Employment Agreements are critical tools – here’s what you need to know about them

Author: Lehanne Bleumink, Gold Seal HR Services Manager.

An employment agreement is a legally binding agreement between an employer and employee that sets out terms and conditions of employment. It is designed to give both parties security and protection.

The purpose of an employment agreement is to ensure both employees and employers share a clear understanding of what is expected during the term of employment and to help them to understand their rights under the law. It is highly recommended that it is written, as verbal agreements are difficult to prove in cases of doubt. If contested, written agreements create clarity and evidence for both parties. All employees are governed by the National Employment Standards (NES), regardless whether an agreement has been signed by an employee. An agreement cannot provide less than the legal minimum set out in the (NES), an Award, enterprise agreement or other registered agreement that may apply.

There are a number of options when arranging Employment Agreements. The most common type of Agreement used in the Financial Services industry is an employment contract – also known as an individual agreement. Enterprise agreements are the second most likely type of agreement. They are made between the employer and a group of employees, and are often used by large organisations.

An employment contract is made between an employer and an employee and is covered under contract law. The employment contract contains express terms and employment benefits agreed between parties. The terms of the contract are not confined to the express terms, but there are also a number of duties and obligations which are implied into the contract by common law courts. Generally, an employment contract is initiated by an offer of employment, which the other party voluntarily accepts.

A basic employment contract commonly outlines matters such as:

  • What work to is to be performed by the employee and to what standard
  • Where and when the work will be performed
  • Remuneration for performing the work
  • Entitlements such as leave
  • Termination of contract provisions
  • Reporting and supervision levels
  • Confidential and proprietary information, intellectual property etc.
  • Post-termination restraints and garden leave

The issue of employment status is an important one that needs to be determined at the commencement of the employment relationship. It is the status of the relationship that will determine many entitlements – such as access to parental leave, long service leave and the calculation of paid annual and personal/carer’s leave and will determine what to include in an employment contract. An employer may decide to engage someone on a ‘contractor basis’. It is critical to establish whether the true relationship is one of ‘employer and employee’ prior to entering into a contractor agreement.

While the NES provide the minimum conditions, Awards may contain provisions enabling an employee and employer to agree to vary certain entitlements to meet individual needs. The terms will be outlined in the Award and detail how the provisions can be varied. If the terms are varied, an Award flexibility agreement should be entered into and the terms documented, in conjunction with the employment agreement.

Due to the competitive nature of some industries, employers may want to restrict the services of an outgoing employee to protect the business. It is unlawful to impose a restraint of trade unless it is reasonable for the protection of the business and does not result in ‘deprivation of livelihood’. Restraints can prohibit an ex-employee from providing services to clients of the business or working in a competitor’s business in certain geographical locations and for certain periods of time. However, the wording of such restraints must not be excessive or unnecessary to protect the business’s legitimate interests. Because judges may take different views depending on the circumstances of the particular employee and employer, a cascading scale of restraints both in terms of area and time is vital to the success of a restraint clause.

Visit Gold Seal’s HR Resources page to purchase copies of Employment Agreement templates.

As mentioned, having a well drafted employment agreement is important for a number of reasons. Disputes between employees and employers are common. In the event of a dispute you will be much better placed to defend your business if there is an employment agreement in place.

Remember, no business is ‘too small’ to take the risk of not having Employment Agreements in place.

For assistance on any of your HR/IR requirements – call Gold Seal on 03 9510 5100 or email HRServices@goldseal.com.au

2018-07-25T14:36:42+00:00July 19th, 2018|Articles, HR News, News|