Employment Protection

Employment Protection clauses need reviewing in the light of recent cases

In December 2004, the Labour Government changed the law to require every employment agreement to contain an “Employee Protection Clause” (referred to as an “EPP clause” for short).  The purpose of an EPP clause is to protect employees when their employer sells part or all of the business to a “new employer”. 

Since 2004, many employers have paid only lip service to EPP clauses. The clauses often say no more than that, in the event of sale of the business, the employer will meet with the new employer and negotiate the arrangements that would apply to affected employees.

This approach will have to change after a recent decision of the Chief Judge of the Employment Court in which His Honour identified three elements that an EPP clause must contain:

• A process to follow in negotiating with the new employer

• Identification of matters that will be so negotiated

• A process to be followed to identify entitlements available to non-transferrring employees

(Eastern Bay Independent Industrial Workers Union Inc v Carter Holt Harvey Ltd [2009] ERNZ 334)

An employer should not just “stick in” clauses that look good, They should get legal advice specific to their own specific circumstances.  But, to give an idea of what an effective EPP clause might look like, I set out one below. It assumes that the redundancy provision in the employment agreement includes an entitlement to redundancy compensation.

Sample Employee Protection Clause:

  1. If we enter into any contract or arrangement with any person (“the new employer”) under which all or any part of our business will be contracted out, sold or transferred to a new employer (“a restructure”), we will, in relation to any affected employee;

    • seek to raise for discussion with the new employer, before such restructuring, the potential impact such restructuring may have on employees including whether or not the new employer will make offers of employment to employees and, if so, whether the offers will be made on substantially the same or similar conditions.

    •  provide you with information about the general nature of the restructure including how it is likely to affect you, the estimated timing of the restructure and the outcome of our discussion with the new employer about the impact on employees. We are not obliged to provide you with commercially sensitive information.

    • give you as much opportunity as practicable to consider the information, to discuss it with us, and to suggest other relevant information which we should seek from the new employer.

    • use our best efforts to ensure the new employer will offer you ongoing employment on substantially the same terms and conditions as under this employment agreement including, specifically, any benefits related to your length of service with us.

  2. If the new employer makes no offer of ongoing employment to you or the offer made is so materially inferior to the terms of your employment with us such that you are not obliged to and do not accept the offer, we may (if there are no suitable redeployment opportunities with us) declare you redundant. You will be entitled to notice and compensation as set out in the Redundancy Clause of this agreement.

  3. If you decline a suitable offer of redeployment from us, or if you decline an offer of employment from the new employer which is on substantially the same terms and conditions as in this agreement, we may declare you redundant.  You will be entitled to notice, but no redundancy compensation will be payable.

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