Managing people

What to include in an employment contract

An employment contract is a legally binding agreement between you and your employee. It sets out the ground rules of the relationship, and the rights and obligations of each party.

It's designed to give you and your employee security and protection. Certain conditions must be met for it to be legally recognised. These include:

It is an offer of employment that has been accepted by the prospective employee
It shows consideration by each party in return for the obligations undertaken by the other party
It is an intention by the parties to enter into a legal relationship
The agreement is certain and complete
It limits your risk as an employer by providing proof as assistance when resolving workplace disputes.

Drafting a clear and detailed employment contract

Provide clear written agreements with all necessary details so your employee is fully aware of their obligations and has agreed to comply with the stated terms. Oral agreements are difficult to prove in cases of doubt or if contested.

An employment contract typically includes:

name of the employer
title of the job to be performed by the employee
employment commencement date
basis of the employment (ongoing, fixed-term or casual), and, if applicable, the period of employment
hours of work, and, if applicable, a schedule of employment
leave entitlements such as personal leave and annual leave
pay, including amount of the employee’s remuneration and how it’s made up – overtime, award payments, penalties and non-wage monetary entitlements
performance requirements including any applicable commission or bonus schemes
minimum period of notice by both employer and employee to end the relationship
employee compensation entitlements in the event of termination
confidentiality, technology and privacy policies.

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Include an enforceable and valid restraint

By building this into your employee's contract, should an ex-employee poach clients or steal confidential information, it will be a breach of their contractual obligations. If you ever need to rely on it to enforce a former employee’s obligations, a court will consider the reasonableness of the restraint at the time the contract was entered.

Broadly put, restraint of trade clauses are enforceable to the extent that they are “reasonably necessary” to protect the “legitimate business interests” of the employer. The law will, for example, protect an employer’s trade secrets, confidential information, customer connections and staff relationships. However, the law can’t protect an employer against simple competition from a former employee.

Protect your IP, client base and confidential information

Typical inclusions for confidentiality:

enforceable non-compete, restraint of trade (explained below), and non-solicitation clauses to protect your legitimate commercial interests, other employees as well as your customers
geographical radius (not considered too restrictive), or a time period (not considered too excessive) in which the employee cannot work
poaching of clients where they have deemed the clients of the business
poaching or soliciting of other employees
restrictions on advertising for a timeframe prohibiting the solicitation of clients and staff from a place of employment for a specific period of time
theft or misuse of intellectual information whereby the employment contract is protecting client details, specifically service records and personal contact details.

Note: A non-compete clause is designed to protect a business owner’s investment by limiting an employee from competing with a business that previously employed them.

Understand fixed-term employment contracts

An employer may commonly hire employees under what's referred to as 'fixed-term employment’ contracts. This arrangement is often designed to circumvent a company's restriction on employing additional permanent employees in a particular part of the business.

However, this can create problems for the employer. In certain circumstances, an employee's employment status may not accurately reflect the nature of the employment relationship with the employer.

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