Employment Contract – The Must Haves

by | Jan 10, 2017 | Employers Tips

What you absolutely should include in your employment contract.

Having an effective employment contract is key to putting a new relationship on a solid footing – 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 part of your business management, you may be sorely disappointed about the extent to which, if at all, you can protect your commercial interests.

A signed contract of employment indicates that the employee and employer have agreed to abide by these terms.  However, there are legally enforceable minimum terms and conditions that you simply can’t ‘contract out of’.

Unless more generous provisions are offered, the terms and conditions of the employment will be those set out in the Relevant Modern Award and the National Employment Standards (NES)

Myth: all managers and professionals are award free

The way to determine whether a modern award applies to an employee does hinge on the actual nature of the work performed or the ‘principal purpose’ of the position, not essentially the title or the industry.

If you are a Manager or earn over $138,900 per year (the current threshold as of 10 Jan 2017), the modern award that covers your industry or occupation may not apply to you, but the NES will.    Any condition in a contract of employment which is less beneficial to the employee than the NES is invalid, with potential penalties for breach of the Fair Work Act as a result.

Probation or Qualifying Period?

A probationary period is effectively a ‘fixed term’ employment period that precedes a permanent employment relationship. Within this period either party can simply end the employment if not suitable.

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.

Under the FW Act employees are excluded from making an unfair dismissal application until they have completed either a 12 month qualifying period for small employers (less than 15 employees), or a 6 month qualifying period for other employers (over 15 employees). This qualifying period is distinct from the probationary period, however both periods run concurrently from the first day of employment and we recommend that you match the probationary period with the applicable minimum qualifying period.

Protecting confidential information and business goodwill

Plainly speaking, if you do not include restraint of trade and/or confidentiality provisions in your contracts, you are putting your business at risk.

A Restraint clause in an employment contract may be upheld so long as it goes no further than is reasonable to protect a legitimate interest of the employer (for example the interest in keeping trade secrets, confidential information and client connections).

Employment Contract

Confidential information

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 contract.

In general, to be classified as ‘confidential information’ the following criteria must be met:

  • The information must be valuable and sensitive to the employer and not publicly available
  • Your employees should have been informed as to the confidential nature of the information

Restraining activities

The activities to which the restraint is to apply should consider the tasks the employee performs in the course of their employment. For example, if your concern is to prevent an employee who performs sales activity from canvassing your customers, then the restraint should extend to prevent solicitation of your current and prospective customers.  However, this must be drafted carefully as not to be considered unreasonable.

Geographic restraint of trade clauses

A Geographic restraint must bear a reasonable relationship to the geographical area in which the business of the employer is conducted.

Restraint period

The restraint period must also be reasonable.  It is difficult to ascertain what a ”reasonable period” is, and in some cases it may be appropriate to provide multiple options so that, if a restraint period is found to be unreasonable, the restraint still might be enforced for a lesser period.

Note: In some cases it may be appropriate to provide multiple options of geographical areas / length of period / activities so that, if your 1st option period is found to be unreasonable, the restraint still might be enforced for a lesser option.

Other critical issues

There are many more key issues that need to be considered whilst drafting an effective employment contract, including;

  • Definition of ‘Working additional hours’
  • Dealing with bonuses – Express terms or ‘discretional’
  • Reimbursement of expenses
  • Dispute Resolution
  • Flexibility clauses
  • Decision to make policies part of employment conditions or not

To find out more or get help with drafting a professional and effective employment contract or other HR or WHS advice, please contact us here or call Signature Staff on 07 40503888

Article written by Mats Eriksson 


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