92 – Zero Hour Contracts

The Government has now passed the Employment Relations Amendment Act 2016, which legislates against the use of “Zero-hour” contracts in employment agreements. A Zero-hour contract is where an employee is required to be available to work as and when required by an employer but without any guarantee of a minimum number of hours.

The changes aim to increase flexibility where it is desired by both the employer and employee.  So while an employer and employee do not need to have agreed hours, times or days of work under the new legislation, whether they do or not will dictate what an employer can expect an employee to do.

We discuss the various contractual arrangements commonly used and what the new legislation provides below:

1.             No Agreed Hours

Where no hours are set out in the employment agreement, an employer must provide an indication of the arrangements relating to the employee’s working times (this is consistent with current law).

However, if there are no guaranteed agreed hours of work in the agreement, there cannot be an “availability provision” in the agreement.  This means an employer can no longer require employees to be available outside the indicated working times – i.e. to be available as and when required by the employer.

2.             Agreed Hours

If an employer and employee have agreed to set hours of work, these must be stated in the employment agreement. This can be agreement on any or all of the below:

o    number of guaranteed hours of work;

o    start and finish times;

o    days of the week the employee will work; and

o    flexibility in the above.


2.1          Hours on Top of Agreed Hours

Employers will not be obliged to offer work that is above the agreed hours.  Employees will be free to decline extra work, unless the employee agreed to an availability provision in the employment agreement (see below).

2.2          Availability Provisions

If there is an availability provision, the requirements of that availability and the compensation rates will need to be agreed and stated in the employment agreement.

2.2.1       Availability Provisions – Genuine Reason Based on Reasonable Grounds

Employers will also need to have a genuine reason based on reasonable grounds to require employees to be available above the agreed hours and a genuine reason based on reasonable grounds for the number of hours of availability required. When considering whether there is a genuine reason based on reasonable grounds, employers must consider:

  • Whether it is practicable for them to meet their business needs without using an availability provision?
  • How much availability the employer is requiring and the proportion of the availability required as compared to the number of agreed hours of work.

2.2.2     Availability Provisions – Reasonable Compensation

When establishing what compensation an employer offers to an employee in exchange for their availability, employers must consider:

  • the number of hours they are requiring an employee to be available;
  • the proportion of the availability to the number of guaranteed hours;
  • any specific restrictions the availability provision requires (for example, that the employee must not consume alcohol while on call).

3.             Cancelling a Shift

When a shift is cancelled, the employer will need to give either reasonable notice or reasonable compensation before commencement of the shift and this must be specified in the employment agreement.  If the employment agreement does not specify either of these, then the employee must be paid the full amount they would have earned had they worked the shift.

Reasonable notice will include consideration of the nature of the business, ability to foresee cancellations, effects on employees, the nature of the employment agreement and whether employee has guaranteed hours or not.  Reasonable compensation must have regard to the length of notice period in the employment agreement and the remuneration employee would have received.

4.             Unreasonable Restrictions on Secondary Employment

Employers will be prevented from restricting secondary employment for employees, unless they have a genuine reason based on reasonable grounds to do so. Such grounds may include:

  • the risk of loss to the employer of knowledge, property (including intellectual property) or competitive reputation; or
  • preventing a real and unmanageable conflict of interest.

5.             Prohibiting Unreasonable Deductions From Employees’ Wages

The current law already requires an employee’s consent to make deduction from wages.  However, employers will now need to consult with the employee on each specific deduction, even where the employee has given general consent to lawful deductions in their agreement (this does not include KiwiSaver or student loan payments).

Even where there is consent, the deductions must not be unreasonable.  For example, an employee may consent to a deduction for breakage caused by a third party, but if the employee had no control over the third party, this would be unreasonable.


This legislation will be in force from 1 April 2016

Now is a good time for employers to go over their template employment agreements and check they will be compliant in time for the law change.  It is important to note, however, that all employment agreements that are currently in force, remain valid until 1 April 2017.

The key focus is to increase certainty for both parties at the beginning of the working relationship as to the mutual commitment they are making

Disclaimer: Our aim is to assist our clients to be proactive in ensuring statutory compliance and best risk management in the area of employment law. This publication is, however, necessarily brief and general in nature. You should therefore seek professional advice before taking any action in relation to the matters dealt with in this publication.