When negotiating an employment contract, you should be aware that contractual arrangements should be specific to the individual and parties entering into the arrangement
Contracts should be individually structured to meet the needs of those involved. This information is intended to provide a starting point only, and both you and the person considering the employment contract should speak with us before offering or accepting an employment contract.
Members should note that some enterprise agreements provide for employees to enter into individual agreements/contracts in relation to some aspects of their employment. If you think such an arrangement might apply, you should contact us and we’ll be able to advise you on how these arrangements should operate, what can and can’t be done, and the minimum entitlements which are, in many cases, significantly better than those outlined here.
Members should always seek advice from us before entering into an employment contract or developing one for a staff member you’re responsible for.
What should be included in an employment contract?
The contract should always:
- Identify specifically the parties to the contract and the duration of the contract;
- Contain clauses in the document which specify the terms of the contract in the matter of payment and conditions; and
- Have attached to it, and initialled by both parties, such documents necessary to specify the job responsibilities and qualify the employment conditions. These documents should be referred to in the body of the contract.
It is critical that the primary employment contract document refers to specific entitlements
- frequency of remuneration reviews;
- period of the contract (if fixed term);
- basis of remuneration adjustment and performance management/appraisal;
- termination conditions;
- professional indemnity;
- specific employment conditions including
- hours of work;
- annual leave
- annual leave loading
- public holidays
- long service leave;
- reimbursement of expenses
- sick leave or carer’s leave
- parental leave; and
- other leave.
Strong consideration should be given to the inclusion of clauses in the contract covering issues such as
- intellectual property;
- restrictive covenants;
- professional development and training; and
- location of employment.
Reference should also be made to what provisions of an existing industrial award or agreement apply to the contract.
A statement of duties should be attached. For this attachment to itself become part of the terms of the contract, it must be expressly incorporated into the contract by a statement which makes it part of the contract in the body of the contract itself.
Parties and duration of contract
The beginning of any contract should stipulate the parties to the contract, that is the name of the organisation as the employer and the name of the person who is the employee. The employer must be a body with legal standing such as a company, partnership, or authority (ega local government body or registered company/trading name). The parties bound clause should indicate the title of the position which is being filled by the employee, and the commencement date of the contract. It should also state the duration of the contract, if it is for a fixed term.
Remuneration is normally seen as including the salary for the position, the payment of performance bonus or merit payments, along with a range of fringe benefits may be used as
part of the remuneration package.
Such fringe benefits include:
- Motor vehicle;
- Car parking; and
- Professional subscriptions.
The remuneration clause should specify the pay period interval and method of payment.
The clause should also contain details of the basis upon which any adjustment to the base salary and/or total remuneration will be made, including the timetable for the annual review of the salary and the date of effect of such adjustment.
Most organisations follow well laid-down procedures for determining the basis of adjustment of salaries of their employees. Where such practices are not as well-developed it is recommended that consideration be given to specifying in the employment contract the actual basis of the adjustment of salary. Care should be taken to ensure that the benefits such as annual leave loading entitlements and superannuation contributions are calculated on the total remuneration package.
Where appropriate, it is suggested that the employment contract should contain a specific clause providing for the salary packaging (salary sacrificing). Because of the complexity, an attachment to the contract should be used to detail the arrangements.
Hours of work
The contract of employment should indicate the hours of work which are required to be observed by the employee.
The contract should also specify the basis upon which the hours of work are expected to be worked, whether they be a 9-day fortnight, 19 day month, flexi time, etc.
Annual leave and annual leave loading
The minimum entitlement to annual leave in Australia is 20 days per annum. In addition, a significant number of employees are paid an annual leave loading (bonus) of 17.5% of their annual salary for the period of the annual leave.
It is normal practice for the contract to include a clause listing all of the public holidays to be observed as paid holidays.
Entitlements to paid sick and carer’s leave vary within Australia but Professional and Managerial employees are usually entitled to between 10 and 15 days sick leave p.a. fully accumulative. Some employers provide unlimited paid sick leave.
The National Employment Standards, effective 1 January, 2010 include a minimum
entitlement to 2 days paid compassionate leave.
Effective 1 January, 2011, a Government paid parental leave scheme will provide all eligible working parents with 18 weeks payment at the Federal Minimum wage. These payments are in addition to any payments your employer provides and should not replace your existing employer-paid parental leave entitlements. You may be able to negotiate to include in your employment contract top up payments (so you achieve full income replacement),superannuation payments for the period of parental leave or longer periods of employer provided paid parental leave.
Long service leave
Long service leave entitlements vary from state to state. Common conditions are for 13 weeks’ leave on full salary and benefits after 15 years’ service.Pro-rata entitlements can also apply in special circumstances. Some employers provide 13 weeks paid leave after 10 years’ service.
It is important that both employer and the employee understand the provisions of state legislation and relevant awards and any particular standards that may apply in the particular industry.
The following table sets out a summary of entitlements in relation to long service leave by state. Contact the Member Support Centre (contact details below) to confirm that the details listed here are still current and would be applicable in your case:
|First Leave||Subsequent Leave||Pro Rate Leave|
|Qualifying preiod (yrs)||Period of Leave||Qualifying period (yrs)||period of leave||qaulifying period (yr)|
|Federal||15||13 wks||10||8 2/3 wks|
|NSW||10||2 mths||5||1 mth||5*|
|VIC||15/10||3 mths/2 mths||15/10||3 mth/2mths||7|
|QLD||15||13 wks||15||13 wks||10|
|WA||10||8 2/3 wks||5||4 1/3 wks||7|
|TAS||15||13 wks||10||8 2/3 wks||7*|
|NT||10||13 wks||10||13 wks||7*|
|ACT||10||2 mths||5||1 mth||7|
(* termination must be due to necessity retirement etc.)
For professional and managerial staff it is normal practice for employees to be reimbursed all expenses incurred while carrying out the business of the employer.
- travelling expenses e.g. fares accommodation meals entertainment and out of pocket expenses;
- vehicle expenses for use of own vehicle;
- meal allowance for working after 6.30pm; and
- home telephone expenses
It is important that you ascertain what expenses you are likely to incur in your employment and ensure that your contract covers the reimbursement of those expenses.
The provision of a corporate credit card should be considered as an alternative to the reimbursement system.
Provision of motor vehicle
The contract should indicate the type of motor vehicle which shall be made available to the employee for both private and business purposes for the duration of the employment. In addition to outlining the employer’s policy in relation to vehicle replacement the use of the vehicle by the employee’s spouse and immediate family should be clearly understood by both parties. The employer’s liability in relation to costs incidental to the use of the vehicle including registration and insurance fees fuel maintenance and repairs parking costs and fringe benefits tax should be detailed.Dependent on the employer’s policy and the individual employee’s circumstances the alternative of a vehicle being provided under salary sacrifice or novated lease should be considered.
Occupational superannuation often referred to as productivity superannuation is payable to all staff. Superannuation benefits in excess of the legislative minimum of 9% will need to be negotiated.
For professional managerial and indeed most staff it is normal that an understanding be reached between the employer and the employee on the need for an employee to maintain and improve knowledge and ability. It is not uncommon for the employee to be authorised to attend conferences seminars short courses etc. and that the employer meets associated costs and shall continue the payment of full salary benefits to the employee.
Termination of employment
All contracts should contain a clause outlining how the termination of employment can be made.
Provision should be made in the contract for termination prior to its expiry (if applicable). Technically in a fixed-term contract terminated prior to its expiry the withdrawing employer is required to pay the salary due for the balance of the contract. The employee is also technically unable to withdraw prior to the expiry of the contract.
Arbitration of disputes
Recourse to legal process to arbitrate in the event of a dispute regarding the contents of a contract can be expensive. It is therefore advantageous for the parties to have a dispute resolution process outlined in the contract.
Initially the objective would be to resolve the dispute by consultation and negotiation between the parties. It is recommended that the contract provide for recourse to an agreed arbiter (e.g.the Institute of Arbitrators and Mediators Australia) or the relevant Industrial Relations Commission to decide the issue should that negotiation process be exhausted without settlement.
Renegotiation of contract
Include in your contract a clause regarding the timing of negotiations to renew an expiring contract. As a minimum use the formula of one month for each year of the contract. For example three months prior to the expiration of a three year contract the employer should advise you in writing of its intentions regarding the renewal continuance under altered conditions or termination of contract.
When fixed term contracts expire there is no obligation on the employer to renew them. Therefore a move from award-covered employment to contract employment should be carefully considered. While award covered employees may be in no better position in regard to continuity of employment they are usually entitled to redundancy payments.The courts or relevant industrial commission may also determine that a contract is in fact ongoing if it is renewed and particularly if the position is an ongoing one.
There are several matters involved in contract employment which may not impinge on all contracts but will be critical to some. A clause should be inserted to cover such items as restrictive covenants intellectual property and other entitlements should the nature of the work be likely to raise such matters.
The employer may wish to include a clause that seeks to restrict where or with whom a departing employee may work. Such clauses usually proscribe for a set period clients of the company business rivals or geographical areas as subsequent employment fields for the departing employee. It is reasonable to expect a lump sum payment for agreeing to the restrictions. The inserted clause should clearly identify the restrictions time frame (both of which have to be reasonable in the circumstances) and the percentage of salary or fixed sum payment offered as compensation for acceptance of the restrictions.
Restrictive covenants and the rights to ownership of intellectual property
In the absence of any written clause dealing with future employment in a contract of employment upon termination of the contract the employee is free to seek employment anywhere he or she sees fit. This will include employment with competitors of the employer which the employer may consider undesirable and accordingly the employer may wish to impose restrictions upon future employment.
Firstly the employer may seek to restrain the employee from obtaining employment within a given geographical area and/or within a particular field of employment. The courts have long held that such a clause will only be enforceable against the employee if the restraint is reasonable. What is reasonable will depend upon the circumstances but since the courts consider clauses in restraint of trade to be in general against public policy the interpretation of what is reasonable is quite narrow.
It is not difficult to contemplate clauses which are too wide to be enforceable. A restriction against a Shire Engineer obtaining employment in any other local government instrumentality would clearly be void as an unreasonable restraint of trade. Such a clause would be unenforceable against the employee.
On the other hand a qualified scientist employed in a pathology laboratory whose duties include dealing directly with customers of the employer as well as his scientific duties may perhaps be restrained from obtaining employment in the same field within a limited geographical area say 5 kilometres for a period of six months after termination of his employment.
In general terms however it is doubtful that there would be many instances where a restraint of trade clause forbidding employment would be enforceable in a contract of employment for engineers and scientists.
The more relevant and reasonable restraint an employer may impose upon an employee relates to a restraint against dissemination of information gathered by the employee in the course of his employment. An employer may not restrain an employee from disseminating knowledge gained by him or her in the course of his or her employment where that knowledge is within the public domain. However where an employer obtains confidential information about for example the particular requirements of a customer which are peculiar to that customer a clause in the contract of employment restraining the employee from making use of that information is unlikely to be considered unreasonable.
Ownership of intellectual property
Frequently an argument about dissemination of information will revolve around ownership of the information. Engineers and scientists are by their nature inventive. An employer may wish to include within the employment contract a clause which will grant ownership to the employer of all inventions made by the employee during his or her employment whether or not those inventions touch upon the employment itself.
In the absence of any contractual term the Copyright Act grants ownership to the employer of any design or other work developed by an employee in pursuance of the terms of his employment. This is no more than a statutory statement of the position that prevailed at common law. The issue of course is whether or not the invention is made “in pursuance of the terms of employment”. There is not much doubt that where an engineer is employed specifically to use his or her talents to overcome a particular problem any invention he or she makes in so overcoming that problem will be owned by the employer. However, where an employee acting independently of his employment makes an invention which would be of assistance to his or her employer in the conduct of the employer’s business, ownership of that invention will remain with the employee.
Between these two extremes lies a minefield of possibilities as to ownership of inventions, especially in an engineering context.
The Copyright Act allows parties by agreement to exclude or modify the employer’s right to ownership of inventions. Whilst it is doubtful that an employer will agree to a clause in a contract of employment excluding its rights under the Copyright Act the employee should be equally aware of any attempt by the employer to extend its rights beyond the Act. It is reasonable for an employer to own an invention it paid to develop but not for it to own an invention which came about by reason of the engineer’s ingenuity and imagination in areas outside the scope of his employment.
Specific care should be taken by employees to ensure that contracts do not include clauses which transfer to the employer ownership of the fruits of their inventiveness.
|It is critical that members seek assistance from PROFESSIONALS AUSTRALIA before agreeing to the inclusion of an intellectual property or restrictive covenant clause in their contract.|
Employees covered by awards enjoy a wide range of entitlements which may include higher duties allowances, accident make-up pay, industry or disability allowances, transfer expenses, locality expenses, home office expenses, travelling time, meal breaks and special paid leave in such instances as jury or military services, and blood bank visits. If you are an employee transferring from award coverage to employment contract you may wish to include a clause similar to the following. “The employee will be entitled in addition to the conditions mentioned above, to all entitlements and conditions contained in the …………………. Award.”
|PROFESSIONALS AUSTRALIA can provide advice and assistance on the drafting, and redrafting, of contracts and members should contact PROFESSIONALS AUSTRALIA to ensure that the relevant clauses are included.|
What should I do if I would like further information or advice?
PROFESSIONALS AUSTRALIA has extensive expertise in the area of employment contracts and can provide you with personalised advice. PROFESSIONALS AUSTRALIA’s Member Support Centre’s phone number is 1300 273 762.