The importance of having effective, well-drafted, and compliant employment contracts in place cannot be understated. If you don’t scrutinise your contracts to make sure they’re legally correct, or if you have not given much thought to this important business document, you may be very disappointed about the degree to which you can protect your commercial interests or defend your position in the case of a workplace dispute.
An employment contract is an agreement between an employer and an employee that sets out the rights and obligations of each party. As with any contract, the law requires certain conditions to be met before it will recognise an employment contract. Employment relationships can take on several different forms and each form will create certain rights and obligations on the parties involved. The terms of employment contracts will also vary depending on the nature of the relationship between the parties and what rights and responsibilities are sought to be created.
Let’s start off with things that shouldn’t be included in an employment contract – basically anything policy related, and, anything you may want to the flexibility to alter in the future as your operational needs change. For example the inclusion of access to a motor vehicle in the employment contract makes it a contractual inclusion to which both parties are now bound too. If the job role no longer requires access to the vehicle, or if vehicle usage & allocation needs to be reviewed for financial reasons, negotiation with the employee is required and there would be very few employees who would be happy to give a contractual benefit up without being compensated in some other way. Similarly, commitment to training or recognition & reward programmes, these are best left to policies where the contents can be modified, or made obsolete as operational needs and budgetary requirements dictate.
The inclusion of policies is risky. Incorporating policies within a contract should be avoided as it may give rise to mutually enforceable duties and potentially create a breach if the employer fails to abide by its own policies. Instead, policies should be separate and acknowledged under the employment contract as a clause containing reference to the organisational policies and the employees’ obligations.
Let’s look at a hypothetical employment contract where the employer has stated the content of their Drug & Alcohol Policy within the terms and conditions of the employment contract. The policy states that it is a 3 strikes and you’re out policy, but, the employer has just obtained a major contract which a large percent of existing employees will be mobilised to. The client has a zero tolerance policy and the employer now faces a disconnect with their contractual obligations to it’s employees, and their constraints of having sufficient ongoing work for their employees should they test positive whilst on their main clients site. Well written policies will always contain a clause that if at anytime the legislative, policy or business operational requirements is so altered that the policy is no longer appropriate in its current form, the policy shall be reviewed immediately and amended accordingly, on the other hand renegotiating contracts with employees, particularly to conditions that the employee considers unfavourable, is messy and unpleasant.
So what should an employment contract contain?;
- The position they are being appointed to, it goes without saying that this should be consistent with the position they applied for, unless consultation and discussion has taken place.
- Employment status ie: Full Time, Part Time, Fixed Term or Casual. If the position is being offered on a fixed term basis for the duration of a prescribed project or coverage on a long term absence such as Parental Leave, the factor to determine the termination of the term must be explicit ie: when the project ceases or by XX date. ** Failure to monitor cessation terms on Fixed Term Contracts can result in a permanent and ongoing employment relationship with said employee, for this reason you should always ensure you have stringent processes in place.
- The position they will report to (not the person currently holding that position).
- Remuneration expressed either as a salary or hourly rate.
- Hours of duty
- Date of commencement
- Location of workplace
- Is the offer of employment is subject to any conditions? ie: Police Clearance
- The industrial instrument they are being paid under ie: the applicable Award or Collective Agreement
The Terms and Conditions of Employment should contain information that relates to the probationary period, notice periods to terminate employment, how and the frequency of pays, superannuation, leave entitlements, the requirement to comply with the organisations policies & procedures, confidentiality, restraint of trade, other employment a dispute resolution process – PHEW!
So the key take away’s are;
- An employment contract is a legally binding document, that when put together with little legal or strategic consideration can have significant detrimental impact to business.
- By understanding the reasons for certain clauses in employment contracts, employers can help ensure that their employment contracts accurately reflect the terms and conditions of the employment relationship and sufficiently protect their interests.
- Employment contracts should be reviewed and amended whenever there are material changes to an employee’s role, particularly when an employee is moved into a new position.
- If in doubt as to the effectiveness of a clause, or how a particular clause works, an employer should obtain proper advice, and should certainly do so before making amendments.
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