The Employment Relationship

Consider these points the next time you create an Employment Contract

The relationship between employee and employer is a complex and vital element to any employment arrangement. To manage this, most businesses attempt to cement the terms of the employment arrangement in a single document known as the Employment Contract however employers may go wrong if they don’t mention the important elements of an employment arrangement, such as location of work, duties of the parties and, critically, termination of employment. Such elements, if not mentioned, can be essential to the function and eventual termination of the employment relationship.

In this article, we explore the important elements of the employment contract, with a focus on the termination clause.

National Employment Standards

 Regularly review

Legislative Changes

As a general rule of thumb, the employment contract must not and cannot provide less than what is set out in National Employment Standards (NES) and any applicable Award. These legislative terms and instruments are designed to protect employees and ensure that everyone is paid at least the minimum wage.

Other industrial instruments such as Workplace Health and Safety legislation and Discrimination legislation will also apply to your employment relationship.  Any employment contract that does not comply, or attempts to circumvent legislation, will be rendered void and possibly give rise to criminal and personal penalties.

Remuneration

 Be Specific

The employment contract should not only confirm wages, but should clearly define whether wages include bonuses, commission, overtime hours, penalty hours and/or any other payment made such as incentives and employee expenses

Straight forward annual or hourly contracts may be simple enough to draft, but if the employment contract contains performance-based payments, commissions or other complex formulas it may be wise to get some expert advice.

Role and Location

The employment contract should clearly define the role, including where and when the work is to be performed. If the role so requires, then outcomes and targets should be defined and measurable.

We recommend a detailed Job Description to cover the requirements of the role.

Termination and Notice

 Set out the

Notice Period

Notice of termination clauses set out the amount of notice a party is required to give the other before they end the employment relationship. This clause should set out the notice that both the employer and the employee must provide so that each knows exactly what to expect from the other. The issue of reasonable notice usually arises in circumstance where an employer has decided they wish to terminate the employment relationship, but they have no notice of termination clause in a contract to refer to.

For example, in 2014, the Fair Work Commission (FWC) held that an employee was entitled to four months’ notice (or payment in lieu). To provide a summary, the employee was a founder, shareholder and the managing director of a small printing company. He was a party to a shareholder’s deed that did not contain a notice of termination clause. The employee was summarily dismissed for allegedly diverting business away. He was successful in claiming that his summary dismissal was harsh. The FWC stated that a dismissal with notice would have been appropriate and went on to consider that the employee was entitled to four months’ notice (or payment in lieu). The FWC further commented that in this situation, a longer notice period was appropriate and reasonable and that the minimum notice periods will not apply.

In 2010, an employee filed an unfair dismissal claim with the FWC. He was employed in a fixed-term arrangement and was ended before its expiry . The contract of employment stated that, if the employment was not renewed, the employee would be entitled to payment of notice and redundancy. However, the period of notice was not specified. The FWC stated that he was entitled to payment in lieu of eight months’ notice. The Commission noted that the primary purpose of reasonable notice is to allow the employee enough time to find work of a similar kind. The FWC further noted that the minimum notice periods within the Fair Work Act 2009, state only the minimum periods of entitlement and in this case, were not appropriate.

How can we Help

When a court or tribunal implies the common law term of reasonable notice into an employment contract, it usually results in providing months of notice for the employee. For this reason, we recommend businesses ensure that their employment contracts contain a notice of termination clause which sets out in clear terms how much notice the employer will provide the employee upon termination of their employment. We can assist your business to ensure it remains compliant. Our staff possess the experience in this field and have the “know how” on how to deal your HR requirements.

Information provided in this blog is not legal advice and should not be relied upon.