An employment contract is an important document that explains the terms of the position between an employer and employee. Having good employment contracts and employment contract templates in place is crucial. They should have clauses to protect both parties and follow the law.
In this article, we will discuss the important clauses that companies should include in their employment contracts and templates. These clauses includes areas such as intellectual property, confidentiality, set-off, termination rights, probation periods and non-compete clauses.
Many people forget to include these clauses in their employment contracts and templates. They are important for setting clear expectations and safeguarding your business interests. If you draft them well, you can help protect your business.
Key Takeaways
- Ensuring contract templates are legally compliant and prepared by experienced employment law professionals is crucial for safeguarding business interests.
- Employers should reference company policies but not embed them in contracts to avoid frequent updates to the document.
- Probation periods and termination rights set clear expectations and guidelines for ending employment if needed.
- Different roles and employment types need tailored contract templates to meet the specific legal and operational requirements.
Overview
An employment contract should have important clauses to protect the employer and employee. These clauses cover various areas such as intellectual property, confidentiality, set-off, termination rights, probation periods, and non-compete clauses.
We will discuss each of these subtopics in detail and explain why they are crucial in an employment contract or template. By including these clauses, employers can establish clear expectations and protect their business interests. Plus, employees can easily determine their rights and obligations.
Let’s dive into each of these subtopics and understand their significance in an employment contract or template.
Intellectual property
Make sure your business owns any intellectual property rights your employee creates or contributes to while working.
Your employee, not your business, may automatically own intellectual property without an appropriate intellectual property clause.
An intellectual property clause should be prepared by an experienced employment law firm. Knowing copyright, trademark, and other intellectual property laws is important for the document preparer.
Set-off clauses
If a Modern Award applies, it’s important to include a set-off clause in your employment contract.
A well-written set-off clause lets your business subtract entitlements from the employee’s annual salary (excluding super). The employer must pay the employee more than the Award rate (and any owed entitlements) for this to occur.
You don’t have to include a set off clause in your employment contracts or templates. If you don’t use a set-off clause, your business may have to pay entitlements in addition to the employee’s salary. Authorities can impose fines or penalties if you don’t pay your employees correctly.
Company policies
If you have company policies, ensure the employment contract requires employees to follow them.
Company policies may include the handling of confidential information, workplace conduct or other processes the employee must adhere to.
However, we do not recommend incorporating your policies into the contract or template. Otherwise, you’ll need to update the template or contract every time you update a policy.
Termination rights
The contract or template should explain how the working relationship can end. You should ensure the termination clause is as detailed and broad as possible.
If something goes wrong during the employment, you want to make sure you can terminate the employment relationship. You will also want to minimise the impact on your business.
Probation periods
An employment contract or template should address the probationary period. During a probation period, an employer can end an employment contract for any reason (except for discrimination reasons).
You want to make sure you have a broad right to terminate the employment contract, for any reason, during the first six months. This is helpful if the employment relationship doesn’t work out.
Employees must work for at least six months before they can bring claims for unfair dismissal. Think of this as a statutory probation period. Employees may still raise a general protections claim if the company terminates them during probation.
Non-compete clauses
A non-compete clause can be an important clause to include in an employment contract and template. This is particularly important for employees in senior or executive roles.
Employees may have access to a business’s confidential information, trade secrets, customer lists and financial information. Because of this, there may be a risk that they will use that information to:
- start a competing business; and
- poach their employer’s clients.
Carefully word these clauses to ensure legal enforceability. A workplace lawyer can draft a non-compete clause in a way that is enforceable and protects the employer’s business.
Having said all that, employment contracts don’t need to be lengthy, or intimidating documents. Starting the employment relationship off on the right foot is important. And to do this you may want to consider framing the employment contract in a friendly ‘letter’ format.
The welcome letter can take front and centre. And those all-important, carefully worded terms and conditions can take their place as an attachment.
Frequently Asked Questions
1. What is the purpose of an employment contract?
An employment contract is a legal agreement between an employer and an employee that outlines their work relationship.
Having a clear structure in place is important for businesses. It helps set expectations, define roles and responsibilities, and reduces the chances of disagreements. This framework also promotes a positive working relationship.
2. How can an employer determine the applicable rate of pay?
You must ensure that you pay employees the total remuneration in line with the minimum entitlements. This includes entitlements under any applicable industrial instrument (including penalty rates or overtime) and the NES.
Fair Work also has a handy pay calculator tool that might help.
3. Can I use one template for all employees?
A ‘one size fits all’ template is not likely to be appropriate for use with all types of employees. Depending on the type of employees you require, your business may need a variety of templates.
For example, a casual and permanent full time employee would have different entitlements and contractual obligations to your business. Importantly, if you’re engaging an independent contractor, the contract would not be the same as a usual employee contract.
If you’re not sure if someone is an employee or contractor in your business, it’s best to get legal advice quickly.
