How clear are you on when an employment contract is needed? Do you know why having an employment contract is always advisable? How about what clauses need to go into the contract?
I’m still surprised by the number of business owners operating without employment contracts in place. On average, 75% of the clients we work with every month do not have employment contracts for their employees and out of the other 25%, at least half of those haven’t had their contracts reviewed in the last 2 years. any employment lawyer will tell you that you’d be stupid not to have one as it’s one of the documents commonly relied on to get an employer out of a legal bind and without one it becomes “he said, she said”.
So this month I’m going to cover Employment Contracts:
- The different types,
- why and when you need one for each of your employees, and
- what clauses to ensure you include
In its most basic form, an employment contract is an agreement between an employer and employee that sets out the terms and conditions of employment that legally bind them. As a result of this contract the two parties acquire certain legal rights and responsibilities.
What goes into a contract?
While there are many standard clauses that go into an employment contract like:
- The types of leave an employee has access to,
- The particulars of their role like title and location of work,
- Pay rate etc
it’s so important that you’re crystal clear on the conditions of employment which are outlined in the National Employment Standards (NES) and the Award, enterprise agreements or other registered agreements that applies to a particular employee or in your particular workplace for the following 3 reasons:
- An employment contract cannot provide for less than the legal minimum set out in:
- The National Employment Standards (NES)
- Awards, enterprise agreements or other registered agreements that may apply.
- All your employees are covered by the NES, regardless of whether they’ve signed an employment contract.
- An employment contract can’t make an employee worse off than their minimum legal entitlements.
Types of Employment Contracts
In Australia you can have:
- An open-ended employment contract where the length of time the employee is to be employed is unspecified because their position will be ongoing, and
- A fixed term employment contract where the length of time the employee is to be employed is specified, by an end date.
From there, deciding which type of contract is needed will depend on their type of employment (or employment status as some refer to it as):
- Full time
- Part time, or
And just to throw a final spanner in the works, there are some other employment types outlined in some Modern Awards which are shift worker, daily hire employee and weekly hire employee.
Read more below on why and when you need an employment contract for each of your employees and what you’re risking if you don’t.
Are your Employment Contracts legally binding?
It is commonly thought that an employment contract can’t be binding unless it is put in writing. While this is true in some cases, generally speaking – unwritten contracts are enforceable. However, it’s the written words you will want to rely on if something goes wrong.
Why you need one for each of your employees
In short, employment contracts are your way of providing certainty about the legal rights and obligations of both you and your employees. If a dispute with an employee arises, this single document could well serve to be your saviour in minimising costly and time-consuming disputes.
Many a time in my HR career, have I brought particular clauses in an employees’ contract to their attention due to their conduct or performance being contrary to that agreed on in the contract. Let’s face it, nobody likes to have to confront an employee in an underperformance discussion, so having the conditions of employment there in black and white allows you to take a lot of the emotion out of performance meetings because you are merely referring to and bringing their attention to a particular clause or clauses they are in breach of. In most cases, this is all that’s needed to bring an employees conduct back on track once they’re reminded.
10 standard terms to include in an employment contract
- Name and personal details of the employer and employee.
- Type of employment (i.e. full-time, part-time or casual).
- Commencement date of employment.
- Job title and description.
- Number of weekly work hours.
- Amount and method of payment (i.e. salary, wage, commission or piece-rate).
- Leave entitlements.
- Termination provisions – An employer has to give the following minimum notice periods when dismissing an employee, however an award, employment contract, enterprise agreement or other registered agreement can set out longer minimum notice periods (eg. 1 month instead of 1 week).
- Confidentiality agreement.
- Provisions to deal with potential changes in the employee’s role or their scope of duties (i.e. will the same contract still apply if the employee has to change locations, roles or duties?).
Check you’ve included these clauses in your employment contracts
How long since you’ve had your employment contracts reviewed to ensure they’re still compliant? Due to the rate of changes to the FairWork Act and modern awards this last decade, the general consensus across employment lawyers and HR consultants is commonly, annually.
10 additional terms to check are in your employment contracts
- Intellectual property rights.
- Restraint clauses covering:
- Non-competitive clauses.
- Non-solicitation clause – a clause preventing their employees from asking for a job with a client or a competitor, or “stealing” a client.
- Conditions around bonus/incentive payments.
- Dispute Resolution Clause.
- Requirement for an employee to agree to an independent medical examination if the employer requests it.
- Requirement for an employee to cooperate and participate in any workplace investigations and disciplinary proceedings which you are involved in.
- TOIL conditions (if offered).
- Your policy on use of personal mobile telephones during work time.
- Times of the year annual leave may not be taken, or must be taken (ie. shutdown period) if any.
- Whether cameras/tracking devices are in use.
A final note if you have Casuals
While our courts continue to wrangle with the conditions under which Casuals have access to annual leave and personal leave entitlements and whether some long term casuals are entitled to backpay, we strongly recommend you prioritise checking your casual employment contracts include the following:
- They clearly acknowledge the 25% casual loading.
- They include the Casual loading percentages confirming the following casual loading components which are paid as compensation of full-time equivalent entitlements:
- 45% of the ‘casual loading component’ is in compensation for annual leave and leave loading entitlements;
- 25% of the ‘casual loading component’ is in compensation for Personal/Carer’s Leave entitlements;
- 15% of the ‘casual loading component’ is in compensation for notice and termination of employment entitlements; and
- 15% of the ‘casual loading component’ is in compensation for compensation of Redundancy Entitlements.
- Ensure the casual loading setoff is made clear.
NB: The lists above are not exhaustive lists.
If you don’t have employment contracts or you’re unsure if yours are still compliant, contact us to find out how we can help.
Our final word on Employment Contracts
Our final word on employment contracts – Have them developed by a reputable source!
Essentially you have 4 options
- Continue on without employment contracts – Not advisable – leaves yourself legally exposed.
- Develop one yourself – Not advisable – some business owners download templates from the internet however, unless you have a significant depth of knowledge on employment contracts and significant experience in developing them, then I would not advocate this option as you will not know how legitimate the source of the document is, nor will you know how long ago it was developed.
- Have your employment contracts developed by a reputable HR consultancy with extensive experience in this area.
- Have a reputable employment lawyer develop them for you.
With each of these 4 options, there is an opportunity cost. The first 2 are low cost but very high risk.
And that’s exactly why I always recommend you take option 3 or 4, the HR Consultant with extensive experience in contracts or an employment lawyer, and sleep soundly at night knowing you have a document that will provide you maximum protection. It’s about having confidence. Having peace of mind.
Our contract development process starts with us gaining an understanding of your business, the role in question, and the relevant industrial instruments at play. From there, we utilise our HR & workplace relations knowledge, our years of experience developing employment contracts and the guiding resources of one of Australia’s leading workplace relations law firms, FCB Workplace Law. We develop every employment contract from the ground up so you can be assured it is up to the minute with the latest legal clauses and employment terms and conditions.
Ready to take the next step?
If you’re ready to move forward with having your contracts developed or reviewed, contact us today to find out how we can take care of this for you. I can guarantee you’ll find our processes swift, seamless and professional.
If you’re not quite ready to move forward and just want to discuss what you’ve read over our last 3 emails, then I’d love to chat with you personally on 0406 146 116. Call us anytime, we’re here to help.
This information was provided with the intention of helping you find more clarity, confidence and peace of mind as you navigate your own journey as an employer. I would love to hear your thoughts on this, and if you think someone else would enjoy it please feel free to share it on.
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