Written employment contracts are almost a given in every employment relationship.
It is integral to have in place a written employment contract that has basic terms and conditions that go beyond salary and job description.
We also have written terms in place so we can provide clarity on the terms of employment. Contrary to popular belief, you can have an oral or verbal contract of employment in place; however this provides ambiguity – details may be forgotten or people who originally negotiated the terms may have left the business.
With a written employment contract in place, there are key terms you should review and ensure are in place and drafted correctly.
Clause 1 – Termination (and notice)
It is prudent to ensure there are provisions in the contract that set out clearly what happens when employment is ceased. There will be terms that set out particular reasons for termination of employment on the basis of serious misconduct such as:
- Incapacity, illness and injury
- Engaging in sexual harassment or workplace bullying
- Stealing or misusing confidential information
- Bringing the company’s reputation into disrepute
- Failing to follow a policy or procedure
It is also important to ensure notice provisions are set out. Courts are unlikely to read into a contract notice of termination and for higher paid staff are willing to award reasonable notice (this can be anywhere between 6-24 months). Most contracts will simply refer to the National Employment Standards as the baseline of notice.
Clause 2 – Confidentiality
Some employees will have regular access to confidential and sensitive information as part of their duties. It can be very easy for an employee to misuse the information either directly or indirectly for purposes that obtain a commercial gain or even a nefarious or criminal or illegal reason.
A confidentiality clause provides an employer with the ability to protect the information under contract this may include information that is:
- Leaked to competitors in the industry
- Misused by an employee to obtain a commercial gain, for example to set up their own business in competition
- A breach of privacy legislation
- Misused to damage the reputation of the Employer
The confidentiality clause should also cover post-employment conduct.
Clause 3 – Off-set clause
For annual salaried employees a key clause in any employment contract is an off set clause. An off set clause will be drafted to offset any payments above the minimum wage under a modern award against any other entitlements such as overtime.
When drafting and reviewing the off-set clause particular attention must be directed towards the terms of the applicable modern award. As such, depending on the employee, duties, industry and circumstances this may need to be coupled with an individual flexibility agreement (IFA).
Clause 4 – Policies and Procedures
Another key general clause is the requirement for an employee to follow the policies of the employer.
However, it is important that this clause is not drafted in a way that creates contractual rights if the policy is not followed by an employer. This clause should not vest enforceable rights for an employee.
It is also not recommended to have the policies in the contract itself. They are separate documents. Policies can be changed and amended as needed and as long as they are reasonable, legal and the employees know about it, then policies are much more flexible. However, if a policy is embedded in an employment contract you will need to:
- Seek both parties acceptance of any changes
- Anytime a policy is changed or updated an employment contract will also require variation
Clause 5 – Restraint of Trade and Non Compete
Restraint of trade clauses otherwise known as non compete clauses are generally difficult to enforce against employees. Courts usually do no wish to restrain an employee from working. Whether a restraint of trade clause is enforceable is in the end decided by a Court or Tribunal.
However, without a clearly drafted restraint clause there is very limited ability to enforce a restraint on an employee.
Restraint clauses are useful in situations where an employee is:
- starting their own business, or
- poaching existing employees and customers
There are other limited avenues for restraint, for example, the Corporations Act and equity.
A written and well drafted restraint of trade clause is the minimum required to pursue a non compete position and requires a cascading clause of:
- geography; and
- Time periods
A cascading clause (which provides multiple combinations) is essential because if one combination is found to be unenforceable and unreasonable, another combination might be found by a Court to be reasonable and hence enforceable.
Our Employment Lawyers at South Geldard Lawyers have essential expertise in both drafting and reviewing employment contracts. Feel free to reach out on 07 4936 9100 or via email to Jonathan Mamaril, Director at jmamaril@southgeldard.com.au
