What you should and shouldn’t include in an employment contract
The importance of having effective and well-drafted employment contracts in place cannot be understated. Don’t leave this to chance!
If you don’t scrutinise your contracts to make sure they’re legally correct, or if you have not given much thought to this important business document, you may be very disappointed about the degree to which you can protect your commercial interests or defend your position in the case of a workplace dispute.
Below we have covered some of the common issues facing employers.
NES (National Employment Standard) and modern Awards
Virtually all Australian employees are covered by the NES, a set of 10 minimum employment conditions that must be adhered to by employers.
A contract can’t make employees worse off than their minimum legal entitlements under an award and the NES, regardless of what is stated in employment contracts, policies or job descriptions.
Any condition in a contract of employment that is less beneficial to the employee than the NES is invalid.
Wages and hours of work
An employment contract should state how much the employee will be paid, ordinary hours of work, what happens if work is conducted outside ordinary hours and who can authorise these hours.
A common mistake is to offer a flat salary / hourly rate, inclusive of ‘any’ overtime, penalties and other wage-related entitlements.
Whilst you can still negotiate a higher pay to offset certain entitlements, you must specify what entitlements you are not paying and make sure that the higher wage is equal or greater than the value of the entitlement. The applicable award also specifies what entitlements you can offset.
A probationary period is effectively a ‘fixed term’ employment contract that precedes a permanent employment relationship.
Be aware that if you let an employee work past the end date of the probationary period, then this will generally mean that the employment relationship has become permanent.
Many employers choose to keep their probation period in line with the qualifying period as mentioned in the FWA Act. During the qualifying period (12 months for small employers and 6 months for others), employees are excluded from making an unfair dismissal application.
The inclusion of policies is risky
Incorporating policies within a contract should be avoided as it may give rise to mutually enforceable duties and potentially create a breach if the employer fails to abide by its own policies. Instead, policies should be separate and acknowledged under the employment contract as ‘lawful directions given by the employer’.
Protecting confidential information and business goodwill
Plainly speaking, if you do not include confidentiality provisions in your contracts, you are putting your business at risk.
Whilst the law will protect certain kinds of information from unauthorised use, it is best to expressly deal with the issue of confidential information within the employment contract.
- Spell out what information is confidential in exact terms
- Explain the obligations that arise when receiving such information
A Restraint Clause in an employment contract is sometimes appropriate to protect a legitimate interest of the employer (for example preventing your ex-sales person from contacting all your clients, whilst working for your competitor).
Such clause should include:
- The activities to which the restraint is to apply
- The geographic area
- The restraint period
- What will happen if there is a breach
However, any restraint clauses must be drafted carefully so as not to be considered unreasonable and therefore void. In most cases it may be appropriate to provide multiple options so that if one is found to be unreasonable, the lesser option might still be enforced.
There are many more key issues that need to be considered when drafting an effective employment contract, including:
- Dealing with bonuses – express terms or ‘discretional’
- Reimbursement of expenses
- Dispute resolution
- End of employment
- Severance provision
- State of jurisdiction
To find out more or to get help with drafting a professional and effective employment contract, contact us here or call Signature Staff on 07 4050 3888