Why You Need One and What to Include
Many of our clients do not have thorough employment contracts when they begin working with us, and often it is the first thing we action for them.
Why? Let’s explore that through this Guide.
1. WHAT IS AN EMPLOYMENT CONTRACT?
An employment contract is a written agreement between an employer and an employee that clearly sets out the key terms and conditions of employment. They are sometimes referred to as an ‘employment agreement’.
An employment contract should be carefully drafted and be beneficial for both the employee and employer. It should cover three key areas:
- The rights and obligations of each party;
- The employees entitlements; and
- Clauses that provide a level of commercial protection for the employer.
This quick guide by Edwards HR outlines why having a thoroughly prepared employment contract for each employee is crucial for employers. We also explain some key clauses that should be included in employment contracts.
2. WHY SHOULD EACH EMPLOYEE HAVE A CONTRACT?
The short answer is: for your commercial protection and risk mitigation.
Without one, the National Employment Standards, a Modern Award, an enterprise agreement, or a combination of these will provide the minimum entitlements for the employee. However, they do not provide any commercial protection for the employer or offer guidance on how to handle other matters that should be of importance to the employer – for example, requirements around drugs and alcohol, confidentiality, intellectual property, restraints that attempt to prevent employees taking customers, the use of company vehicles, mobile phones and internet, just to name a few.
When you have an employment contract professionally drafted, clauses should be included to address these matters (and many others) in a way that is appropriate for your business and its specific requirements. Then, if there is ever a dispute, misunderstanding or a claim made against you (for example, an unfair dismissal claim), there will be a solid set of agreed terms and conditions to help resolve the matter quickly and painlessly.
Of course, your employment contracts will then work hand in hand with your other company policies, procedures, position descriptions and the like.
We often get asked why these are separate to the employment contract – the short answer is that an employment contract cannot be unilaterally changed without both parties agreeing. So, to allow flexibility for the business to change, remove and adapt their other requirements, we always recommend covering the key requirements in your employment contract and keeping your detailed provisions in your other supporting documents.
3. WHAT SHOULD YOU INCLUDE?
This section outlines the key clauses that should be considered when your employment contracts are drafted. This list is by no means exhaustive, and there will likely be many other considerations to take into account, specific to your business, industry and the types of roles you employ.
a) Employee's Position and Duties
Clearly outline the employee’s position title and overarching responsibilities such as conducting themselves in a manner that’s upholds the best interests of the employer. Ideally, this should also be supported by a detailed position description, separate to the contract.
For those not familiar with position descriptions, they set clear standards for the employee from the beginning of their employment, which will helps employees to perform at their best. If you find that an employee does not perform to the required standard, then the contract and position description can also help in managing the employee’s performance.
b) Employment Status
An employment contract should clearly state the individual’s employment type.
Below are the most common types of employment:
- Full-time employee: Employed on a permanent basis and generally works an average of 38 hours per week.
- Part-time employee: Employed on a permanent basis and generally works fewer hours than 38 hours per week. They usually also work set days and hours each week that do not often change unless agreed in writing between the employee and employer. Be sure to check the Award or enterprise agreement applicable to your employee for any specific requirements (eg. Some Awards require the employer to confirm in writing for a part-time employee the days and hours of work per week, including the start and finish times).
- Casual employee: these employees are normally hired on a temporary basis or work irregular hours each week to meet the operational needs of the business. There is no firm commitment from the employer that ongoing work will be provided, and casual employees are compensated with a 25% loading on top of their hourly rate to compensate for the entitlements of permanent employment that they do not receive. To find out more about casual employment, you can read our Casual Employment – Practical Guide for Employers here.
- Fixed term employee: Fixed term contracts are contracts of employment that apply for a specified period. They are commonly used in heavy industry for employees working on a specific project with a known or expected completion date. There is generally no obligation to employ the fixed term employee beyond the end date, however, new legislation took effect in December 2023 and imposes several new restrictions on the use of fixed term contracts – read our employer update here for more information.
Remember, when hiring new employees, they must receive a copy of the Fair Work Information Statement. Casuals must also receive a copy of the Casual Employment Information Statement. We recommend providing the employee with a copy of these with their employment contract.
c) Award/EA Coverage
An employment contract should confirm which award or agreement applies to the employee, along with which level or classification applies to their role. This is often overlooked and becomes a challenge when determining minimum entitlements (for all parties). If you are unsure which award applies, this employer update will help you to navigate.
d) Compensation
What the employee will be paid should always be included in an employment contract, along with any other entitlements or benefits that may apply or be considered during employment. This could include:
- Allowances, penalty rates and/or overtime;
- Vehicle allowance or kilometer reimbursement;
- Annual pay review;
- Increase in pay if performance meets a certain standard at a specific point in time.
Remember to always read the Award or Agreement thoroughly so you can be sure the employee is being paid everything they are entitled to. Remember that if you are paying a flat rate, loaded rate or annual salary, there are likely additional provisions you need to take in to account that may impact the way your employment contract is worded – always read the award thoroughly. In some cases, additional documents may be required, such as an individual flexibility arrangement.
To ensure you are paying your team properly and everything is documented correctly, read our Quick Guide to Paying Employees Correctly.
Further, we generally recommend that any bonuses, performance-based incentives or similar payments not be included in the employment contract. Generally, these discretionary payments are best offered to the employee as a separate bonus plan (or similar), rather than a contractual condition. As we mentioned earlier about employment contracts being unable to be changed unilaterally, this approach provides the employer with greater flexibility in the delivery of these plans.
e) Location
The employees location of work should be clearly noted, along with some additional wording confirming this may change at the discretion of the employer. With employees working at the workplace, customer locations, from home and other remote locations, it is important that the contract covers all bases.
f) Qualifications & Licenses
If the employee is required to hold and maintain a particular license or qualification during their employment, this should also be included. This could include a particular driver’s license, high risk work license, trade qualification, bachelor’s degree, or other proof of training. If it is a condition of employment that such a qualification must be held current, this should also be noted.
For example, if you employ a HR truck driver, it should be a condition of employment (and the employee’s responsibility) to hold and maintain at their own expense a heavy rigid vehicle license during their employment.
g) Clear Protocols for Taking Leave
Employment contracts should include specific information about the different leave types employees are entitled to – for example, personal leave (sick & carer’s leave), annual leave and long service leave.
An employment contract should also include a brief procedure for when employees want to use their leave. For example, if an employee wants to take annual leave, the contract might require the employee to provide 2 weeks’ notice to their employer and note that approvals are at the company’s discretion.
Another example is when an employee is sick, they might be expected to call their manager prior to their shift (and not send a text message), to let them know they are unwell and will be unable to work.
Having these procedures included in the employment contract gives guidance to employees around what is and is not acceptable when using leave. This is particularly useful for businesses that do not have an Employee Handbook or Leave Policy.
h) Use of Company Vehicles, Phones, Computers, Credit Cards
If Employees are provided with or have access to work equipment such as a laptop, phone, credit card and/or company vehicle, you should include provisions about their use in the employment contract. This ensures there is clear guidance about acceptable use and can prevent employees using work equipment for private purposes without approval, if this is applicable for your business.
i) Drug & Alcohol Requirements
We recommend that every employment contract includes a clause confirming the expectations about drugs and alcohol in the workplace. Often in heavy industry, this would be a zero-tolerance clause, but this may vary.
This clause is one that is often overlooked but we cannot stress its importance enough. We have seen many cases where the employer does not have a thorough clause in their employment contract, and there is no Drug & Alcohol Policy to support the requirements either – then when an employee fails a drug test, is it not clean cut about how to handle the situation. It can become very messy very quickly.
There was even a case where the employee tested positive for low levels of cocaine, was terminated and as a result of his unfair dismissal claim was reinstated (partly) due to the fact the employer did not have a policy or any contract wording relating to drugs and alcohol in the workplace.
j) Surveillance
If your business uses any kind of surveillance – that is, cameras, microphones, internet usage tracking, GPS tracking in vehicles etc – you really need to be advising your employees of this. The best place to put this is in your employment contract, then also be sure to discuss it during inductions and support it further through a policy.
k) Confidentiality
Depending on the type of position, the employee may have access to sensitive information which is to remain confidential (within the business) both during and after employment. A confidentiality clause should be included in employment contracts to help protect employers from any confidential information being shared by either current or ex-employees with anyone outside the business.
l) Intellectual Property (IP)
During employment, the employee may be creating new content, services, designs, images or processes etc suitable for your business, otherwise referred to as intellectual property.
An employment contract should include a clause that protects the employer’s interests and intellectual property rights. Generally, you would outline that any IP created is owned by the employer and cannot be copied or distributed elsewhere without the employer’s permission, among other things. This clause should be comprehensive.
m) Restraint / Non-compete Clauses
Another way employers can help protect their business is by including a restraint of trade and/or non-compete clause in their employment contracts. These clauses should be tailored to your specific circumstances and can attempt to:
- Share any confidential information about the business to any external parties;
- Restrict an employee’s ability to be able to participate or be involved with any activity in competition with the employer;
- Restrict the employee contacting the employers customers, suppliers etc;
- Restrict an employee from working in a similar position with a competitor or starting their own business in competition with the employer;
- Restrict the ‘poaching’ of employees.
n) Conflict of Interest / Additional Employment
All contracts should cover the requirement for the employee to immediately declare any actual or possible conflict of interest that may arise during their employment. Similarly, provisions regarding additional employment outside of the employer should also be covered to ensure other employment does not negatively impact their role with you.
o) Non-Disparagement
Non-disparagement clauses are used to protect the business by ensuring employees do not make any negative statements that could harm the reputation of the business either during or after their period of employment. Types of negative statements include about the business, the services the business provides, products made by the business or negative statements about their leaders or other team members.
p) Ending Employment
An employment contract should include terms and conditions around when the employer can end employment, along with the requirements for the employee if they choose to resign. This clause would cover things like terminating employment due to serious misconduct, abandonment of employment and breaching any company policies or procedures. This clause would generally also cover the notice required for termination, provisions for payment in lieu of notice, gardening leave, and the requirement to return all company property (where applicable), among other things.
4. OTHER CONSIDERATIONS & HOW TO GET HELP
The previous section provides a general overview of the types of items which should be included in an employment contract, but there will likely be other topics relevant to your business. This is why all employment contracts should be drafted specifically for your circumstances – what applies to your business will not be relevant or necessary for all other businesses.
As a rule of thumb, employment contracts should also include clauses relating to jurisdiction, severability, variation of terms, and survival of terms.
Finally, it’s also important to remember that while these topics should be covered in an employment contract (among many other topics), they should also be supported by company policies and procedures. For example:
- Position Descriptions for every role
- Drug & Alcohol Policy / Procedure
- Company Vehicle Policy
- IT Policy
- Phone Use Policy
- Leave Policy
- Social Media Policy
- Counselling & Disciplinary Procedure
- Complaints & Grievances Procedure
- Confidentiality or Non-Disclosure Agreement
What is relevant and necessary for each business varies widely so we recommend seeking advice about your specific circumstances and how to mitigate risk.
Contact the Edwards HR team today about updating your employment contracts and associated documents, to ensure your business is adequately protected.
The team at Edwards HR regularly runs workshops on Employment Contracts, Employment Relations Foundations and many other HR topics – you can check out our training calendar here.
Stay up to date with all the upcoming changes via our LinkedIn Newsletter below.
For more guidance about this update, or to find out how Edwards HR can support your business, contact our team today on 07 3568 0866.
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