Managing people

What to include in an employment contract

An employment contract is a legally binding agreement between you and your employee, which sets out the ground rules of the relationship, and the rights and obligations of each party. 

An employment contract is designed to give you and your employee security and protection. Certain conditions must be met for it to be legally recognised. These include:

  • It is an offer of employment that has been accepted by the prospective employee

  • It shows consideration by each party in return for the obligations undertaken by the other party

  • It is an intention by the parties to enter into a legal relationship

  • The agreement is certain and complete

  • It limits your risk as an employer by providing proof as assistance when resolving workplace disputes

Drafting a clear and detailed employment contract

Provide clear written agreements with all necessary details so your employee is fully aware of their obligations and has agreed to comply with the stated terms. Oral agreements are difficult to prove in cases of doubt or if contested. 

Typical inclusions for an employment contract are as follows:

  • name of the employer

  • title of the job to be performed by the employee

  • commencement date of employment

  • basis of the employment (ongoing, fixed-term or casual), and, if applicable, the period of employment

  • hours of work, and, if applicable, a schedule of employment

  • leave entitlements such as personal leave and annual leave

  • pay, including amount of the employee’s remuneration and how it’s made up, overtime, award payments, penalties and non-wage monetary entitlements

  • performance requirements, including any applicable commission or bonus schemes

  • minimum period of notice by both employer and employee to end the relationship

  • employee compensation entitlements in the event of termination

  • confidentiality, technology and privacy policies

Considerations for employment contracts include an enforceable and valid restraint

Why is this crucial? It avoids ex-employees poaching clients or stealing confidential information by building this into their contract as a breach of their contractual obligations. If you ever need to rely on it to enforce a former employee’s obligations, a court will consider the reasonableness of the restraint at the time the contract was entered. 

Broadly put, restraint of trade clauses are enforceable to the extent that they are “reasonably necessary” to protect the “legitimate business interests” of the employer. The law will, for example, protect an employer’s trade secrets, confidential information, customer connections and staff relationships. However, the law can’t protect an employer against simple competition from former employees.

Protect your IP, client base and confidential information

Typical inclusions for confidentiality are as follows:

  • enforceable non-compete, restraint of trade (explained below), and non-solicitation clauses to protect your legitimate commercial interests, other employees as well as your customers

  • geographical radius, not considered too restrictive, or a time period, not considered too excessive, in which the employee cannot work

  • poaching of clients where they have deemed the clients of the business

  • poaching or soliciting of other employees

  • restrictions on advertising for a timeframe prohibiting the solicitation of clients and staff from a place of employment for a specific period of time

  • theft or misuse of intellectual information whereby the employment contract is protecting the client details, specifically service records and personal contact details.

Note: A noncompete clause is designed to protect a business owner’s investment by limiting an employee from competing with a business that previously employed them.

Be knowledgeable about fixed-term employment contracts

Employers commonly hire employees under what's referred to as 'fixed-term employment’ contracts. This arrangement is often designed to circumvent a company restriction on employing additional permanent employees in a particular part of the business.

However, this can create problems for employers, because, in certain circumstances, an employee's employment status does not accurately reflect the nature of the employment relationship with the employer.

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