An employment contract is a legally binding agreement between an employer and an employee. It may be nothing but a handshake and verbal agreement. It could be in writing. It could be combination of both. It is not uncommon to see a simple letter of appointment or email containing details of remuneration and period of service. In some cases it is a complex written document.
Term of Contract
Employment contracts are usually either ‘fixed-term’ contracts which expire on a specific date or upon completion of a designated task or ‘indefinite’ contracts which continue until one party elects to terminate the contract.
Express or implied terms
An employment contract can contain both express terms such as the level of remuneration and the type of work that has to be done, and other terms that are implied. An example of an implied term is an employee’s duty to be faithful to the employer and not work for a competitor during the contract without permission. Implied terms could be implied by law or by the circumstances of a particular case. Express terms will generally override implied terms.
National Employment Standards (“NES”)
It is important that before signing your employment contract you are aware that there are legally enforceable minimum terms and conditions contained in the National Employment Standards (NES) which form part of the Fair Work Act 2009. NES entitlements will apply regardless of any contrary contractual terms that suggest otherwise. Some NES entitlements do not apply to casual employees.
Enterprise Agreement or Modern Award
Additionally, an employee may be subject to an enterprise agreement or modern award.An enterprise agreement will include specific conditions for one workplace whereas a modern award will include a safety net of minimum conditions for a whole industry.
It is relatively common for employers to ask new employees to sign an employment contract even where some of the terms of the employment relationship may also be covered by an award or enterprise agreement. Although a modern award or enterprise agreement may provide for extra entitlements, they cannot remove or reduce employee’s entitlements under the NES.
However, some awards and enterprise agreements do provide for employees to enter into an agreement with their employer to vary some provisions of the relevant award or enterprise agreement. However, there are restrictions regarding what provisions may be varied and there is usually a requirement that an employee cannot enter into an arrangement unless it means they will be “better off overall”.
What to look out for?
What to look out for when considering an employment contract will depend on the type of contract and the needs of the employee. Any proposed employment contract that has been provided to you should be clear in detail and the terms of the employment relationship. There should not be a clause which allows the employer to unilaterally change any of the clauses of the contract with out your prior consent. Even if it is specified that you will be consulted in regard to any changes to the contract this does not necessarily mean you will have the power to do anything about it. You should be reluctant to agree to such a provision.
There may be a provision of the employment contract which refers to a company policy. Be sure to read the policy before you sign the contract. It may lead to a back-door way for your employer to make changes to the contract of employment by changing policy which could in turn affect your position.
Some employment contracts and in particular executive employment contracts contain provisions which prevent an employee from working for a competitor or a client of the employer within a period of time after the employment relationship ends. There could also be a restriction based on a geographical area. Such clauses could have implications for your career.
Whether such clauses are likely to be upheld will depend on them going no further than being reasonably necessary to protect a legitimate interest of the employer such as confidential information or retaining trade secrets, and the employee receiving adequate consideration for the term ie. a higher remuneration that would be the case without the restriction. They cannot be used simply to punish an employee.
An employer may take action to enforce restraint clauses and seek an order for an injunction restraining the employee from taking up new employment in breach of the terms of their employment contract.
Ordinary hours of work
There may be a clause within an employment contract which stipulates the ordinary hours of work ie. 38 hours per week. This may mean that even if you are working in excess of 38 hours per week you may only receive an annual salary based on a 38 hour week.
Generally speaking, unless your employment contract specifically states that you will be paid for the hours you work in addition to your ordinary hours an employee will not generally have an enforceable claim against their employer for payment if working additional hours. Having said that, employment contracts will not necessarily extinguish any entitlement to overtime that a worker has under an award or enterprise agreement.
Agreed annual salary
The employment contract should specify the level of remuneration. It should also specify whether superannuation is to be paid over and above the annual salary or whether the salary is inclusive of superannuation. An employment contract may also specify how frequently you will be paid.
It is worthwhile checking to see whether the specified salary amount is equal to or better than what is provided for in your applicable enterprise agreement or award.
Compliance with employment laws
Virtually all Australian workers are covered by the NES which is a set of minimum employment conditions. It includes such things as a maximum of 38 hours per week plus reasonable additional hours, request for flexible working arrangements, paid and annual leave, long service leave, minimum notice of termination, redundancy pay entitlements etc.
The terms set out in the employment contract should not be less generous than what is contained in the NES. If the terms are less generous they should be brought to the employer’s attention before you sign the employment contract. It is not necessary for all of the minimum employment conditions in the NES to be set out in the employment contract as they will apply in any case assuming the Fair Work Act applies to your employment.
Allowances and Reimbursement
Some work requires travel to external offices or sites within a state, interstate or other countries. Employers will typically have a number of policies that cover the administration of allowances and reimbursement of expenses. To be fully aware of their entitlements, an employee may like to request copies of all relevant policies concerning such entitlements before signing an employment contract.
Bonuses and Incentive Programmes
Some employment contracts make reference to “bonus schemes” which are more often than not subject to the employer’s discretion. It pays to give consideration to the wording of such clauses to ensure that the provisions regarding bonuses are achievable.
Employment contracts can be complex. You may not be able to achieve all of the benefits you were initially seeking but it is important to know where you stand. An employment contract should provide certainty.
It is recommended to obtain legal advice as soon as an employment contract has been provided to you. In most cases, obtaining legal advice on an employment contract and your circumstances is not very costly.