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Notice Period Issues – Contractual Mechanisms & Protections for Employers

Published 21 Apr 2024

An area of employment relations that is often overlooked by employers until issues arise relates to contractual issues that concern notice requirements and/or obligations under the terms of an employee’s individual employment agreement.

Some of the main challenges that employers sometimes face in this area include the following situations:

  • An employee giving more notice that what is contractually required when they resign. For example – what happens if an employee has a contractual notice period of two weeks resignation, but they give their employer six weeks’ notice, or longer?
  • An employee resigns while they are off on annual leave. For example – what happens if an employee’s notice period is four weeks resignation, but they give their resignation just prior to them taking a long period of annual leave, which runs concurrently with their notice period?
  • An employee resigns, but has no intention to work out their contractually specified notice? For example – they have a four week notice period, but they resign and simply choose not to come back to work?

In terms of each of the above situations, an employer’s options largely depend on the quality of their contractual arrangements with their employees. To that end, each of the above scenarios would potentially be able to be addressed by the following:

  • Where an employee gives more notice then what is contractually required: A clause that makes it clear that the employer is not obligated to accept a longer period of notice than whatever is specified in the employment agreement and retains the contractual right to hold the employee to their specified notice period.
  • Where an employee resigns just prior to going on annual leave, or during annual leave: A clause that makes it clear that the employee is obligated to work out their notice period and that other forms of leave, i.e annual leave does not count towards their notice period, unless approved by the employer. Of course, if an employee is genuinely sick, or injured during their notice period, then the employer must exercise good judgement here. Specifically, an employer should not hold the employee to the strict requirement to ‘work out’ their notice period if they are sick or injured and unable to. Conversely, if the employee resigned just prior to going on annual leave, or during annual leave then it would be open to the employer to point to the clause and advise the employee that the notice period must be worked and consult with them about working their notice period out following their return from annual leave.
  • Where an employee resigns and fails to work out their notice period: A clause that makes it clear that if the employee fails to work out their notice period, then the employer may deduct monies from their final pay, including their holiday pay for any losses that arise because of the employee’s breach. Additionally, there are other legal considerations that apply to this scenario that need to also be considered, e.g. obligations under the Wages Protection Act 1983 and the requirements for deductions to be lawful & reasonable, along with consulting with an employee about a deduction before it is made.

If in doubt, then seek advice and assistance from EAL by calling 0800 15 8000 at the earliest opportunity.

Case Law Example – Employee Giving More Notice Than Contractually Required

The general position in terms of case law is that an employer is required to accept a longer period of notice where an employee gives a longer period of notice, unless the issue is expressly dealt with by the terms of the employee’s employment agreement. Namely, the employer retains the contractual right to decline a longer period of notice is the important point to note here. This should be adequately reflected in the relevant clause in the employee’s employment agreement.

In Hobson v The Corner Store 2009 Limited [2013] NZERA Christchurch 2010, an employee gave ten weeks’ notice of resignation, when only two weeks’ notice was required by his employment agreement. Mr Hobson believed he was doing his employer a favor by giving more notice, but his employer did not see it this way. Mr Hobson’s employer told him that he could finish immediately and paid him two weeks in lieu of notice. Mr Hobson commenced legal proceedings against his former employer as a result.

The Employment Relations Authority (the Authority) found that Mr Hobson was contractually entitled to give a longer period of notice than the two weeks stipulated in his employment agreement, and it determined that his employer’s actions in not accepting the longer notice period/requiring him to finish work immediately meant that he was unjustifiably disadvantage and unjustifiably dismissed. It is worth noting the fact that Mr Hobson’s employment agreement did not contain any express clause that allowed his employer to decline a longer period of notice.

The Authority determined Mr Hobson was unjustifiably dismissed and awarded him remedies totaling $6,192.30, and a further $1,071.56 towards his costs.

Key Takeaway: This case demonstrates the importance of having adequate contractual mechanisms and safeguards in place to cover such situations. Specifically, had the employer had an express clause that stated that it was not obligated to accept a longer period of notice, then it could have relied on that to decline Mr Hobson’s extended period of notice.

EAL’s Employment Agreement Templates – The Employer’s Toolbox

EAL’s template employment agreements by default contain various contractual provisions, including clauses that respond to the scenarios and issues mentioned above.

EAL’s employment agreements are purposefully designed to protect the employer’s interests at every stage while being legally compliant. EAL regularly updates its resources, including its employment agreement templates on the Toolbox via its continuous improvement processes.

You should ensure that you are using the latest version of the employment agreement template (permanent, fixed term, and casual) via the employer agreement builder.  If you are using an older version, then you should update your templates with EAL’s latest version.