The Employment Relations Act 2000 (ERA) requires every employer to provide every employee with a written employment agreement. This written agreement may take the form of an individual employment agreement between one employee and the employer or a collective agreement between a group of employees and one or more employers.
The employment agreement contains the core terms of employment between the parties, and often a number of other general provisions, that govern how the relationship will operate.
However, from time-to-time other provisions may emerge outside of the written agreement with these then continuing to operate on a ‘custom and practice’ basis.
Such provisions may include discounted purchasing privileges, free carparking or meals, discretionary use of a company vehicle etc. These can often be referred to at times as ‘discretionary provisions’ – provided on the goodwill and sole discretion of the employer. These provisions generally operate without concern until such time as the employer party seeks to make change to the provisions and is met with opposition from staff who claim such privileges now to be a ‘right’ associated with their employment.
While never intended to be a term and condition of employment, such provisions can have the same legal status in time and therefore may be more difficult to change or withdraw then you would think.
Case Law has reinforced the strength of the argument by an employee of a provision that has been established outside of the formally agreed terms and conditions of employment, and also the requirement of employers to have to consult with employees before seeking to make changes to such provisions.
At times removing a discretionary provision can be relatively simple – for instance, an employee is not provided with a company vehicle as part of their core terms and conditions of employment, but over time has formed a habit of taking a vehicle home overnight ‘as it is easier for them to go straight to the job site in the morning’. To remove this provision may be a simple as stating that all company vehicles must be returned to the yard overnight and may only be retained by the employee on the prior approval of the employer on a case by case basis. Under this scenario, the employer then begins to regain authority over the use of the vehicle – which may still be available to the employee where a genuine need exists.
However, at times discretionary benefits may be more difficult to remove – for example a business may have established a practice whereby employees have been able to obtain a meal during their working hours at no cost to them. Removing this will result in the employee incurring a personal cost in having to provide their own lunch/dinner. In such case an overnight change to the provision of the meal is certain to result in some form of up-roar from the effected employees.
Under this scenario a carefully constructed consultation process, with any change occurring over a more prolonged period is essential to ensuring that staff remain engaged with the business. An employer may also have to consider interim steps such as moving from a ‘free meal’ to a subsidized meal in order to create a win-win situation.
Often these practices are established at the time of recruitment where an employer may be outlining to the prospective employee the ‘benefits’ available to employees working within the company. Such discussions, although they never find themselves documented in the employment agreement, form the impression in the employee’s mind that they are an ‘entitlement of working for the employer’. As such, the employer should be very careful to distinguish between what are the formal terms and conditions and what are provided at the employer’s sole discretion.
We would recommend that, where an employer does provide discretionary benefits, these are recorded as such within the company handbook.
If you need assistance in addressing any issues associated with issues that may have become custom and practice within your business and you are looking to pull these back in, or proactively looking to prevent them being an issue down the track, please feel free to give us a call.