Employment contracts are the start of the compliance journey in the workplace. Employment contracts—and in particular, employment contract clauses—act as a protection tool as well as the first document to start setting out basic standards and performance requirements for an employee.
A company looking to sell, tendering for larger contracts, or contracting with other organisations will usually be required to produce a coherent document. If you are starting up a company, investment in proper employment contracts with staff may seem (understandably) a lesser priority—however, as an organisation grows, it is integral to have one in place.
For organisations that have employment contracts in place, regular reviews and potential amendments will require some strategic thinking around timing and communication with staff. In addition, there is the consideration that the contracts themselves must be up to date and do not inadvertently breach the law or a modern award.
Other than specific pay and bonuses clauses and the position description, here are six key clauses to focus on in your review and ensure all are in your Employment Contract:
1. Confidentiality
For employers with employees who have access to sensitive and confidential information, trade secrets and processes, a confidentiality clause is a must-have. Why?
A confidentiality clause gives an employer the ability to contractually protect information:
- Leaking to competitors
- Being misused by an employee
- Released and breaching privacy laws and other information legislation
- Utilised by an employee adversely for their own personal profit or gain
- Damaging the reputation of the business
The confidentiality clause should also cover post-employment conduct as well.
2. Restraint Of Trade
Restraint of trade provisions or non-compete clauses are generally difficult to enforce against employees. Whether a restraint of trade clause is enforceable is ultimately a decision by a Court or Tribunal.
However, without one there is a limited ability to enforce a restraint on an employee. Whether that is starting their own business, poaching existing employees, stealing clients and customers or even utilising contact details obtained by the company—if there is no restraint of trade contractually in place, the laws of equity and potentially the corporation’s legislation are the only avenues (they are limited).
A restraint of trade clause is the minimum required to pursue a non-compete position and they require a cascading clause of:
- Various geography
- Components of time periods
A cascading clause (which provides multiple combinations) is integral because if one combination is found to be unenforceable and unreasonable, another combination might be found to be very reasonable and therefore enforceable.
3. Award Coverage
An employer must ascertain what award covers the employee. If there is no award that covers the employee, then the employer must also come to a clear conclusion that the employee is award free.
Award coverage will dictate the base minimum wage as well as other conditions such as:
- Minimum engagement time
- Offer of permanent employment (or casual conversion)
- Overtime rates
- Allowances
- Consultation for major change requirements
- Permitted deductions
It is also important that once an award coverage is ascertained that the employer keeps themselves updated about any specific industry changes to the award—which happens from time to time.
4. Off-Set Clause
In particular for salaried employees, an off-set clause is one of the key employment contract clauses that will allow the company to offset any payments made above the minimum requirements of an award against any alleged underpayment of wages.
In any event, an off-set clause usually only becomes applicable if an employee disputes their pay entitlements. An off-set clause may need pairing with an individual flexibility agreement to be useful (IFA). The off-set clause is particularly helpful when you pay an employee well above the award rate.
5. Warranties
Several warranties should be set out in an employment contract. In particular, one is that the employee warrants to have honestly represented their skills and experience.
If the employer subsequently learns an employee has misrepresented their skills or qualifications, the employee will be in breach of the contract and may allow the termination of their employment.
6. Probationary Period
A probationary period is typically three (3) to six (6) months, during which the employer will have time to assess the employee’s performance.
A probationary period is separate and distinct from the ‘minimum employment period’ under the Fair Work Act 2009 (Cth) which partly determines an employee’s eligibility to commence an unfair dismissal application in the event of termination of employment.
The ‘minimum employment period’ under the Fair Work Act 2009 (Cth) is either six (6) or twelve (12) months, depending on whether the Company is a ‘small business employer’ under the FW Act (a small business employer engages less than 15 employees across all of their businesses).
Once an employee meets the minimum employment period under the Fair Work Act 2009 (Cth) they are able to make an unfair dismissal application to challenge their termination of employment.
A probationary period clause is useful and sets out expectations, however, terminating an employee during their probationary period is not necessarily a risk-free method of ending their employment. They may, for example, seek to argue their dismissal was motivated by discriminatory reasons or was in breach of their rights under the Fair Work Act 2009 (Cth). Legal advice should always be sought in those circumstances.
Jonathan Mamaril is a Director with NB Employment Law, leading the Employment Law and Workplace Relations team. Jonathan assists employers in mitigating risk and liability and advises clients on all aspects of Employment Law. His focus is on being practical and providing value for clients through education and training. Advising on matters to prevent problems occurring and solve problems when matters become litigious and difficult.