Employment contracts: what to be mindful of

Written by Domenica Caridi

No one wants to assume the worst when they enter into an employment agreement, but all employment relationships eventually come to an end. In Australia, it is not necessary for an employer and employee to sign a written contract to create an employment relationship. When they do, the employment contract is inevitably dug out to determine what the rights and responsibilities of each party are.

For employers, an up to date written contract is an investment that goes a long way to reducing the risks of litigation and helps a lot with providing clarity around benefits and obligations between the parties.

For employees, knowing what you’re signing before you sign is essential. The terms of a contract are drafted to be enforceable—this means that even if you did not intend to agree to certain terms, you will in most cases still be bound by them once you have signed. Signing whatever is put in front of you is, as you can imagine, risky business—and results in a lot of troubled water later on.

In this article, we will discuss some things you should always consider before signing an Employment Agreement.

• Check your salary

You should make sure that the salary you and your employer agreed upon is clearly stated in the contract. If it’s lower, then this should be a warning signal for you not to sign until you find out why. Your contract should also tell you how and when your salary will be paid, and what the stipulations are for any bonuses, incentives and travel expenses.

• Job Title and Job Description

Make sure that your contract states your Job Title and that this is the title that you agreed. Your contract should also give a brief outline of your role, responsibilities and the duties that your employer expects you to carry out, check that this is in line with your understanding of the job role and what you expected before signing your contract and accepting the role.

• Understand the probation clause

Most employers will require you to serve a period of probation. This is a trial period allowing you both time to judge whether a long-term employment relationship is right for you. A probation period of 3 months is usually considered reasonable. If the contract offered to you asks for a longer period, you should query the reasons. During the probation period, either party can terminate the employment relationship without any reason. No legal consequences arise if it is. From your point of view, the shorter the probation period, the sooner you can be sure that your job is permanent and secure.

• Notice period

You should also make sure the details of your notice period are included in the contract. This period applies to both the employer and the employee. The employee must work the specified notice period before they can leave, and the employer must give the employee this notice period before terminating their contract. However, there are certain exceptions. If you’ve been asked to carry out a probationary period, the notice will be much shorter during the probationary period. Furthermore, if you have been found guilty of gross misconduct, your employer can terminate your contract without giving a notice period. However, the terms that constitute gross misconduct should be written into your contract.

• Start Date and Working hours

Ensure that the date on which your employment began is clearly documented, this is important as in order to bring certain claims in an Employment Tribunal you must have a worked for the employer for a qualifying period (two years for unfair dismissal claims).

Your working hours should be clearly stated and ensure that you’re happy with them. If the hours are unsuitable, negotiate before signing. Your contract should also state the details of any shift patterns, weekend and evening work, and the possibility of overtime. Your contract should also state whether you will be paid for your overtime work or not.

• Holidays

There are several things to look for in this section. Check when your company’s holiday year begins, how many days you’re guaranteed each year, the statutory requirement is 28 days, and whether Bank Holidays are included on top of your annual holiday entitlement. You should also check whether you’re allowed to carry unused days into the next holiday year and if there are any restrictions on when you can take time off.

This section should also stipulate your entitlement to sick pay and the type of evidence that will need to be provided before this is granted.

• Tax

Consider the tax implications of the employment offering. For example, salary packaging can seem attractive but if the employer pushes the tax liability on you, you may actually end up worse off because the tax rates for fringe benefits tax may be higher than your personal tax rate.

• Disciplinary clause

There are standard clauses in many employment contracts covering the rights of the parties when allegations of misconduct or poor performance are made. Generally, as long as the contract provides for the employee to be given details of the unsatisfactory conduct, and be given a chance to respond, such provisions are considered fair.

• Termination clause

Modern employment contracts usually set out what is considered to be reasonable if a party wishes to break the employment relationship. There should be a requirement that a minimum period of notice be given, and also reference to any Award or minimum requirements set by the general law.

• Restraint of trade-restrictions

Be sure to check for any clause that restricts you from working in the same job, industry or place after you leave. This is known as a Restraint of Trade clause.

The law surrounding the meaning and legal validity of this clause is very complex and not always understood by employers or employees … that is until one of them is directly affected by it. Usually the clause will specify a time period and/or geographical area in which the employee cannot work in competition with the employer after the relationship ends.

Legally, Australian courts will not allow an employer to use a Restraint of Trade clause if it unreasonably prevents the employee from earning a living in his or her usual occupation. The shorter the period, and the smaller the area, the more likely it is the Court may consider the clause reasonable. But each case depends on its own facts, the nature of the business/skills involved, the nature of the customer base, and any other specific circumstances affecting the parties.

This uncertainty makes it difficult to negotiate the precise terms of a Restraint of Trade clause. If the clause the employer presents to you seems unreasonable, one could advise you not to ask for changes. This is on the basis that it is so unreasonable a court would not enforce it anyway. However, this would be a time we suggest you seek legal advice (see the next point).

• Seek expert advice

There is no standard form of employment contract. Some are very formal and detailed. Others only set out the basic information, such as job description and salary, and refer to an Award where other conditions can be found. It is advisable, but not necessary, to have an independent person who has some knowledge of employment law look over your contract and explain any parts you do not fully understand.

We hope you found the information in this article valuable but keep in mind it is no substitute for legal advice. If you need further legal assistance to help you understand your employment contract, please contact us at Ferraro & Company Lawyers. We have a good network of lawyers who can help you should you need it.