When the employment relationship comes to an end, for whatever reason, there are still a few boxes to be ticked. So what needs to be done before you can bid each other a (hopefully) fond farewell?
The first step is to figure out what is happening with the notice period. How long is it? Will it be worked? Will the employer pay the employee in lieu of notice? Is there an option to put the employee on ‘garden leave’? As always, it is crucial to check the employment agreement, to see what has been agreed with regard to these matters.
Once the options are clear, employer and employee should ideally agree on how notice is to be dealt with. If this is not possible, and the agreement allows, the employer may choose to exercise its discretion to pay in lieu of notice or place the employee on garden leave. The employer needs to be clear about what is happening.
Generally, paying in lieu of notice is paying the employee instead of notice. This means that employment will come to an end at the time the employee is paid instead of notice, rather than at the end of the notice period. In contrast, an employee on garden leave will still be an employee until the end of the notice period, and will still owe obligations of fidelity, trust and confidence, and good faith, but will not be required to attend work.
Either way, it is important to be clear about: how notice is being dealt with, when the employee will be paid, whether they are required to work, and when employment will come to an end.
The departing employee is entitled to be paid their final pay ‘forthwith’ after the termination of their employment. Generally, this would be on (or before) the next pay day, although for employees paid monthly, it might be prudent to pay final pay earlier rather than waiting for a month. Check the employment agreement in case there is anything specified about when final pay will be paid.
Final pay will consist of any outstanding salary or wages, including for the notice period, and any outstanding holiday pay. If an employee is asked to work out the notice, and doesn’t, the employer does not have to pay the employee for this, but will still need to pay holiday pay.
Holiday pay needs to be calculated in accordance with the Holidays Act 2003. There are several calculations, depending on whether the employee has become entitled to annual holidays (i.e. after 12 months’ continuous employment) or whether they have not yet become entitled to their first (or another) 4 weeks of actual leave. The calculations are in sections 23 to 27 of the Holidays Act. It is important to work through those sections to figure out which ones are relevant, and that the employee’s holiday pay is paid correctly. If you need assistance with the calculations, we are happy to help.
Check whether there is a public holiday due to fall after the termination date. If the employee has become entitled to annual holidays, but has not taken them, count out the annual holidays owing on a calendar from the termination date onwards, and if there is a public holiday within that period, it should be paid as part of the employee’s final pay. This is a little-known provision, contained in section 40(3) Holidays Act.
If an employer wants to make a deduction from an employee’s final pay, the employee must have consented, either in the employment agreement, or separately. If the employer is relying on a deductions clause in the employment agreement, the employee will need to be consulted before a specific deduction is made. For further information about deductions, check out our earlier article on this topic.
Post employment obligations
Depending on the circumstances (such as the employee’s position, circumstances of their leaving, future plans, etc.) it may be prudent to remind a departing employee about their post-employment obligations. Check the employment agreement for specific obligations about confidential information, intellectual property, non-solicitation, and restraint of trade. In the absence of specific contractual obligations, there is an implied term that employees will keep confidential information confidential, even after the end of employment. This might be something that the employee needs to have front of mind as they move on to their next job.
There will inevitably be a number of practical matters to arrange when employment is coming to an end. These may include the handover of ongoing work, return of company property, collection of personal property, de-activation of security cards, and so on. Ideally, an employer will have a checklist to make sure nothing is missed.
It may also be sensible to have an exit interview for the employer to gain a full and frank assessment of the employer’s culture, processes, strengths and weaknesses. Sometimes, exit interviews can be a goldmine of information, which current employees are (for whatever reason) unwilling to share.
The employee may ask for a reference or certificate of service. There may be something in the employment agreement about this. Generally, an employer is required to confirm the employee’s start and finish dates, and may choose to confirm the employee’s position and reason for leaving. The employer is not required to provide a reference (unless this is in the employment agreement), but may choose to give a written or verbal reference.
Finally, while it is not legally required, it may be appropriate to recognise an employee’s service with some sort of farewell function, speech, or acknowledgement. This could be as simple as a mention at an all-hands meeting, a company-wide email, or as elaborate as a special dinner or morning tea. Circumstances will dictate what is appropriate, but it is always worth remembering the trite-but-true ‘New Zealand is a small place’. Setting a bridge alight may be momentarily satisfying for an employer, but could rebound later in the form of recruitment or retention problems. Similarly, an employee (or Member of Parliament) may briefly revel in telling the boss to take their job and re-staff it, but this could make things difficult when it comes to getting a reference and finding another job.
Most employee departures will be straightforward, but employment does throw up the odd weird and wacky fact scenario. If you need any help with severing the ties, or with tidying up the aftermath, please give us a call. As always, a quick phone call before taking action could save a lot of time and expense down the track.