Verbal Employment Agreements in New Zealand: Are They Legally Binding?
An employment agreement is a contract between an employer and an employee that sets out the terms and conditions of their working relationship. While a verbal agreement can form the basis of an employment relationship in New Zealand, the law specifically requires employment agreements to be in writing. This article explores the legal standing of verbal employment agreements under New Zealand law, primarily focusing on the Employment Relations Act 2000.
The Legal Status of Verbal Employment Relationships
In New Zealand, a verbal agreement can establish an employment relationship, meaning a person performing work for another under a verbal understanding may indeed be considered an employee [Source: Employment Relations Act 2000, s 6]. However, this does not negate the statutory requirement for the agreement to be put in writing.
Requirement for Written Employment Agreements
The Employment Relations Act 2000 mandates that all employment agreements must be in writing [Source: Employment Relations Act 2000, s 63(1)]. This requirement applies to both individual employment agreements (between one employer and one employee) and collective employment agreements (between an employer and a union representing a group of employees). The Act specifies that employers must provide a prospective employee with a written employment agreement before they start work, allowing them a reasonable opportunity to seek independent advice [Source: Employment Relations Act 2000, s 63(3) and s 65].
Minimum Content of a Written Employment Agreement
Even though verbal agreements may exist, the law outlines specific information that must be included in a written individual employment agreement to ensure clarity and protect both parties. This includes:
- The names of the employee and employer [Source: Employment Relations Act 2000, s 64(1)(a)].
- A description of the work to be performed [Source: Employment Relations Act 2000, s 64(1)(b)].
- The place of work [Source: Employment Relations Act 2000, s 64(1)(c)].
- The agreed hours of work [Source: Employment Relations Act 2000, s 64(1)(d)].
- The wages or salary payable, and how and when it will be paid [Source: Employment Relations Act 2000, s 64(1)(e)].
- A plain language explanation of the services available for resolving employment relationship problems, including a reference to the 90-day limitation period for raising a personal grievance [Source: Employment Relations Act 2000, s 64(1)(f)].
Rights and Obligations Under Verbal Agreements
Even if an employment agreement is not in writing, certain fundamental rights and obligations still apply. The employment relationship is underpinned by the principle of good faith, which requires employers and employees to be open and honest with each other and actively and constructively engaged in their relationship [Source: Employment Relations Act 2000, s 4].
Employees are still entitled to their minimum entitlements established by law, such as the minimum wage, annual leave, public holidays, sick leave, and parental leave, regardless of whether there is a written agreement [Source: Holidays Act 2003, s 16; Minimum Wage Act 1983, s 5; Parental Leave and Employment Protection Act 1987, s 35]. The terms of an employment agreement can include both express terms (those explicitly stated, whether verbally or in writing) and implied terms (those understood to be part of the agreement, such as those derived from law or custom) [Source: Employment Relations Act 2000, s 5].
Consequences of Not Having a Written Agreement
If an employer fails to provide a written employment agreement, they may face penalties. The Employment Relations Authority or Employment Court can impose a penalty for non-compliance with the requirement to provide a written agreement [Source: Employment Relations Act 2000, s 135]. Furthermore, the absence of a written agreement can make it more difficult for both parties to prove the agreed terms of employment, potentially leading to disputes and personal grievances [Source: Employment Relations Act 2000, s 103].
For example, if an employer wishes to implement a probationary period (a period of up to 90 days at the start of employment to assess suitability), this must be agreed to in writing in good faith before the employment starts [Source: Employment Relations Act 2000, s 67(1)]. If it's not in writing, the probationary period is not legally effective.
When to Seek Independent Legal Advice
It is highly recommended that individuals seeking to understand their specific employment rights and obligations, or those involved in a dispute concerning a verbal employment agreement, consult with an employment law specialist or a representative from an official body. They can provide tailored guidance and assist with navigating the complexities of employment law. Free advice is available from Community Law Centres throughout New Zealand.