Employment Law Potpourri

The first thing to bear in mind with employment law is that the legal description of employment is narrower than the common usage of that word. From a legal perspective, there are two types of people providing services – employees and contractors. The difference is sometimes subtle but always very important. The difference is captured in the description of the legal agreements that apply: an employment agreement is a contract of service, and the other one is a contract for service.

The use of the word "of" implies subservience or a lack of freedom, and this is also implicit in the old description of an employer-employee relationship as that of master and servant. By way of contrast, the contractor is (theoretically) a free agent, trading with the world at large at his pleasure. A fundamental aspect of the employment relationship is loyalty – in exchange for the security of an ongoing job and wage (and various other benefits), an employee gives up the right to sell their services to whoever they want to.

Traditionally, it has been up to the courts to determine what an employment relationship is and what a contract for services is. Even if the parties to the relationship have treated it as a contract for services, the court has always had the discretion to find otherwise. In the film industry, as a consequence of the Bryson v. Three Foot Six court decision and The Hobbit dispute, the court no longer has that discretion and all relationships are deemed to be contracts for service, unless both parties explicitly agree otherwise.

A contract for services is governed exclusively by the terms of the contract, whereas a contract for services is governed both by the terms of the contract and the provisions of the Employment Relations Act (which can override explicit terms of the contract).

A contract for services does not have to be in writing, but it is helpful if it is. An oral contract is just as effective as a written contract, but when a dispute arises, you will find you get a lot of disagreement between the parties as to the precise terms of the contract governing them. If you are a contractor, I do therefore recommend that you do supply written terms of trade as part of the deal. Many people are worried about putting off their clients if they hand over a complicated document full of legalese for them to sign. But contractual terms of trade do not have to be overly complicated or legalistic, and three key points on an invoice are way better than nothing.

Employment contracts, on the other hand, are required to be in writing (although from a contractual point of view, an oral employment contract is still binding – it’s just that the employer will be in breach of the Employment Relations Act by not providing a written contract).

An important difference between an employment relationship and a contract for services is the process for terminating the services. In a contract for services, it simply comes down to the contract. If the contract says it finishes on a certain date or on the occurrence of a certain event, then when you get to that date, or when the event occurs, the contract is over. A contract for services can be terminated for a number of other reasons also, and there is no particular process that has to be gone through to do this (other than whatever is mandated by the wording of the contract). There is nothing wrong with calling the contractor in and saying “listen, I don’t really like you, I think you should leave, and we can finish this contract right now.” The contractor might refuse and insist on the contract carrying on until the termination date, but there is nothing wrong with the ‘employer’ giving it a go.

If you did this in an employment relationship, you would have committed a major blunder. The reason is that in an employment contract there are implied duties of fairness and good faith (going both ways). In a contract for services, there is no obligation to be fair, nice, or reasonable (unless the contract specifically requires this). But in an employment contract, you have to be fair. This means if you do want to terminate an employee’s services, there is a detailed process that you must follow (and this may also apply even where the employment contract is for a set term and that term has expired). Before you even get to the process, of course, there has to be a reason for the termination. Generally, there are three acceptable reasons for termination:

• failure of the employee to turn up and do the job (whether through ill health or some other reason),
• employee misconduct,
• redundancy.

All of these require a detailed process, involving formal communications and meetings (other than misconduct so serious that immediate termination without notice is legally permissible). All of these processes are separate and must never be combined (for example, setting up a redundancy process and also talking about performance issues). In each case, the process is crucial. A position may be genuinely redundant, but if you didn’t follow the correct process in getting to that point, you will be liable for financial penalties and may be forced to reinstate the employee.

Best advice is, if you are an employer wanting to dismiss someone, or an employee being dismissed, talk to your lawyer. It’s a minefield.

And if you are a contractor, you might want to talk to your lawyer also about getting some written terms and conditions sorted.

And if you need a lawyer, well, I just happen to be one…