The devil is in the detail when it comes to employment agreements, as highlighted by a recent court case where ambiguity was costly for the employer.
In the 2023 decision Supercity Towing Ltd v Huch,[1] the Employment Court interpreted ambiguity in the employment contract against the party that drafted the agreement – Supercity.
The case provides a timely reminder to review individual employment agreements (IEAs), especially hours of work clauses and availability provisions – something our Employment law team is expert at.
The Supercity situation – simplified
While it is not unexpected or surprising for misunderstandings or different interpretations to arise between people, the impact of having this occur in the employment context can be significant and result in unexpected outcomes.
With Supercity Towing Ltd v Huch,[2] the Employment Court confirmed the general contractual principle of “contra proferentum” applied to employment agreements (Supercity).
Put simply, this means any ambiguity in an agreement will be interpreted against the party that drafted the agreement.
In Supercity, Judge Holden accepted the employee’s interpretation of agreed hours where the IEA was ambiguous about the number of agreed hours of work:
- the IEA stipulated that:
- there were 40 normal hours of work; but
- “the hours of work and shifts offered to the employee” spanned 12 hours Monday through Friday; and
- the employer’s business was a 24-hour, 7 day a week operation.
- in practice, the employee often worked more than 40 hours a week, even up to 80 hours, and would be paid for this work.
In this instance, the employer claimed that the agreed hours of work were 40 hours only. However, the employee claimed he was entitled to work and be paid for 60 hours, with reference to his IEA’s range of hours of work and shifts.
Judge Holden found in favour of the employee and accepted his argument that where ambiguity exists in an agreement, it should be interpreted in favour of the party that didn’t draft the agreement.
Judge Holden confirmed that this approach was consistent with the reality of how employment agreements are generally entered between employers and employees. It was also seen as consistent with the key statutory object of “acknowledging and addressing the inherent inequality of power in the employment relationship” enshrined in the Employment Relations Act 2000.
What does this mean to employers?
There are a range of circumstances where ambiguities and differences in understandings could potentially lead to costly results for employers.
Ultimately, with Supercity the employer wanted to reduce the actual work it would provide to the employee, however had to pay the difference between the hours provided and higher agreed hours of work. This is a timely reminder to review IEAs, especially hours of work clauses and availability provisions because these need to be specifically tailored to suit.
Another example is a miscommunication over working days and calendar days which could be the difference between having a workable 90-day trial or probationary period provision.
- Please contact our experienced employment law team if you have questions or would like our advice on employment contracts.
[1] [2023] NZEmpC 205.
[2] [2023] NZEmpC 205.
