Employment Contracts
An employment contract is usually the most important foundational document between an employee and an employer. It not only sets out salary, position and working hours, but also affects the probation period, bonuses, commissions, notice periods, confidentiality obligations, intellectual property, post-employment restrictions, and the rights and obligations of both parties when the employment relationship ends.
For employees, failing to read the terms carefully before signing the contract may mean only discovering after starting the job that bonus conditions are unclear, the notice period is too long, the scope of non-compete restrictions is too broad, or that they are restricted in relation to clients, business opportunities and their next job after leaving. For employers, contract terms that are unclear, have not been updated for a long time, or are inconsistent with the actual role arrangements may also create risks when an employee leaves, in performance management, in unpaid-wage disputes, or in protecting confidential information.
NS Legal can assist both employees and employers with matters relating to employment contracts, including contract drafting, review, negotiation, variation, interpretation, breach-of-contract disputes, and issues concerning post-employment restraint clauses.
Employment Contracts
The purpose of an employment contract is to set out clearly the core arrangements of the employment relationship, so that both parties know their respective rights and responsibilities.
A clear employment contract usually sets out:
- whether the employee is full-time, part-time, casual or fixed-term;
- the position, duties and reporting relationships;
- base salary, bonuses, commissions and other benefits;
- place of work, working hours and overtime arrangements;
- the probation period and performance requirements;
- annual leave, sick leave and other leave arrangements;
- notice periods and procedures for terminating employment;
- confidentiality obligations and protection of company information;
- ownership of intellectual property;
- post-employment restrictions, such as non-compete restraints and prohibitions on soliciting clients or employees;
the consequences that may follow a breach of contract.
An employment contract cannot fall below the minimum entitlements set by law. Even if a contract has been signed, if its terms fall below the minimum requirements of the National Employment Standards, a Modern Award or an Enterprise Agreement, those terms may not be enforceable.
What Employees Should Check Before Signing an Employment Contract
When an employee receives an employment contract, they should not look only at the salary figure and the job title.
Many of the more significant terms are often buried in the second half of the contract, particularly those dealing with termination, confidentiality, intellectual property and restraint clauses.
Before signing, the following usually warrant careful review:
- whether the salary is an annual salary, an hourly rate, or a total package that includes overtime and allowances;
- whether bonuses, commissions or incentive payments have a clear method of calculation;
- whether the notice period during the probation period differs from the notice period afterwards;
- whether the stated duties match the actual work to be performed;
- whether the employer can unilaterally change the place of work, duties or rostering;
- whether annual leave, sick leave and other leave comply with statutory requirements;
- whether there are non-compete, non-solicitation of clients or non-poaching of employees clauses;
- whether obligations to maintain confidentiality, return documents, or refrain from using client information continue after leaving;
whether the contract requires the signing of an employee handbook, policy documents or additional agreements.
For senior employees, sales roles, management roles, technical roles, and employees in the medical or education sectors, the confidentiality, intellectual property, bonus, client-resource and post-employment restraint provisions in the contract particularly warrant careful review.
What Happens Without a Written Contract
In Australia, an employment relationship does not necessarily require a formal written contract to be formed. Verbal agreements, letters of offer, emails, records of wage payments and the actual working arrangements may together form part of the employment relationship.
However, the absence of a written contract usually increases the risk of disputes.
For employees, it may be difficult to prove promises of bonuses, working hours, the scope of the role, remote-work arrangements or additional benefits. For employers, it is also harder to clearly enforce notice periods, confidentiality obligations, ownership of intellectual property and post-employment restrictions.
Even without a written contract, employees may still be protected by the National Employment Standards, Modern Awards, Enterprise Agreements and related workplace laws. Employers must still comply with minimum wage, leave, superannuation and other statutory requirements.
Employers Drafting Employment Contracts
For employers, an employment contract should not simply be a template downloaded from the internet with the company name swapped in. Different roles, industries and business sizes call for different contract terms. Management roles, sales roles, technical roles, administrative roles, casual roles and fixed-term roles may each involve different duties, risks and protection priorities.
An employment contract suited to a business should match the actual working arrangements and help the employer manage the following matters clearly:
- the employee’s status and type of employment;
- the remuneration structure and additional benefits;
- place of work, working hours and flexible working arrangements;
- the probation period and performance management;
- termination of employment and notice periods;
- confidential company information, client information and intellectual property;
- post-employment restrictions and protection of clients;
- the application of the employee handbook and workplace policies;
how breaches of contract or serious misconduct will be dealt with.
If a contract has not been updated for a long time, or an employee’s actual work has clearly diverged from the contract, disputes may later arise over dismissal, unpaid wages, bonuses, changes to the role, or enforcement of restraint clauses.
Confidentiality
Almost all employment contracts include a confidentiality clause.
Confidentiality obligations usually exist not only during employment but may also continue after the employee has left.
Information that is commonly protected includes:
- client information;
- business plans;
- quotes and pricing information;
- financial data;
- internal policies and processes;
- marketing strategies;
technical information and research and development outcomes.
When an employee leaves, they generally cannot take this information to use at their next employer simply because they were involved in the relevant work.
For employers, a confidentiality clause is one of the important tools for protecting the business’s commercial interests.
Intellectual Property
For the technology, design, marketing, medical, education, software development, engineering and creative industries, intellectual property clauses are usually very important.
Many employees assume by default:
“This is something I made, so it belongs to me.”
But this is not necessarily the case.
Employment contracts usually provide that the works, documents, programs, designs, training materials, business proposals and other outputs an employee creates during their employment belong to the employer.
For roles involving research and development, software development, content creation or innovative business, the ownership of intellectual property often requires particular review.
Restrictive Covenants
Non-compete restraints are among the contract terms most likely to give rise to disputes.
These clauses usually restrict an employee, for a period of time after leaving, from:
- joining a competing business;
- operating a competing business;
- approaching the former employer’s clients;
using the former employer’s commercial resources to carry on business.
A non-compete restraint is not necessarily enforceable simply because it is written into a contract.
A court will usually consider:
- the employee’s position;
- the extent of their access to clients and trade secrets;
- the duration of the restraint;
- the geographic area of the restraint;
whether the scope of the restraint is reasonable.
The standard a court applies often differs between ordinary employees and senior managers.
Non-Solicitation of Clients and Employees
In addition to non-compete restraints, many contracts also include a non-solicitation clause.
These clauses usually restrict an employee, after leaving, from:
- actively contacting former clients;
- poaching the former employer’s staff;
- inducing clients to end their relationship with the former employer;
using the former employer’s client resources to carry on business.
For sales staff, account managers, consultants, and those in the medical and professional-services industries, these clauses frequently become the focus of disputes after an employee leaves.
Senior Employee and Management Contracts
Employment contracts for senior employees, management and professional roles are usually more complex. Such contracts may involve:
- a high annual salary and bonus structure;
- equity, options or long-term incentive arrangements;
- performance targets and assessment criteria;
- a company vehicle, travel, reimbursements and additional benefits;
- confidentiality and intellectual property;
- client resources, business opportunities and team management;
- non-compete restraints and non-solicitation;
- early termination, garden leave or payment in lieu of notice;
- redundancy and exit arrangements.
For employees, the post-employment restrictions in a senior contract may affect future career choices. For employers, these contracts need to protect trade secrets, client relationships and core business interests more precisely, while avoiding restraint clauses that are drafted so broadly that they become difficult to enforce.
Employment Contract Disputes
Breach of Contract
A breach of an employment contract may be committed by either the employee or the employer.
Situations in which an employee may breach the contract include:
- leaving without giving the required notice;
- improperly using confidential company information;
- using or taking client information without permission;
- breaching intellectual property or confidentiality clauses;
- contacting clients or joining a competing business after leaving, in breach of the contract restraints;
breaching company policies or engaging in serious misconduct.
Situations in which an employer may breach the contract include:
- failing to pay wages, bonuses, commissions or other amounts in accordance with the contract;
- failing to provide sufficient notice or payment in lieu of notice;
- terminating a fixed-term contract early;
- unilaterally changing wages, position or core conditions of employment;
- failing to handle dismissal, performance management or disciplinary action in accordance with the contract or policies;
refusing to pay benefits or entitlements provided for in the contract.
How a breach-of-contract dispute is handled depends on the nature of the breach, the contract terms, the amount of loss, and the relationship between the parties. Some disputes can be resolved through communication, a letter of demand, or negotiation; others may need to be dealt with through Fair Work, the courts or other processes.
Post-Employment Restraint Clauses
Post-employment restraint clauses are one of the parts of an employment contract most likely to give rise to disputes.
Common restraints include:
- non-compete restraints;
- prohibitions on soliciting clients;
- prohibitions on soliciting employees;
- prohibitions on using or disclosing confidential information;
prohibitions on approaching specific suppliers or business opportunities.
Employees should pay attention to the scope of the restraint, its duration, its geographic area and the types of clients involved. An overly broad restraint may be difficult to enforce, but this does not mean an employee can disregard the contract terms entirely.
Employers who wish to use a contract to protect client resources, confidential information and business interests also need to ensure that the restraint clauses are reasonably designed and match the employee’s position and the commercial information they actually have access to.
How NS Legal Can Help
NS Legal can assist employees, employers and company management with legal matters relating to employment contracts.
We can help clients to:
- draft employment contracts, letters of offer and role-related documents;
- review an employment contract before an employee signs it;
- review senior employee and management contracts;
- explain salary, bonus, commission, notice-period and termination clauses;
- review confidentiality, intellectual property and post-employment restraint clauses;
- assist employees in negotiating contract variations with employers;
- assist employers in updating contract templates and employee policies;
- handle disputes over breach of contract, unpaid wages, bonuses or commissions;
- assist with separation agreements and termination arrangements;
provide legal advice on Fair Work, court or other dispute-resolution processes.
Reviewing an employment contract before it is signed usually makes risk easier to control than dealing with a dispute after it arises. NS Legal can, based on the client’s situation, help assess the practical effect of contract terms and provide clear, practical legal advice.
Frequently Asked Questions
Does an employment contract have to be in writing?
An employment relationship can be formed through a verbal agreement, a letter of offer, emails and the actual working arrangements. However, a written contract records salary, position, notice periods, confidentiality obligations and post-employment restrictions more clearly, reducing future disputes.
Can an employment contract still be changed after it has been signed?
Yes, but this usually requires the agreement of both parties. An employee should not accept significant changes without understanding their effect; an employer should not unilaterally change salary, position, place of work or other core terms.
What if the salary in the contract is below the minimum industry standard?
A contract cannot fall below the applicable minimum legal standards. If the salary, overtime, weekend penalty rates, leave or superannuation arrangements fall below the National Employment Standards, a Modern Award or an Enterprise Agreement, the employee may still be entitled to claim the corresponding entitlements.
Before signing a contract, which terms are most worth paying attention to?
Beyond salary and position, you should also pay attention to bonuses and commissions, the probation period, notice periods, place of work, the right to change the role, confidentiality obligations, intellectual property, non-compete restraints and non-solicitation clauses.
Can an employer simply use a template contract from the internet?
Using an unreviewed template directly is not recommended. A template may not reflect the specific role, the applicable Modern Award, the remuneration structure, the employee’s level, or the business’s protection needs. Using an unsuitable template may lead to greater risk later on.
Does breaching an employment contract always lead to being sued?
Not necessarily. Many contract disputes can be resolved through communication, a letter of demand, negotiation or settlement. Whether further proceedings are needed depends on the nature of the breach, the loss involved, the contract terms and the goals of both parties.
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