Most employers only look closely at their employment contracts when something has already gone wrong. A new hire disputes their notice period. An employee leaves and starts working for a direct competitor the following week. A probation dismissal turns into a Fair Work complaint. By then, the contract that was supposed to protect the business is the thing being picked apart.
A properly drafted employment contract does more than set out a salary and a start date. It sets pay and conditions in line with the law, protects confidential information and client relationships when someone leaves, and gives an employer a clear, defensible process to follow when things go wrong. For any business hiring in Australia, understanding what a compliant employment agreement actually needs is not optional extra reading. It is part of running the business.
This guide covers what must be included in an employment contract in Australia, where employers most commonly go wrong, how probation clauses actually work, what post-employment restraints can and cannot do, and why downloading a free employment agreement template is one of the more expensive shortcuts a small business can take.
What an Employment Contract in Australia Must Cover
An employment contract cannot contract out of the law. Every employment agreement, from a one-page letter of offer to a detailed executive contract, sits underneath a layer of legislation and, often, an industry award or enterprise agreement. Getting the order of priority wrong is one of the most common (and costly) mistakes employers make.
At a minimum, every Australian employment contract should reflect the National Employment Standards (NES): 11 minimum entitlements covering maximum weekly hours, leave (annual, personal, parental, family and domestic violence, and community service leave), public holidays, notice of termination, redundancy pay, and the right to request flexible working arrangements. A contract can improve on these entitlements. It cannot reduce them.
Beyond the legislative floor, a well-drafted employment agreement for a small business should clearly set out:
- The parties, position, and reporting line
- Ordinary hours of work and any expectation of reasonable additional hours
- Remuneration, including how it satisfies any applicable award or enterprise agreement
- Leave entitlements and how they interact with the NES
- Probation terms, if applicable
- Confidentiality and intellectual property obligations
- Any post-employment restraints (non-compete, non-solicitation, non-disparagement)
- Termination provisions, including notice periods and circumstances for summary dismissal
- How workplace policies are incorporated (and whether they form part of the contract or sit outside it)
Missing any one of these does not necessarily make a contract unlawful, but it does leave gaps that tend to surface at the worst possible time, usually when a relationship is already breaking down.
Where Employment Contracts Commonly Go Wrong
The mistakes we see most often at Prosper Law are rarely dramatic. They are small, quiet gaps that only become a problem when tested.
The contract doesn’t match the award: A business might pay above award rates on paper but structure allowances, overtime, or annualised salary clauses in a way that doesn’t properly satisfy the relevant Modern Award. Underpayment exposure often has nothing to do with intent and everything to do with contract drafting.
It was written for a different business: Many employers start with a contract used for their first employee and keep reusing it as the business grows from five staff to fifty. A casual employment agreement adapted for a full-time manager, or a contract that still references an ABN that has since changed structure, creates confusion no one notices until there is a dispute.
Termination clauses are vague or unenforceable: “Termination in accordance with law” sounds safe. In practice, ambiguous termination clauses are frequently the first thing challenged in a dispute, because they leave room for argument about what notice was actually owed.
Recent legislative changes haven’t been reflected: Casual conversion rights, psychosocial hazard obligations, and the right to disconnect (in force for small business employers since 26 August 2025) have all changed what a compliant contract and workplace policy suite needs to say. A contract that hasn’t been touched in three or four years is very unlikely to reflect all of them.
Restraints are copied in without thought: A non-compete or non-solicitation clause lifted from another document, with no regard for what is actually reasonable for that role, often turns out to be unenforceable exactly when the business needs it most.
Probation Clauses: What They Actually Do
Probation clauses are one of the most misunderstood terms in an Australian employment contract. Employers often treat the probation period as a fixed window in which an employee can be dismissed without consequence. That’s not quite right.
A probation clause is contractual. It signals that performance and fit are being actively assessed, and it can support a shorter or simpler process for ending the employment relationship early. What it doesn’t do is override the statutory minimum employment period under the Fair Work Act, which determines when an employee becomes eligible to bring an unfair dismissal claim. That period is six months for most employers, and 12 months for small business employers (broadly, those with fewer than 15 employees).
In practice, this means a three-month probation clause at a business with 20 staff doesn’t protect the employer at month four. The employee simply isn’t protected from an unfair dismissal claim until month six regardless of what the contract calls the arrangement. Aligning the probation period in the contract with the applicable statutory minimum employment period, and following a fair process even within that window, gives an employer a far more defensible position if a dismissal during probation is ever challenged.
We’ve covered this in more detail in our guide to probationary periods and employment contracts, including how to document performance concerns properly during that early period.
Post-Employment Restraints: Non-Competes and Non-Solicitation
Restraint of trade clauses, covering non-compete, non-solicitation, and non-disparagement obligations, are where a lot of employment contracts either overreach or fall short.
Under Australian common law, a restraint clause is only enforceable to the extent it protects a legitimate business interest, such as confidential information, client relationships, or trade connections, and only to the extent it is reasonable in scope. Courts weigh up the geographic area covered, the length of the restraint, and the range of activities restricted. A clause that tries to stop a former employee from working anywhere in Australia in any related industry for three years is far more likely to be struck out than one narrowly tailored to a specific client base and a realistic timeframe.
Well-drafted restraints typically use cascading clauses: a series of fallback positions (for example, 12 months, then 6 months, then 3 months; a named list of clients, then a state, then a region) so that if the broadest version is found unreasonable, a narrower version can still apply.
Employers also need to watch this space closely. The federal government has confirmed plans to ban non-compete clauses for workers earning below the Fair Work Act’s high-income threshold (currently $175,000) from 2027, alongside restrictions on wage-fixing and no-poach arrangements between competing businesses. Non-solicitation and confidentiality protections are expected to remain available, but blanket non-competes for most employees will not be. Reviewing which of your current restraints will still be usable after 2027, and which need a different mechanism, such as tighter confidentiality and non-solicitation drafting, is worth doing well before the deadline rather than after it takes effect.
For more on how these clauses are assessed, see our explainers on restraint of trade clauses and non-solicitation obligations.
Why a Template from the Internet Is a Risk, Not a Shortcut
It’s easy to see the appeal of a free employment contract template. It looks complete, it’s ready in minutes, and it’s free. The problem is what a generic template can’t do.
A template can’t know which award or enterprise agreement applies to a role, so it can’t confirm the pay and conditions clauses actually satisfy it. It can’t reflect the size of your business, so probation and termination terms are often set without regard to the six or 12-month minimum employment period that actually applies. It’s rarely updated in step with legislative change, which means clauses covering casual conversion, the right to disconnect, or psychosocial hazard obligations are often missing entirely or already out of date by the time they’re downloaded. And restraint of trade clauses drafted with no knowledge of the specific role, client base, or jurisdiction are exactly the kind of broad, generic drafting that courts are most likely to find unenforceable.
The real cost of a template contract rarely shows up on day one. It shows up later, as an underpayment claim, an unfair dismissal dispute the employer assumed the probation clause protected against, or a former employee who has taken clients to a competitor with no enforceable restraint standing in the way. At that point, the cost of fixing the problem is almost always higher than the cost of a properly drafted employment agreement would have been.
Getting Your Employment Contracts Right
Employment contracts are one of the few legal documents almost every business genuinely needs, and one of the most commonly under-invested in. A contract that reflects your actual award or enterprise agreement obligations, sets realistic probation and termination terms, and includes restraints that will actually hold up if tested, is worth far more than the time saved by downloading a template.
If your employment agreements haven’t been reviewed since your business looked different to how it does today, or you’re not confident your restraints, probation clauses, or termination terms would stand up to scrutiny, an employment contract review is the practical next step. Prosper Law provides fixed-fee, plain-English employment law advice online to businesses across Australia, so you know the cost and the outcome before you commit to either. You can also start with a free introductory call to talk through where your current contracts stand and what, if anything, needs attention.
About the Author
Farrah Motley
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