Employment contracts are the cornerstone of a healthy employer-employee relationship. They establish clear expectations, protect confidential information, and minimise the risk of misunderstandings. However, poorly drafted contracts can leave employers vulnerable to legal disputes, frustrated employees, and even financial losses.
Here are some of the common missteps in employment contracts to avoid.
Failure to comply with the National Employment Standards (NES)
The NES outlines the minimum entitlements for Australian employees. Contracts cannot undercut these rights, which include maximum working hours, minimum wage, leave entitlements, flexible work arrangements, superannuation contributions, and notice periods.
Solution: Ensure employment contracts meet or exceed the minimum provisions stipulated in the NES. Refer to the Fair Work Ombudsman website for details on the NES.
Unclear or inadequate restraint of trade causes
Restraint of trade clauses restrict an employee’s ability to work for competitors after termination. However, Australian courts are stringent with these clauses. Unreasonable restrictions will likely be deemed unenforceable.
Solution: Consult an employment lawyer to draft restraint of trade clauses that are reasonable in terms of duration, geographic area, and the nature of the protected interests.
Weak confidentiality provisions
Contracts must protect an employer’s confidential information. Australian law recognises the importance of trade secrets. Omitting adequate confidentiality clauses can create a legal vacuum.
Solution: Explicitly define confidential information and outline strict employee obligations. Include specific consequences for breaches.
Inconsistent or contradictory terms with awards or agreements
Industry-specific modern awards or enterprise agreements may apply to your workplace. Contracts cannot contradict or undermine the entitlements outlined in these instruments.
Solution: Carefully review any applicable modern awards or enterprise agreements. Ensure contract terms are consistent or provide greater benefits than those mentioned within those instruments.
Lack of proper termination clauses
Well-defined termination clauses are crucial. They must outline grounds for termination (e.g., serious misconduct, redundancy) and adhere to notice period requirements set by the NES or any applicable awards.
Solution: Develop clear termination clauses in line with Australian law. Ensure they provide fair processes for both employer and employee.
Ambiguity regarding intellectual property (IP)
Australian law recognises employers’ potential rights over employee-created IP. Lack of clarity around IP ownership within a contract can lead to disputes.
Solution: Include clauses explicitly assigning ownership of IP generated during employment to the employer. Consider how copyright law affects your specific industry.
Vague or overly broad language
Avoid vague phrases like “as required” or “best effort”. These create ambiguity that can trigger misunderstandings and disputes down the line.
Solution: Use precise definitions for key terms (e.g., performance standards, work hours). This increases clarity and reduces the risk of misinterpretation.
Ignoring individual needs
Avoid using the same contract for all employees. Specific roles and responsibilities may require additional clauses or modifications.
Solution: Create tailored contracts or templates for different employee categories to address specific expectations and obligations.
Failing to provide clear explanations
Walk new employees through the key aspects of their contract.
Solution: Allow time for questions and ensure employees understand their rights and obligations before signing.
Not seeking legal advice
Australian employment law is complex and frequently updated. Sole reliance on online contract templates might not suffice.
Solution: Engage an employment lawyer to draft or review your contracts. This ensures they’re compliant, enforceable, and tailored to your business.
By avoiding these common errors, employers can create robust employment contracts that protect their interests while fostering a fair and transparent workplace. A comprehensive contract benefits both parties and lays the foundation for a productive and harmonious working relationship.
