The critical role of employment contracts
By Linda Blackett and Ilga Horvat from Boutique HR
A number of smaller wine businesses have reportedly struggled to manage recent changes to employment requirements. Many of these have been caught out with poorly prepared employment contracts, or with no contracts in place at all. Often, business operators will have no policies in place to even support contracts. Linda Blackett and Ilga Horvat from Boutique HR examine the significance of employment contracts and their link to HR policies.
For those of you that issue employment contracts as part of your standard recruitment and onboarding process, it may come as a surprise to learn that many businesses do not issue these for all employees. A large number of employers may have contracts they use but these have not been reviewed for many years and are not updated with the new legislative requirements making them incomplete with elements that have been superseded.
Central to building a strong employment foundation are comprehensive employment contracts and effective human resources (HR) policies. Far from being mere formalities, these elements are crucial in providing a framework for employment which underpins a clear, positive and productive work environment and protects employers from future risk. Following on from last month’s review of the importance of HR policies, this article delves into the significance of employment contracts and their benefits to your business.
What is an employment contract?
An employment contract is a legally binding agreement between an employer and an employee, detailing the terms and conditions of employment. This contract clarifies essential aspects such as job responsibilities, compensation, work hours and the mutual rights and obligations of both parties.
A meticulously drafted contract is fundamental to a healthy employer-employee relationship, setting clear expectations from the outset and minimising potential misunderstandings.
In Australia, employment contracts are required to comply with the National Employment Standards (NES) and any applicable industry awards or agreements. The NES provides minimum employee entitlements including leave, work hours and termination procedures, ensuring equitable treatment. Additionally, employment contracts protect business interests by incorporating clauses on confidentiality, intellectual property and other critical issues, thereby safeguarding a company’s competitive advantage.
Why are employment contracts vital?
The reasons mostly revolve around transparency, direction and protections and as follows:
Clarity and understanding: They provide employees with a transparent understanding of their employment status, roles, responsibilities and benefits. Commencing the employment relationship with a clear understanding of terms of employment ensures there are no misunderstandings from the beginning. This is especially important when distinguishing and employee from an independent contractor.
Contract type: Fixed term or open ended? An open-ended contract has no end date respective of if the employee is full time, part time or casual. This contract will continue until the employee resigns, is terminated or made redundant. A fixed term contract is for a specific period and depends on conditions such as task completion. The Closing the Loopholes legislation has enforced new rules on fixed term contracts which became effective on the 6 December 2023. See the Fair Work Ombudsman website (www.fairwork.gov.au) for more information about fixed term contractors in particular.
Legal compliance and protection: Contracts ensure adherence to employment laws and protect employers during disputes, facilitating the resolution of issues such as unfair dismissal claims or breaches of contract. Employers are wise to review existing employment contracts to ensure they are aligned with current legislative requirements.
Standardisation and fairness: Standardised contracts promote consistent treatment across all employees, reducing discrimination risks and ensuring a fair workplace. This ensures a baseline for defending any general protections claims that may arise. (Under the Fair Work Act, employees have rights called ‘General protections’. These include: the right to correct pay, leave and other entitlements etc. For more details, go to: www.fwc.gov.au/job-loss-or-dismissal/dismissal-under-general-protections/about-general-protections
Confidentiality and intellectual property: Assist in securing a business’ sensitive information and intellectual property. This is critical in industries where proprietary data provides a competitive edge.
Performance expectations and incentives: Contracts can specify performance-based incentives, motivating employees to excel and contributing to high performance, job satisfaction and retention.
Smooth transitions and notice periods: Notice requirements provide businesses time to find replacements and maintain continuity when employees leave.
Efficient dispute resolution: Clearly defined terms in contracts offer a framework to swiftly and equitably resolve disputes, minimising business disruptions.
It is often only when things go awry that the contracts are especially important. Contractors could claim to be employees and make claim to entitlements such as leave entitlements, minimum wages, dismissal rights and superannuation.
A recent article in HRM (published by the Australian HR Institute) by Phoebe Armstrong, highlights a case which was tried in the Fair Work Commission. An independent contractor claimed she had been unfairly dismissed from her role. The employer claimed she was engaged as an independent contractor and so was ineligible for general protections. There was no written contract in place and the working arrangement had been made by an oral agreement.
In absence of a contract existing the FWC reviewed the facets of the role, remuneration and other key criteria to determine the nature of the working relationship. They ruled in favour of the worker and agreed they were eligible for general protection despite the absence of a written contract.
Cases such as this highlight the importance of employment contracts with employees as well as contractors which clearly describe the legal working relationship.
What should you include in an employment contract?
Some important employment contract inclusions are as follows:
- Employer and employee details
- Job title and description
- Employment type (full-time, part-time, casual)
- Employment duration
- Work hours and overtime policies with an offset clause for salaried employees
- Compensation, allowances and bonuses
- Leave entitlements
- Probation period
- Notice periods for resignation or termination
- Applicable industry awards or agreements
- Confidentiality including post-employment conduct including a gardening leave provision depending on the role
- Restraints of trade provisions if applicable and in this case must be reasonable.
- Consultation for major change requirements
- Warranties – where an employee warrants to have honestly represented their skills and experience
- Reference to and inclusion of the Fair Work Information statement and accompanying Casual or Fixed Term Contract Information Statement as applicable
- Reference to HR policies and procedures
Employment contracts should reference HR policies, clarifying that employees are bound by the guidelines outlined in these. An employee handbook that outlines all the policies and company protocols is a simple way to manage this.
While the employment contract is a legal agreement between an individual employee and the employer, the employee policies and protocols apply to all staff and can be updated as necessary by the employer. However, any changes to the employment contract itself must be mutually agreed upon by both parties.
Well-crafted HR policies provide clear guidelines on standards of performance and conduct, expected behaviours, unacceptable actions and the repercussions of policy violations. This aids businesses in legal compliance and risk management.
This clarity fosters a harmonious work environment, enhancing employee morale and reducing dispute risks. Culture can be enhanced with a focus on value lead behaviour and risk mitigation amplified through reference of legal standards with guidelines surrounding these. When combined with clear position descriptions and a performance management framework, a business will have the structure in place to ensure employees understand what is expected of them and they are protected if an employee does not fulfill this.
Employment contracts and policies are baseline tools to building a stable, efficient and legally sound workplace. When entering an employment arrangement, all parties plan for a positive experience. Sometimes this is not the case. To safeguard such a situation a business would be prudent to implement employment contracts and ensure they are up to date.
Need assistance? Then contact us at www.boutiquehr.com.au
This article was originally published in the November issue of the Australian & New Zealand Grapegrower & Winemaker. To find out more about our monthly magazine, or to subscribe, click here!
