ACLN· Issue #24

Employment

Contracts of Employment - Why and How

Frequently employers do not consider the terms in a contract of employmentuntil a problem has arisen. Care at thetime of drafting these contracts will oftenreduce areas for disagreement

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The terms of a conttact of employment are derivedfrom a variety ofsources. The conttaetmay be based uponthe contents of a letter offering the appoinunent. a com­pany staff handbook could be incorporated and an indus­trial award binding the employer could provide impliedterms. This variety of sources often makes it difficult todefine exactly the terms of an employment conttact.

The employment conttact is also a mixture of termsexpressly agreed between the parties, and various impliedobligations which arise from the employment relationshipitself (such as the employee's duty to comply with lawfuland reasonable directions and to serve his/heremployer ingood faith).

The Written Employment ContractSome of the problems of uncertainty over the precise

terms of the conttaet and the significance of the impliedobligations can be overcome if the parties enter a writtenemploymentconttact.Thesehavegenerally been restrictedto management level employeesbut thereare many advan­tages for employers making use of written conttacts for awider range of their employees.

What Terms Should be in a Contract?

Duration and NoticeThe conttact should state if the employment is for a

fixed or limited period. It should also state the grounds onwhich the conttact might be terminated summarily (with­out notice), for example, the employee committing apersistent breach of the employment contract or engagingin acts of serious misconduct. For other than summarytermination, the periodofnotice required should be stated.Without this provision, an employee would be entitled to"reasonable" notice, which, for an executive employee,could be up to 12 months. The contract should give theemployer the right to make a payment instead of notice.

Job DescriptionThe conttaetshould state the duties to be performedby

the employee and there is some value in the contractcontaining a general job description or title. This jobdescription entitles the employer to move the employee toanother job within that general description at the samelocation withoutbreaching the contract On the otherhand,

a very specific job description could be useful if anemployer seeks to terminate the contract on the ground ofpoor performance.

Job Mobility and FlexibilityAnother useful provision is a carefully drafted clause

which gives the employera discretion as to whatduties areto be performed by the employee and the location wherethe work is carried out Without this stipulation, flexibilitywill depend upon the existence of an "implied" term.Although the courts tend to allow employers some latitudein this area, an express clause (which defmes the degree offlexibility and mobility) will place the matter beyonddoubt. If the matter ofjob relocation is left to implication,it appears that a manual worker is only expected to bemobile within a reasonable daily commuting distance,while an executive ormanager is expected to be as mobileas the demands of business dictate. Where job relocationis an issue, the employment contract should state whatnotice is to be given and whether the employee is entitledto relocation expenses.

SalaryThe contract should state the salary and the frequency

ofpayment. Any non-salary entitlement such as the use ofa company car should be noted. If the rate of pay dependson the geographical location of the workplace (or its size),this should be stated in the contract: ifan employee is latertransferred, it is likely that he/she has thereby agreed to avariation in pay (which may involve a decrease). If em­ployers review pay on an annual basis, the conttaet shouldstate whether this is binding on the employerordiscretion­ary. Where an employee participates in a profit sharingscheme or is paid by bonus or commission, the agreementshould state whether this entitlement is binding or discre­tionary, and should set out, where possible, the method ofcalculating such entitlement.

Confidential Information and Ownership of PropertyA provision should be included to restrain the disclo­

sure ofconfidential information by an employee during orafter he/she has ceased employment In England an em­ployer is only able to prevent the disclosure ofinformationthat could be described as a "trade secret". But Australiancases show that an employer is able to use a contractual

ACLN - Issue #24

stipulation to prohibit the misuse of information which isconfidential in nature, butdoes not necessarily fall into thesecret category.

An employer is entitled to include a clause whichprohibits an employee from soliciting customers of theemployer during the post-employment period. This maybe invalid if it operates as an unreasonable restraint oftrade.

Another useful provisioncould specify the question ofownership of intellectual and other property acquired ordeveloped by the employee during the employment pe­riod.

External ActivitiesA clause should be included which prevents an em­

ployee from engaging in outside activities which mightcause a conflict of interest.

Dispute ResolutionA valuable addition to the contract is a procedure to

deal with disputes which may arise between the partiesduring the term. of the contract. This clause could providefor the dispute to be referred to mediation or privatearbitration. It may thereby be possible to exclude thejurisdiction of industrial tribunals and courts in someemployment-related disputes.

Governing LawWhere the employer conducts business in more than

one State, it may be necessary to include a clause whichdefines the governing law applicable to the contract. Thishas particular relevance to restraint of trade issues.

Avoiding Unfair Dismissal ClaimsIndustrial award provisions that are implied into con­

tracts have led to substantial damages for unfair dismissalin recent Federal Court cases. It may be possible toovercome this exposure by careful drafting that refutes theimplication that award terms are included. 0

- Reprinted with permission fromCommercial Headlines, a news sheet fromThe Australian Legal Group.

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