Employers and employees may enter into agreements outlining the terms of an employment relationship. These agreements, called employment contracts, can be written agreements or verbal agreements. They can provide important protections to business owners who want to ensure they prevent employees from engaging in unfair competition and who want to protect proprietary information.
While employers can draft contracts to protect legitimate business interests and can negotiate contract terms with their workers, there are limits. The contracts cannot take away any rights or obligations established by the National Employment Standards, nor can the contracts provide for less than the minimum legal protections established in any awards, enterprise agreements, or registered agreements that apply.
Employers need to ensure that the contracts they create are legally sound, not likely to be declared invalid if subject to challenge, and likely to be enforced to provide the desired protection. Owen Hodge Lawyers can provide assistance with the drafting of employment contracts and can offer your company advice on how these agreements can protect business interests. Call us when you are creating a contract for help with the drafting process or for assistance reviewing existing agreements.
Common Employment Contract Mistakes to Avoid
Working with a lawyer is an important way to minimize the chances that mistakes will be made when employment contracts are created. Every contract needs to be drafted with the specific goals of your organization in mind. Still, while each contract should be tailored to your purposes, there are some common errors that every business owner wants to avoid.
Some of the most common employment contract mistakes that you want to ensure you do not make include the following:
- Failure to pay attention to legislation when drafting a contract. If your contract does not comply with the laws, some or all of the agreement may end up being unenforceable. An employment contract only protects your business if the courts enforce it. Some of the most important contract terms, including restraints on future work with competitors post-employment, are also the provisions that are subject to the strictest regulations and limitations. You need to ensure you stay within the letter of the law and write provisions that are legally valid.
- Not taking industrial instruments into account. Employment contracts cannot be drafted to completely avoid enterprise agreements or modern awards applicable to employment. Even if your organization is paying well above the minimum, you cannot ignore industrial instruments. However, you can draft an employment agreement that lessens the administrative burden while still ensuring compliance.
- Not updating agreements regularly. The law is not static and new regulations are routinely passed in the field of employment law. If your contract is more than one year old, some of it provisions may not be valid any longer under current regulations. Regular review of contracts and updating of agreements is essential.
- Using the same standard form contract for every situation. When an employment contract is created, it needs to take into account the specific employee who will be signing the agreement. A worker’s position within the company, seniority, industry experience, duties, and contact with clients all impact the types of provisions that should be included in an employment contract. Failing to tailor an agreement to the worker who will sign it means that you may not adequately establish that worker’s obligations and duties to your business.
- Not creating separate contracts for part-time, fixed-term contract employees, temp employees and permanent workers. The worker protection laws provide different levels of benefits and guarantees for workers in different categories. Any employment contract you create must recognize what a worker’s status is and must comply with laws regarding how that worker is to be treated. You also need to be careful in outlining a worker’s duties and benefits. Simply putting a label on someone as self-employed or working under a consultancy contract is not sufficient to ensure the worker is not classified as an employee. The substance of what the worker does will dictate how a worker is classified, and an employment contract can play a major part in shaping a worker’s role within your business.
- Confusing contracts with employment policies. An employment contract should specifically set out the obligations and the rights of the employer and employee. Contracts are enforceable until both parties agree to make a change to the agreement, which makes the terms inflexible. You cannot alter a contract without the employee agreeing, and both you and the employee are bound by all terms. You should include only provisions of the contract that you are confident you want to bind your workers and that you want to be bound by. If you have other rules or requirements you want to impose but do not want to give these requirements the permanence and legal enforceability of a contract provision, you should leave them out of the contract and instead create non-contractual policies and procedures that workers need to follow. This gives you the flexibility you need to respond to changing dynamics and shifts within the industry.
- Trying to curtail worker protection rights. Employees are protected by National Employment Standards with or without a contract. They are also protected by any applicable registered agreements. You cannot provide less than the minimum protections under the law and workers cannot contract out of the rights they have under employment laws. For example, a contract cannot alter an employer’s obligations under work safety rules and an employee cannot agree in an employment contract to work for less than minimum wage.
- Imposing post-employment obligations that go too far. You have the right to protect your company’s interests by limiting what an employee can do in terms of taking your clients or working with your competitors. Your right to protect your company must be balanced against the worker’s right to make a living. Broad restraints on trade will not be enforceable and you need to carefully draft non-competes to ensure they fall within what is legally permissible.
- Defining confidential information too broadly. Trade secrets belong to your organization and you can include contractual terms to protect those secrets. However, you cannot define confidential information so broadly that an employee is effectively precluded from using any general industry knowledge in a subsequent job. Any restraint clause limiting the use of confidential information must be narrowly tailored and carefully drafted so the court will agree that the clause should be enforced.
- Accidentally imposing obligations on your company. You are bound to abide by the terms of an employment agreement just as an employer is. Your intent does not matter when it comes to whether you have to fulfil contractual obligations. This can create a problem if you accidentally give an employee a contract that provides more rights and benefits than would normally be available. For example, a permanent employee may have a contract that entitles him to a certain amount of paid leave. If you accidentally give this contract to a temporary or casual employee, then you will need to offer paid leave to that casual employee. An administrative error is no defence to breach of contract.
- Forgetting about implied terms. The contract not only binds you to follow the written provisions, but you must also abide by any implied terms created by the contract. Some terms, like a duty of mutual trust, are implied in every employment agreement that is signed. A lawyer can explain to you the full extent of the express and implied obligations that your company is taking on with a contract you draft and intend to present to a worker.
- Not adhering to contract provisions. Once a contract has been created, you must follow all obligations within it. For example, you cannot act impulsively to terminate workers if you have established a disciplinary process in the contract- you must follow the steps that have been outlined and agreed to. If you do not adhere to the agreement, you could find yourself accused of breach of contract.
These are just some of the many potential errors that companies make when creating and operating under employment contracts. Owen Hodge Lawyers have extensive experience advising businesses on the creation of employment agreements. Give us a call today at 1800 770 780 or contact us via firstname.lastname@example.org so you can have a legal advocate advise you and help you to avoid problems and pitfalls that could cause problems for your organization down the line.