Employment contracts

As surprising as it sounds, in Australia there is no obligation at law to have a written contract of employment. So why have one at all? Well, a written employment contract is first and foremost designed to protect you, the employer. Without a written employment contract, disputes over the terms and conditions of employment are likely to arise. Employers often have difficulties dealing with their employees when there are no employment contracts in place to guide the employment relationship.

Choosing the right type of employment contract is a tricky question. There is no magic ‘one size fits all’ solution. The employment contract needs to carefully reflect the agreement between you and your employee. Before you start drafting, you should think: is the role covered by an award or enterprise agreement? Is the role being offered on a full time, part time or casual basis? Is the role for a fixed term or a specified project?

Once you have chosen the type of employment contract, you will need to consider what clauses to include and what you should leave out. The employment contract should include an outline of the employee’s duties and responsibilities, the initial probation period and a prohibition on other paid work while working for you. You may also want to include clauses dealing with confidentiality, intellectual property rights and post-employment restraints. But there are also some clauses that you should not include. In short, you should not include anything that is contrary to law or an applicable industrial instrument, discriminatory, ambiguous, vague, contradictory or confusing.

As a HR Assured client, you will have access to a full suite of compliant template employment contracts, as well as a team of experienced workplace relations consultants to assist you in creating bespoke contracts have been tailored to suit your commercial needs. If you need help drafting an employment contract, contact HR Assured for a free consultation on 1300 345 875 or book online.

Do I need a written employment contract?

It’s quite common for many smaller businesses to employ workers on the basis of a “nod and a handshake”. This is not surprising. After all, it can be time consuming to draft an employment contract and often too expensive to pay someone to do it for you. But what happens when there is a disagreement between you and your employee? If you don’t have a written employment contract, how do you prove what the agreed terms and conditions of the employment are?

A written employment contract is first and foremost designed to protect you, the employer. In the absence of a written employment contract, disputes over the terms and conditions of employment are likely to arise. Employers often have difficulties dealing with their employees when there are no employment contracts in place to guide the employment relationship.

While legislation such as the Fair Work Act (FW Act) and Work Health and Safety laws impose numerous statutory obligations on the employer, there are very few obligations imposed on the employee. There may also be no evidence of the agreed terms and conditions of the employment without a written employment contract. Who is the employer? What is the commencement date? What are the agreed hours of work? Where will the work be performed? Who will does the employee report to? What is the agreed remuneration? How much notice does the employee have to give you if they want to resign? These are all basic questions that are easily answered by having a written employment contract from the start.

How do I choose the right type of employment contract?

So you’ve decided that you need a written employment contract. But how do you choose the right type? This is a difficult question. There really is no magic ‘one size fits all’ solution when it comes to employment contracts. The contract needs to be tailored so that it carefully reflects the agreement between you and your employee. If you accidently leave something out, then it will be difficult to prove this was part of the deal in the event of a dispute. On the other hand, if you try to include something that wasn’t part of the deal, your employee may refuse to sign the employment contract.

Although there is no standard employment contract, there are three key questions you should ask yourself:

  1. Is the role covered by an award / enterprise agreement?

Whether or not the role is covered by an industrial instrument such as an award or an enterprise agreement will affect various minimum conditions and entitlements including the employee’s agreed hours of work, breaks, minimum rate of pay as well as other benefits such as penalties, overtime and allowances.

You can of course choose to provide more generous terms and conditions of employment than those in the applicable industrial instrument. But it is important to ensure that the contract does not breach terms of the industrial instrument where this applies to the role.

On the other hand, if the role is not covered by an industrial instrument, then the employment contract should state this. Even where the employee agrees, you won’t be able to exclude or avoid the industrial instrument simply by stating that the industrial instrument doesn’t apply. But if there is ever a dispute about whether or not an industrial instrument applies, the fact that both parties had agreed that the role was not covered by an award or enterprise agreement will likely weigh in your favour.

  1. Is the role full time, part time or casual?

There are important differences between permanent (ie full time and part time) employment and casual employment. As such, the type of employment will also have significant implications for the employment contract.

The same job may be performed on either a full time, part time or casual basis. Generally speaking, casual employees are paid a little bit more than permanent employees, but will not be entitled to things like annual leave, sick leave and redundancy pay. There is also more flexibility to change the agreed hours of work for a casual employee and generally no obligation to continue to provide work. Putting this in the contract will avoid arguments if you ever want to change the roster or reduce shifts.

On the other hand, permanent employees are generally contracted for a fixed number of hours, up to 38 ordinary hours for a full time employee as well as reasonable additional overtime. Permanent employees will be able to access entitlements such as paid annual leave and paid sick leave so it is important that your contract state what your expectations are in terms of notice and evidence for paid leave, or simply refers to the relevant policy. If the contract is for a part time role, is there an obligation under an award or enterprise agreement to specify the agreed hours of work, including the days and times on which work will be performed? If so, this should be outlined in the employment contract.

  1. Is the role for a fixed term or specific project?

Just as there are important differences between permanent and casual employment, whether the role is ongoing or for a fixed period of time will also have implications for the terms of your employment contract.

If the role is for a fixed term or linked to a specific project, you will need to consider whether to include an option that the parties may terminate the contract sooner upon notice. If you do include this clause, then the employee may resign before the work is complete. But if you decide to not include this clause, then you may be required to pay out the balance of the contract if you ever want to terminate the employment before the agreed expiry date.

On the other hand, if the role is not for a fixed term or linked to a specific project, then the parties will usually have the right to terminate the contract upon notice; either the minimum amount of notice under the National Employment Standards or a longer period of notice as specified in the employment contract.

What should I include in my employment contract?

As outlined above, an employment contract should outline all of the basic terms and conditions of employment, such as who the employer is, the commencement date, the agreed hours of work, where the work will be performed, who the employee reports to, the agreed remuneration and notice of termination. But there are a range of other things that you can also include which are primarily designed to benefit you, the employer.

The employment contract should include an outline of the employee’s duties and responsibilities by and impose obligations on the employee such as to “perform the duties and responsibilities assigned to you to the best of your ability”, “serve the employer faithfully and diligently” and “comply with all lawful and reasonable directions”. It is also a good idea to include a probation period which puts the employee on notice that their performance will initially be closely reviewed and monitored and also a clause which prevents the employee from undertaking other paid employment while working for you.

There are also some important clauses that should usually be included dealing with things like confidentiality, intellectual property rights and post-employment restraints. A confidentiality clause should be drafted in such a way as to protect your confidential information while an intellectual property clause should be drafted so as to grant you as the employer certain rights over the use and ownership of the intellectual property that is created by the employee during the course of their employment. Post-employment restraints are designed to protect the legitimate commercial interests of the business. There are various types, including a non-competition clause which prevents the employee from working for a competitor, a non-solicitation clause which prevents the employee from soliciting your clients and a non-poaching clause which prevents the employee from poaching your employees. While a court will generally enforce a reasonable non-solicitation and non-poaching clause, a non-competition clause may be a little trickier to enforce without a good business case for doing so.

What should I not include in my employment contract?

There are a number of terms that you should never include in an employment contract. In short, you should not include anything that is contrary to law or an applicable instrument, discriminatory, ambiguous, vague, contradictory or confusing.

The National Employment Standards (NES) provide for certain minimum entitlements that apply to all employees, regardless of whether they’ve signed a contract, are migrant workers, are juniors, or are employed on a casual basis. This includes maximum ordinary hours of work, requests for flexible work, minimum leave entitlements including annual leave, personal/carers leave, compassionate leave, community service leave, parental leave, long service leave, public holidays, minimum notice of termination and redundancy pay. Where an industrial instrument such as an award or enterprise agreement applies, this may provide for additional minimum entitlements such as minimum rates of pay, ordinary hours of work, penalty rates, rules for overtime and certain allowances.

The employment contract cannot contain terms that are less than the minimum standards as set out in the National Employment Standards, an applicable industrial instrument other employment-related legislation. Attempting to exclude or avoid these minimum entitlements through an employment contract, even by mutual agreement with the employee, will have no effect. It simply cannot be done.

It goes without saying, but the employment contract also should not contain anything that is discriminatory. Australia has some of the strongest anti-discrimination legislation around, covering a range of personal characteristics including sex, disability, age and race. In addition, the general protections provisions within the FW Act prohibit adverse action on the basis of participation in trade union activities, a temporary absence from work due to illness or injury or because of a workplace right.

A common trap for employers managing long-term illness or injury.  The FW Act prohibits adverse action (including termination of employment) because of a temporary absence from work (defined as a period three (3) months) due to illness or injury, or because of a person’s disability. While it may be legitimate to terminate the employment where an employee is suffering from a long term illness or injury due to incapacity, it is crucial that the contract avoids discriminatory language such as “this contract will be terminated where you are absent for a period of three (3) or more consecutive days”.

Need help drafting an employment contract?

There are a range of free employment contract templates available, but how do you know they are up to date and compliant? How do you know that the amendments you make aren’t going to cause you headaches down the track?

As a HR Assured client, you will have access to a full suite of compliant template employment contracts, as well as a team of experienced workplace relations consultants to assist you in creating bespoke contracts have been tailored to suit your commercial needs. If you need help drafting an employment contract, contact HR Assured for a free consultation on 1300 345 875 or book online.