Published September 2021
An employment contract is a written agreement between an employer and an employee that clearly sets out the key terms and conditions of employment.
An employment contract should be carefully drafted and be beneficial for both the employee and employer. It should include:
The rights and obligations of each party;
Job security for the employee (where appropriate); and
Clauses that provide a level of commercial protection for the employer.
This quick guide by Edwards HR outlines why having an employment contract is beneficial for employers and some key clauses that should be considered when drafting one.
Why Should Businesses have an Employment Contract for Each Employee?
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 in a way that is appropriate for your business and 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.
SO, WHAT SHOULD YOU INCLUDE?
Employee’s Position and Duties
Clearly outline for the employee their position title, duties and responsibilities. Ideally, you should provide them with a position description that details their duties and responsibilities, but they can also be included in a contract.
By including the employees’ responsibilities and duties in an employment contract, you set clear standards for the employee from the beginning of their employment, which will most likely result in them performing at their best. If you find that an employee does not perform to the required standard, then the contract can also help in managing the employee’s performance.
It’s best practice to also include that employees must be compliant with all company policies and procedures and that the employer may assign the employee further or additional duties from time to time.
An employment contract should clearly state the individuals employment type/status and which entitlements apply to them. If you are unsure about which entitlements may apply, you can find out more from the Fair Work Ombudsman website or contact the team at Edwards HR.
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 and the recent changes to legislation, you can read our Casual Employment – Practical Guide for Employers here.
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 a copy of these with their employment contract.
Salary or pay rate should always included in an employment contract, along with any other entitlements or benefits that may apply or be considered during the 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.
Generally, we 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. This provides the employer with greater flexibility in the delivery of these plans.
If the employee is required to hold and maintain a particular qualification during their employment, this should also be included. This could include a 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 truck driver, it should be a condition of employment (and the employee’s responsibility) to hold and maintain a truck drivers’ license during their employment.
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, parental leave and compassionate 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.
Use of Company Vehicles, Phones, Computers, Credit Cards
If Employees are provided with 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.
Drug & Alcohol Requirements
We recommend that every employment contract include 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.
Depending on the type f position, the employee may have access to sensitive information which is to remain confidential within the business. 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.
During the course of employment, the employee may be creating new content, services, designs, images or processes 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 intellectual property created is owned by the employer and cannot be copied or distributed elsewhere without the employer’s permission.
Restraint / Non-Compete Clauses
Another way employers can help protect their business is by including a restraint of trade clause in their employment contracts.
These clauses should be tailored to your specific circumstances but can attempt to restrict an employee’s ability to be able to participate or be involved with any activity in competition with the employer, or share any confidential information about the business to any external parties.
Depending on your industry and the types of roles you employ, you may also consider including a non-compete clause. This protects the employer by preventing an employee from working in a similar position with a competitor or starting their own business in competition with the employer.
Non-disparagement clauses are used to protect the business by ensuring employee’s 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.
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 should also include the notice required for termination and payment in lieu of notice, and the requirement to return all company property (where applicable).
Remember, all employment contracts should be drafted specifically for your circumstances – what applies to your business will not be relevant or necessary for all businesses.
As a rule of thumb, employment contracts should also include clauses relating to conflict of interest, 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, some should also be supported by company policies and procedures. For example:
Drug & Alcohol Policy / Procedure
Company Vehicle Policy
Phone Use Policy
What is relevant and necessary for each business varies widely so we recommend seeking advice about your specific circumstances and how to mitigate risk.