate medical advice to assess whether it was appropriate to proceed with the performance management process or whether the process may cause more harm. The Court found the employer’s failure to do so, was a failure to comply with its obligations to maintain a safe and healthy work environment.
If an employer is performance managing an employee, and the employee raises concerns related to a medical condition(s), their medical background or their current circumstance, the employer needs to listen and consider whether they should proceed as planned given these concerns, or whether they should explore the medical issues further. What may be considered ordinary or reasonable on paper, may not be when mental health and/or medical conditions are involved.
In a later related proceeding involving the same parties, FGH v RST[4], the Court emphasised the duty of good faith cuts both ways. The case involved concerns the employer learned of in 2021 around social media use outside the workplace and a subsequent physical incident when the employee returned to work. The employee had been asked to provide medical information herself but had not provided it. The case, while involving a separate process (a disciplinary investigation), highlighted that an employee also has an obligation to take reasonable care over their own health and safety, should engage with their employer in a genuine and constructive way, and must provide relevant medical information which the employer may not be aware of.
Assistance
If you have encountered any of the circumstances we have covered in this article, or need advice on a specific situation, our lawyers are here and happy to assist you. Talk to a member of the Dyhrberg Drayton Employment Law team today!
Annah Casey-Solly, Associate and Will McMaster, Lawyer
[1] Section 149, Employment Relations Act 2000.
[2] Harding v Ziwi Ltd [2023] NZERA 409.
[3] FGH v RST [2018] NZEmpC 60.
[4] FGH v RST [2022] NZEmpC 223.
