Key Clauses To Include In Your Employment Contracts

July 10, 2024

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As an employer, one of the most important documents you will have with your employees is their employment contract. This legally binding agreement outlines the terms and conditions of their employment, including job responsibilities, salary, benefits, and other key details.

To ensure that your business is protected and your employees are clear on their rights and obligations, it’s crucial to include certain key clauses in these contracts. This guide will discuss the top clauses you should include in your employment contracts and why they are important.

What is An Employment Contract?

Before discussing the key clauses, it’s important to understand what an employment contract is. According to the Fair Work Ombudsman, an employment contract is a legal agreement between an employer and employee that sets out the terms and conditions of employment. It can be in written or verbal form, but it’s always recommended to have a written contract for clarity and to avoid potential disputes.

Key Clauses to Include in Your Employment Contracts

Below are the top clauses that every employment contract should include:

Pay Terms

Including pay terms in your employment agreement may seem obvious, but it is a crucial element. Clearly outlining your employee’s pay ensures no ambiguity and that legal requirements are met. In Australia, employers are mandated to compensate employees with monetary pay for their work. Substituting pay with benefits like food is not permissible.

Employee pay rates can vary based on several factors, primarily influenced by any applicable modern award or enterprise agreement. Since most employees are covered by a modern award, specifying their pay rates according to the relevant award provisions is essential.

Employers should consider the national minimum wage as a baseline when determining pay rates. According to the Fair Work Act, the national minimum wage applies to most employees not covered by an award or registered agreement. As of 2023, the national minimum wage was $23.23 per hour or $882.80 per week.

Should you be uncertain about the payment terms to be included in your employment contract, it is wise to consult with a legal expert. Such advice can safeguard against the potential risk of undercompensating your employees, ensuring compliance and fairness.

General Standards: Hours, Leave, Termination

When drafting an employment agreement, it is essential to clearly outline your employees’ expected working hours. This ensures both parties are aware of the commitment required. Alongside working hours, you must specify the types of leave employees are entitled to, such as annual, personal, and any other special leave provisions that apply. This transparency helps maintain a fair and predictable working environment.

Additionally, the agreement should clearly outline the terms related to termination and redundancy, including the requirement for adequate notice of termination and the specific situations that could lead to the end of employment. Every new employee must be furnished with the Fair Work Information Statement either before or shortly after commencing their role. Similarly, casual employees should also be provided with the Casual Employment Information Statement.

General standards, including working hours and leave entitlements, are predominantly dictated by the relevant industrial instruments that cover your employees, such as modern awards or enterprise agreements. These instruments can only build upon the minimum entitlements outlined in the National Employment Standards (NES), and you cannot offer less than what the NES stipulates. The minimum entitlements for hours and leave have been summarized in the tables below to ensure clarity.

When terminating employment or making a position redundant, providing proper notice and following the appropriate process is crucial. This aligns with legal obligations and promotes a respectful and fair approach to handling employment matters.

Restraint of Trade Clause

When recruiting employees, it is critical to safeguard your business’s trade secrets, intellectual property (IP), and other sensitive information from being shared with competitors. It is also wise to ensure that employees do not leave only to immediately begin working for a competitor.

Including a restraint of trade or non-compete clause in employment contracts can help prevent this situation. A non-compete clause restricts employees from becoming competitors or joining competitors both during and after their time with your company.

Generally, non-compete clauses are effective within a specified geographical area and for a certain period. For instance, you could restrict a chef from opening a new restaurant in your establishment’s neighborhood. Furthermore, you could restrict a former employee from joining a competitor for one year after departure from your organization.

It is important to draft restraint of trade clauses as cascading clauses. This involves structuring the terms so that the restriction areas and time periods decrease over time. This approach ensures that if parts of the restraint are deemed unreasonable, the entire clause is not invalidated, offering your business greater protection.

Confidentiality Clause

A confidentiality clause, often embedded in employment contracts, is an essential safeguard for any business handling sensitive information. This clause obligates employees to maintain the confidentiality of proprietary data, trade secrets, client details, and other confidential materials during and after employment.

By legally binding employees to this agreement, businesses can significantly reduce the risk of exposing critical information to competitors or the public. The importance of this clause cannot be overstated, as breaches of confidentiality can lead to substantial financial losses, reputational damage, and competitive disadvantages.

When drafting a confidentiality clause, it is essential to clearly define what constitutes confidential information to avoid any ambiguity. The clause should also delineate the scenarios under which confidential information may be disclosed, such as complying with legal obligations or reporting illegal activities.

Additionally, it should specify the duration of the confidentiality obligation, which often extends beyond the period of employment. Including these details ensures that both the employer’s expectations and the employee’s responsibilities are transparent, promoting a culture of trust and vigilance regarding sensitive information within the organization.

Intellectual Property Clause

Your employment contract must clearly define how intellectual property (IP) created during an employee’s tenure is managed and owned. Typically, employers hold the rights to any IP employees produce while working.

A precise definition of intellectual property within the contract is essential to prevent potential conflicts. Also, including an IP assignment clause guarantees that any IP created by the employee is legally transferred to the employer. This approach safeguards the company’s interests and clarifies the employees’ obligations regarding their creations. By doing so, it fosters a transparent and legally secure workplace atmosphere.

Final Thoughts

When drafting employment contracts, it is crucial to ensure that all clauses are clearly defined and understood by both parties. These agreements set the foundation for a positive working relationship between an employer and employee and protect the interests of both parties. A well-written contract promotes transparency, trust, and accountability within the workplace, ultimately contributing to a successful and harmonious working environment. Seek legal guidance when necessary to ensure your employment contracts comply with applicable laws and safeguard your organization’s interests.

FAQs

  1. What are the National Employment Standards?

    The National Employment Standards (NES) refer to eleven minimum entitlements that apply to all adult workers covered by Australia’s workplace relations system. These entitlements establish the baseline conditions for workers, ensuring fundamental rights such as fair work hours, leave entitlements, and termination notice periods. Modern awards, enterprise agreements, and employment contracts must meet or exceed the protections offered by the NES; they cannot fall short of these prescribed standards.

  2. What is a non-compete clause?

    A non-compete clause is a provision in an employment contract that restricts employees from working for a competing business either during their tenure with an employer or for a specified period after their employment ends. This clause protects the employer’s legitimate business interests, such as trade secrets, proprietary information, and client relationships, by preventing employees from immediately joining competitor firms and potentially leveraging their insider knowledge. Non-compete clauses must be reasonable in scope, duration, and geographic area to be enforceable.

  3. Can an employment contract be modified or terminated?

    Employment contracts can only be modified or terminated with the consent of both parties. Any changes made to the terms and conditions of an existing contract must be clearly communicated and agreed upon by both the employer and employee. In cases where an employer wishes to make significant changes, such as reducing salary or altering job responsibilities, they must provide reasonable notice and offer the employee the opportunity to negotiate. Similarly, termination of an employment contract must be done in accordance with legal requirements and any specified notice periods.

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