Requirements in employment agreements that staff work extra hours, if requested, need urgent review: Employment Court says many will be unenforceable

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Employment Update

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Many employment agreements contain clauses saying that staff may be required to work reasonable overtime. Some agreements for salaried staff have clauses providing that the "duties of your position may require you to work additional hours beyond the normal hours of work". A very recent decision of the Employment Court, Postal Workers Union of Aotearoa v New Zealand Post Limited  [2019] NZEmpC 47, has thrown such arrangements into considerable doubt. The Court said that employees may not be obliged to work the additional hours.

All employment agreements will need to be reviewed to check for compliance.

NZ Post employs delivery agents to deliver mail to households and businesses throughout New Zealand ("posties"). The collective employment agreement (CEA) provides that "delivery agents may be required to work reasonable over time in excess of their standard hours…".

When the posties work overtime hours they get paid for these hours. But the Postal Workers Union said that this clause is an "availability provision" under section 67E of the Employment Relations Act 2000 (ERA). The union argued that because the clause made no provision for payment of reasonable compensation for making themselves available in this way, the clause was unenforceable, and posties could refuse to work overtime.

The Employment Court agreed. It decided that the clause was an "availability provision" but did not comply with section 67D of the ERA. Posties were entitled to refuse to work overtime.

This result occurred because of the Employment Court's interpretation of sections 67C-67H of the ERA. Those sections were inserted into the ERA in 2016. At the time, most commentators understood the sections had been inserted to deal with undesirable practices associated with "zero hours" contracts. A "zero hours" contract is one where the employee has no guaranteed hours of work, has to hold themselves available to be assigned work by the employer, and is not entitled to refuse work when offered, or to take up secondary employment.

Section 67E provides that an employee can refuse to perform work in addition to any guaranteed hours specified in the employment agreement if the agreement does not contain a valid "availability provision".

An "availability provision" is a provision under which the employee's performance of work is conditional on the employer making work available, and the employee is required to be available to accept any work that the employer makes available. "Availability provisions" can only be included in the employment agreements that specify agreed hours of work and include guaranteed hours of work. Employers must have genuine reasons for including availability provisions and those reasons must be based on reasonable grounds.

A key aspect is that availability provisions must provide for the payment of reasonable compensation to the employee for being available to perform the extra work.

These sections of the ERA appear to be aimed at preventing staff being compelled to hold themselves available to work, without any guarantees of  hours of work, and at the same time not being allowed to take secondary employment – the classic "zero hours" situation.

The New Zealand Post CEA is not a "zero hours" contract. Employees have standard hours of not less than 37 hours and 40 minutes per week. At a minimum, they will be paid for those hours. The days and times of work are fixed by rosters. But on any particular day there might be a need for additional hours to be worked because of the volume of work. That was the purpose of the overtime clause.

The Employment Court concluded that the contractual hours of 37 hours and 40 minutes provided in the CEA were "guaranteed hours" under section 67D. The court concluded that the overtime clause was an availability provision because it required the employee to be available to accept work provided by NZ Post. Under the ERA such a provision could not however be included in the employment agreement without payment of reasonable compensation to staff for making themselves available. There was no such compensation in the CEA. So the clause was invalid. The staff were entitled to refuse to perform any request for overtime.

The court took the view that although the general "noise" around the insertion of the relevant sections of the ERA was that it was intended to strike at "zero hours" contracts, that was not necessarily the effect intended by Parliament.

The impacts for employers are:

  • Any provision in an employment agreement requiring an employee to work overtime when requested will be an "availability clause". It will not be enforceable unless 2 things apply.
  • First, there must be genuine reasons based on reasonable grounds for including the clause.
  • Second it must provide reasonable compensation to the employee for being available.
  • Payment for the overtime hours worked will not be such compensation. There must be something paid in addition.

For waged employees this could be a loading of the standard hourly rate. For salaried employees, there could be a provision, as noted at the outset of this update, that the salary is agreed by the parties to cover all hours worked. Section 67D(7) of the ERA makes it clear that for salaried employees the parties can agree that the remuneration includes compensation for the employee making themselves available for work under an availability provision.

If there is no such provision the employee will have no obligation to work the additional hours. And, an employer who in some way penalises or disadvantages a staff member for refusing to work the additional hours will be exposed to personal grievance claims and awards of damages

All employers need to review their employment agreements promptly to check whether there is any requirement on staff to work extra hours either by way of overtime or otherwise. If there is, the agreement needs to be further reviewed to check whether there is provision for compensation for being available, in the case of waged employees. In the case of salaried employees, wording must comply with section 67D (7).

Our team is across the issues and are available to help with reviews.