The importance of well drafted employment contracts

The need for well drafted employment contracts and policies is vital as these documents set out the framework in which the employment relationship is regulated. A well drafted employment contract:

  1. sets clear obligations and expectations on the employee so if that employee fails to meet the terms and conditions of employment the employer can rely on the contract;
  2. provides employers with flexibility in the face of changing business needs; and
  3. protects the employer’s business’ commercial interests during and after the employment relationship.

Additionally, employment contracts should be tailored to suit the employer’s business’ needs as well as the particular employee or group of employees in question. For example, an employment contract for an employee covered by an award or enterprise agreement will be very different to an employment contract for an executive-level manager of a company.

So, what should a well drafted employment contract generally include? 

There are 6 keys clauses to consider:

  1. essential details of employment;
  2. duties and responsibilities of the employee;
  3. restrictions and prohibitions applicable to the employee’s employment;
  4. protection of the employers’ commercial interests;
  5. arrangements on how to end the employment relationship; and
  6. employee’s post-termination obligations.

Essential details of employment

There are a number of details of employment that must be included in the employment contract. These essential details will vary depending on the business needs and the type of employment but generally make for a robust employment contract.

These essentials include:

  1. who must the employee report to?
  2. where must the employee work from?
  3. is the employee full-time, part-time, casual, fixed term?
  4. what is the employee’s remuneration?
  5. what hours is the employee expected to work, including overtime?
  6. what are the employee’s leave entitlements?

Duties and responsibilities of the employee

An employment contract should clearly set out what an employee is expected and required to do for their role and as an employee. Besides the general duties to be performed the contract agreement should include clauses relating to compliance with company policies, following reasonable directions from the employer (including performing different or alternative duties) and the treatment on the business’s property such as laptops, mobile phones and the return of such property when the employment ends.

Restrictions and prohibitions

An employment contract should clearly set out what they cannot do. These restrictions and prohibitions can include clauses relation to not attending work under the influence of drugs or alcohol, not driving a company vehicle without a valid driver’s licence, not engage in any other activity which conflicts with the business interests of the employer.

Protection of the employers’ commercial interests

For most businesses, protecting its commercial information and strategies, intellectual property, confidential information and ‘know-how’ is vital so that it can stay competitive with other similar businesses. For this reason, it is important clauses relating to an employee’s obligation not to disclose such information during and after termination of their employment. Clauses relating to confidential information should be specifically tailored the employer’s business by specifying what information is confidential in the employment contract.

Arrangements on how to end the employment relationship

An employment contract must have some robust terms and conditions regarding the termination of employment. These include clauses relating to summary dismissal for serious misconduct, notice of termination and payment in lieu of notice. 

Employee’s post-termination obligations

Post-employment restraints (e.g. restricting a former employee from start up a competing business) are, in the first instance, void as against public policy. However, carefully drafted restraints that go no further than is reasonably necessary to protect the legitimate business interest of an employer may be acceptable in an employment contract.

Notwithstanding a well drafted employment contract, it’s important to understand that no employment contract can exclude or override the provisions of an enterprise agreement or modern award. This means that an employment contract may not be less favourable than the terms of an agreement or award. 

Navigating modern awards to determine the applicable award to a specific role can be daunting and complicated, but it’s important to get it right. At Cohen Legal we can assist both employees and employers navigate the rabbit hole of employment law by:

  • preparing and reviewing employment contracts and policies;
  • providing advice in relation to employment matters, such as applicable awards, employment entitlements and other obligations under the Fair Work Act, performance management, disciplinary processes and workplace complaints as well as terminations;
  • assisting with employment law disputes, including restraint matters, unfair dismissal and adverse action claims and claims for breach of contract.