Employment Law Changes

28 Apr 2011

Employment Law Changes

How Will They Affect Your Business?

The recent amendments to the Employment Relations Act 2000 and Holidays Act 2003 have now come into force. The law changes have raised a few questions that employers need to be ready to answer. We set out below a few of the issues that are arising.

90 day trial period

Since 1 April 2011, all employers will be able to put new employees on a 90 day trial period, during which the employee is not entitled to bring a personal grievance or other legal proceedings relating to a dismissal.

Should an employer introduce a 90 day trial period?

There are opposing view points on the impact and effectiveness of 90 day trial periods. The impact of the 90 day trial period being extended to all businesses may not be as profound as initially thought, as many businesses are aware of the importance of the recruitment process, invest considerable resources in this process, and take great care in selecting employees. This approach is unlikely to change. Nevertheless, many businesses are considering introducing a 90 day trial period, and it may prove to be a useful tool for many businesses.

However, it is likely that many employers with significant union presence will not be able (or willing) to introduce a 90 day trial period initially. Employers who are party to collective agreements face the following problems:

• Unions have publicly stated they will oppose an employer's request to insert a 90 day trial period into a collective agreement.
• For the first 30 days of employment, an employee whose position is covered by the collective agreement is employed on the terms of the collective agreement, and any additional terms mutually agreed upon by the employer and the employee that are not inconsistent with the collective agreement. This means that an employee whose position is covered by the collective, whether or not they agree to be on the collective, could not be placed on a 90 day trial period, if it is not in the collective agreement.
• It is only those employees whose positions are not covered by the collective who could be on a 90 day trial period from the outset. This could lead to inconsistent terms for non-union employees.

When considering whether to introduce a 90 day trial period, employers should take into account the effect a trial period may have on recruitment. For example, many employees (especially senior executives or overseas applicants) may be reluctant to shift jobs if they were to be subject to a 90 day trial period at their new place of employment. Some employers may see not having a 90 day trial period as a competitive advantage for attracting staff.

Cashing up annual leave

From 1 April 2011, employers and employees can agree to cash up to one week of the employee's annual leave entitlements. An employee must make a request in writing, and an employer is not obliged to grant any such request.

Can an employer have a policy stating that it will only consider requests to cash up a full week of annual leave and will not consider any requests to cash up less than one week?

We understand that some businesses want to introduce such a policy to reduce administrative costs.

The amendments to the Holidays Act 2003 are not entirely clear on this issue. However, in our view, an employer is only permitted to adopt a policy that states that it will not consider any requests to cash up leave. Employers may not adopt a policy which specifically states the type of requests it will consider.

An employer could still put in place a policy that puts staff on notice that a request for less than a week is likely to be declined. However, the employer would have to at least consider such a request.

When can an employee request to cash up annual leave?

The relevant section of the Holidays Act 2003 states that from 1 April 2011, an employee can make a request to cash up leave in "each entitlement year". An entitlement year is defined as a period of 12 months continuous employment beginning on the employee's anniversary date.

Therefore, if say, an employee's anniversary date was 15 May, that employee would be able to make a request to cash up leave (provided he/she had not used all of his/her annual leave entitlement) on 15 May 2011. Whereas, if an employee had an anniversary date of 17 January, that employee would not be able to make a request to cash up until 17 January 2012.

Calculation of holiday pay

The Holidays Act has been amended to include a new "average daily pay" formula for calculating pay for public holidays, alternative holidays, sick leave and bereavement leave.

What is the difference between "relevant daily pay" and "average daily pay" and when should they be used?

"Relevant daily pay" means the amount the employee would have received if he/she had worked on the day in question. This is relatively easy to calculate for salaried staff or staff with a fixed roster.

"Average daily pay" may be used when it is not possible or practicable to determine an employee's relevant daily pay or if the employee's daily pay varies within the pay period when the holiday falls.

Employers should review their existing employment agreements to ensure that they do not require the employer to pay for public holidays, alternative holidays, sick or bereavement leave on the basis of an employee's relevant daily pay only.

Current employment agreements

How should an employer deal with current employees whose employment agreements predate the 1 April 2011 changes?

This will depend on the content and language of the employment agreement.

If the agreement does not outline the parties' specific entitlements, and states, for example, that the employer may request a medical certificate in accordance with the Holidays Act 2003, the new provisions will automatically apply and the employer may not need to vary the agreement in any way.

However, if the employer would like to apply a new provision to the employee's agreement (for example, the transfer of a public holiday), the employer should prepare a variation letter proposing to change the employee's employment agreement in accordance with the legislative changes.

Conclusion

While it is too early to fully estimate the impact of the new laws on employment relationships, in our view the significance of these changes has been exaggerated in some quarters. For most businesses, these changes should simplify/clarify existing employment arrangements, although not significantly.

Employers should take this opportunity to review their employment agreements and policies to ensure they are up-to-date. If we can be of any further assistance, please let us know.

Author

Phillipa Muir

Partner - Employment

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