What is an Employment Contract?

At the foundation of every employment relationship is the employment contract, a binding agreement between two parties where an individual will perform work in return for wages.

An employment contract sets out the rights and obligations of each party and is an important document for businesses large and small. Without a well-drafted employment contract in place, rights and obligations can be misinterpreted or misunderstood and potentially put the business at risk.

This article looks at what is the best practice approach to developing an employment contract that protects the needs of your business.

Employment contract – Written or oral?

Whilst most people consider it necessary to have a specific written agreement, employment contracts can form as a result of conduct. What this means is if a business has someone working for them it is more than likely an employment contract exists.

Once an employment contract exists, whether it is written or oral, it gives rise to a number of duties for both parties. Duties that may arise include:

  • the requirement for a worker to follow lawful and reasonable directions;
  • the duty of fidelity an employee owes an employer;
  • duties to use care and skill to perform the job; and
  • duty of employer to provide a safe place for work.

Where one party does not follow these terms they may be in breach of their employment contract. This means, as a business owner, you could find yourself in hot water really quick even though there is no written agreement.

However, a well-written contract can provide you and your business with greater protections in a number of areas, particularly where the employment relationship is not working out.

How to write an employment contract

The complexity of writing an employment agreement is beyond the scope of this article. This is because each term provides rights and responsibilities for each party and therefore certain clauses can often have unpredictable or undesirable results.

Notwithstanding this, below are just a few important terms and conditions often included in employment contracts that can help protect any business.

  • Job specific requirements and employee warranties – Positions that have certain pre-requisites or job specific requirements such as professional registrations or licenses should be clearly stipulated in an employment contract. By including this in a contract where an employee fails to maintain or hold that minimum requirement may result in breach of contract and may result in termination.
  • Post-employment restraints – In some circumstances, it is in the business’ best interests to ensure employees do not leave to start working for a competitor or leave and poach customers or clients. Where the business has a need to protect themselves in these circumstances, the best way to achieve this is through post-employment restraint provisions in an employment contract.
  • Confidentiality – Clauses prohibiting the use and disclosure of a business’ confidential information is fundamental for protecting trade secrets, ideas and client lists, technical data and other valuable information. It is therefore recommended these provisions are included employment contracts where an employee will have access to confidential information during their employment.
  • Intellectual property – Intellectual property terms in a contract can ensure the ideas and information developed by employees in the course of employment will remain with the business.
  • Location of work – Specifying the location of the work in the contract is fundamental, however having a clause that an employee may be directed to perform work in other locations allows the employer to direct employee to work in a different location (provided direction is reasonable).
  • Other employment – Terms relating to other employments are used to ensure employees will not engage other employment that may be on conflict with their role or the commercial interests of the business.

Whilst the above are just a few of the many terms that may be included in a contract, what makes an employment contract even more challenging is knowing what not to include! Below are examples of situations where you could find yourself legally bound to a contractual term you may not have originally intended:

  • Explicit details of bonus or incentive schemes – Where this is a term of the contract that is not expressed as discretionary this can be a very costly mistake. The reason for this is where a bonus or incentive is expressly included in the contract, the employer may not unilaterally vary or remove the bonus.
  • Policies or procedures – Workplace policies are useful documents which are necessary to ensure a business runs efficiently. However, one mistake is incorporating policies and procedures into the terms of the contract. By doing so, the employer loses the right to vary or terminate the policy without agreement of the employee and risks breaching the contract where the employer does not follow their own policy.
  • Terms of a modern award/enterprise agreement – Like policies, incorporating terms of a modern award of enterprise agreement into the contract can create issues where the terms of the award change.

In addition to the above, it is important to remember that certain responsibilities arise under Australian workplace laws that cannot be contracted out of. If a contract contains a clause that is different to the statutory minimum this clause may have no effect and the entire contract could become void if not drafted appropriately.

Employment contracts are not a simple document. However, having a written employment contract will provide significant protections for your business and therefore getting a professional contract drafted for your business will save you a lot of time and money in the long run.

Our workplace relations specialists at HR Assured can assist your business by developing best practice and compliant contracts of employment tailored to your business needs. If you are interested in learning more about how HR Assured can partner with your business contact us today for an informal chat.