04 May April Newsletter: Employment Contracts

Is it time to update your written employment contracts?

With the Fair Work Commission’s minimum wage determination looming and pay reviews on the horizon, now is the perfect time to start thinking about whether your written employment contracts are up to date.

Getting back to legal basics, a contract is formed when there is an offer, acceptance and consideration. With fresh consideration possibly on the table with pay reviews (i.e. increased remuneration), we suggest that you take a look at your written employment contracts and decide whether new contracts are in order.

Here are some questions to help you decide whether new employment contracts are needed:

1. Is the contract current?

If your employee was originally employed in the year 2000, pursuant to a contract and despite three promotions and numerous legislative changes is still employed pursuant to the same contract, it’s likely that a new contract is needed.

A written contact may not survive where there have been numerous changes to an employee’s employment arrangement. If this occurs, the employee may be consequently employed pursuant to a verbal agreement which is unlikely to contain a termination clause. Without an express termination clause “reasonable notice” will be implied into the verbal contract and as demonstrated in the case of Susanna Ma v Expeditors International Pty Ltd [2014] NSWSC 859, there can be significant implications for an employer including damages.  In the case of Expeditors International Pty Ltd, the employee was awarded approximately $1,000,000.00.

When determining reasonable notice, the court will consider the following:

1. Service;

2. Position (i.e. importance and seniority);

3. Age of employee;

4. Employee’s Salary;

5. Nature of employment;

6. Length of service;

7. Professional standing of the employee;

8. Employee’s qualifications and experience; and

9. Expected time frame for the employee to obtain alternative employment.

2. Are your policies and procedures incorporated into the employment contract?

Does your employment contract clearly state that the employee is required to comply with the policies and procedures as amended from time to time, but that such policies and procedures are not binding on the employer? If not, you could be at risk of your policies and procedures forming part of the employment contract.

In March 2015, Royal Bank of Scotland was ordered to pay its former employee over $3,000,000.00 after the Supreme Court of New South Wales found that the Bank’s redundancy policy formed part of the former employee’s employment contact.

The Judge found in the matter of James v Royal Bank of Scotland [2015] NSWSC 243 that a clause requiring the former employee to be bound by the Bank’s policies also bound the Bank in a reciprocal fashion, despite the contract being silent on this point.

If you are concerned about the impact of your policies or lack thereof, on your business give us a call.

3. Do your contracts contain adequate provisions to address your business needs?

Business needs vary from business to business.  However, some of the most common traps businesses fall into are:

Failing to protect confidentiality and intellectual property

Protecting confidential information and intellectual property is becoming more important as we advance technologically and grow into a global market. Your expertise and know how are your brand and they can be worth their weight in gold.

In order to ensure your business is adequately protected, check your contracts for these clauses.  Do these clauses include definitions? How detailed are they? Does your contract contain limitations on when confidential information can be used? What happens to the intellectual property created by your employees? Do you maintain ownership?

Failing to include a restraint of trade

It is a common misconception that restraint of trade clauses are unenforceable. Yes, such clauses are notoriously hard to enforce but a restraint of trade clause may be enforceable where such clause is reasonably necessary to protect the employer’s legitimate business interests and where public interest does not prohibit the enforcement of such a clause.

To maximise the enforceability of a restraint, you need to carefully consider what restraint period (and potentially area/s) would be necessary to protect your business interests (e.g. trade secrets, confidential information and relationships with clients etc.) should the employee leave the company. This in turn requires you to consider such factors as the nature of the person’s employment, their seniority and length of service, what confidential information the employee has/had access to, and what clients, suppliers or employees the employee had dealings with.

To ensure your business is protected ask yourself:

Have you checked your senior level employee contracts recently?  Do your senior level employment contracts contain a restraint of trade provision? Is this provision included to protect your legitimate business interests? Is this clause drafted in accordance with the relevant case law? Is it tailored to the employee’s role and position? Would a court consider it reasonable?

High income employees

It is easy for businesses to forget that sometimes their highest income earners are covered by an award and that despite the employee’s level of remuneration that they are entitled to the benefits of this Award. A way to manage this is to take advantage of the high income threshold by using a guarantee of annual earnings provision within your employment contracts.

In order to avoid the traps ask yourself, are your award covered employee’s paid above the high income threshold (currently $133,000.00)? If so, does the employment contract contain a guarantee of annual earnings provision?  Inclusion of such a provision means that the employee will no longer be covered by the relevant modern award and will be excluded from the unfair dismissal jurisdiction.  If you would like any further information with respect to a guarantee of annual earnings provisions, give us a call.

Flexibility

One of the biggest issues, we see employers face, is the need for greater flexibility within their workplace, particularly when markets are unstable. In order to give your business more control over its workers, ask yourself:

Are your employment contracts flexible? Can you require an employee to work from a new location? Can you direct an employee to perform alternative duties provided he or she has the necessary skills and experience? Does the employment contract cover the employee working reasonable additional hours?

If the answer is no to any of these questions, give us a call and let us assist you with an employment contract health check.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.