Employment Contracts – Why Are They Necessary?

Employment contracts can be written, oral or a mixture of both. Written employment contracts are always preferable to oral agreements which are difficult to enforce, especially when disputes arise. Employment contracts are essential to any business and employers should use them as a tool to protect the interests of the business and to properly manage staff. Without employment contracts, businesses expose themselves to unnecessary and avoidable risk.

What is an employment contract? An employment contract consolidates all the relevant conditions of employment for your employees into the one document. Unlike modern awards which are general, an employment contract will only contain provisions that specifically affect your employees. Therefore, an employment contract can be simple to read and understand.

Benefits of written employment contracts:

  • Protects the interests of both parties;
  • Provides certainty for both parties;
  • Provides a legal record of the intention and agreement of both parties at the beginning of the employment;
  • A document which is detailed (as compared to a letter of offer);
  • Protects the commercial interests of the business through the use of restraint of trade, non-solicitation and confidentiality clauses;
  • Provides employers with avenues to dismiss employees if they are not performing to expectations (i.e. reasons and grounds for termination, probationary periods etc.);
  • Assists in preventing misunderstandings and disputes by providing the essential details in regards to payments, position expectations etc.;
  • Provide avenues and assistance for workplace dispute resolution;
  • Regulates taking of leave entitlements;
  • Stipulates notice periods to be provided when terminating employment allowing sufficient time to recruit;
  • To protect the intellectual property of businesses;
  • Avoids reasonable notice claims from employees – if an employment contract does not exist, the employee may be entitled to reasonable notice upon termination which is determined by the Court;
  • Outlines how the contract can be varied; and
  • Specifies how the contact can be terminated to avoid disputes in this regard.

What should an employment contract include?

  • Job title and position description;
  • Duties and responsibilities of the parties;
  • Pay details;
  • Leave entitlements including procedure for taking leave;
  • Flexible working arrangements available;
  • Rights and obligations of the parties;
  • Duration of employment (if applicable);
  • Probationary period;
  • Benefits offered – overtime, bonuses, severance pay etc.;
  • Confidentiality, non-solicitation and restraint of trade clauses;
  • Payment in lieu of notice;
  • Reasons and grounds for termination;
  • Notice periods;
  • Any relevant industrial instrument, modern awards, national employment standards or statutory obligations; and
  • Redundancy

Need assistance?

EROS Employer Assist provides all EROS members with advice in regards to all aspects of employment law. We can assist members with drafting employment contracts.

Please contact EROS Employer Assist on 1300 054 542 if you have any questions relating to this article or to discuss any issues that arise in your business.

Paying employees above award wages:

There is a common misconception by employers that paying employees a salary or a rate which is above the minimum award rate circumvents the need for a written employment contract or to pay any additional overtime, allowances, penalties etc., however, this is not correct.

If employees are covered by an award, even if they are paid a wage which is above the award rate, the clauses relating to allowances, penalties etc. still apply unless they have been specifically set off. In other words, if employers offer award covered employees a “salary” or above award rate, they must have an employment contract with a carefully drafted set off clause (setting off the award component against the award entitlements).

Failure to do this could result in the employer being required to pay the allowances, penalties etc. on top of the above award amount (plus potential penalties for breaching the award) because there was no clear written agreement to the contrary.

Risks of not having employment contracts:

  • Difficult to rely on what someone said if it isn’t written down – Courts may not enforce the contract as it may be difficult to prove the existence of the contract or its terms;
  • Disputes may arise because both parties are relying on memory; and
  • Misunderstandings could arise in regards to important aspects of the agreement, i.e. payment details or even job title and position description.

Problems with your people?… Help is only a phone call away!

Employer Assist is proud to partner with the EROS Association to provide all EROS members with workplace relations advice and services via the FREE EROS Employer Assist hotline.

Hotline Service for EROS Members

EROS members can access initial advice via phone or email as a part of their EROS membership and are eligible for a special member discount rate on all additional services.

  • Employer Assist provides the hotline service to all members between the hours of 9am – 5pm Monday to Friday (AEST) via the Employer Assist hotline number 1300 054 542 or via email to eros@employerassist.com.au
  • All enquiries will be answered by qualified Human Resources, Workplace Relations and/or legally qualified professionals.

Employer Assist can provide advice on:

  • Rates of pay
  • Workplace theft
  • Absenteeism
  • Sick leave and all forms of leave
  • Warnings
  • Roster requirements
  • Managing casuals
  • Redundancies and Terminations
  • Managing social media, email, smoking, and staff mobile phone and internet usage
  • Managing Workers Compensation claims and return to work
  • Recruitment and retention advice

And legislative compliance regarding:

  • Awards, the Fair Work Act 2009 and National Employment Standards (NES)
  • Workplace Health and Safety
  • Long service leave
  • Enterprise Agreements

Additional services are provided at the EROS member discount amount of ($320.00 + GST per hour) or on a fixed fee basis:

  • Contracts of employment and letters of offer
  • Drafting warning and termination letters
  • Policies tailored to the needs of EROS members
  • Representation in the Fair Work Commission (re unfair dismissal, general protections etc.)
  • Workplace investigations such as for harassment, bullying or discrimination.

Call us on 1300 054 542, email us at eros@employerassist.com.au or visit our website at www.indigolegal.com.au to send a contact