No one wants to assume the worst when they enter into an employment agreement, but all employment relationships eventually come to an end. 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. Even without legal proceedings on foot, an up to date contract which is internally consistent with itself, as well as consistent with the actual day-to-day relationship with the employee, 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 (including in situations where you did not read them, or understand them), 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.
The lists below provide the five best practice tips and five common pitfalls in relation to employment contracts.
- Make sure there is a written employment contract. Each relevant contract should be up to date; should have automatic reminders to check on the contract when important dates might come up; and there should be a stored copy of the signed version.
- Make sure everyone is on the same page. All too often, we meet employers and employees who have no idea what is in their contracts. For employers, this means get the training so that you are empowered to confidently go through each clause of the contract with a new employee before they sign, so they understand their rights and responsibilities under the contract. For employees, especially senior executives—seek legal advice prior to putting your signature down, even if it sounds like a great offer.
- Update regularly to reflect changes in the business. Especially in situations where business is booming, the parties might forget that there have been major changes to the employee’s role, duties, or salary since the last time they thought about the actual contract terms. Contracts can go stale, and that can lead to a lot of legal uncertainty that could easily be avoided.
- Check an employee’s contract before engaging in any disciplinary action, grievance procedure, performance management, restructure, or termination. There may be clauses in the contract which dictate how these processes need to be undergone (in addition to statutory and common law requirements). Outcomes are usually better if they know that we’re acting in a predictable and consistent manner.
- Be aware of relevant industrial instruments and the conditions they impose. For example, where an employee is covered by an Award or Enterprise Agreement, make sure this is recognised in their employment contract, and that the terms of the contract comply with the terms of the Award or Enterprise Agreement. Remember importantly—for many employees, it’s not enough to just say “I’m paying above the minimum, I should be fine.” There can be significantly more rules around entitlements beyond just dollars.
- Don’t leave the dotted lines blank. Don’t start an employment relationship without having the parties agreeing, by signature, to a contract. Having a “draft” contract, or a “contract that they were supposed to sign”, can lead to many problems later down the line.
- Don’t make promises/guarantees which are not written into the contract. If it’s not written down and signed, then it may be unenforceable. A lot of litigation that comes out of contracts tends to be out of disappointed expectations.
- Don’t include company policies and procedures as contractual terms. These are better off as legally distinct documents, which allows the employer to unilaterally and flexibly amend these along with the needs of the business.
- Don’t overcomplicate things that can be simple. Written contracts should be clear, in plain English, and internally consistent.
- Don’t use a cheap template you bought online, get advice. Businesses are unique, so employers and employees should be bound by tailored contracts that actually makes sense to the business. An off-the-shelf document may seem like a good buy, but they don’t generally work well for anyone when it comes to litigious scenarios, and they aren’t a substitute for good legal advice.
It is critical that your contract meets the needs of your business if you’re an employer, and your expectations if you’re an employee. When things go wrong, and lawyers are called in, a well-drafted contract helps tremendously.
THE ABOVE IS SIMPLY GENERAL INFORMATION, IT DOES NOT CONSTITUTE LEGAL ADVICE. FOR FURTHER INFORMATION, PLEASE CONTACT US.