There is no such thing as a standard employment contract suitable for all businesses and positions. Standard contracts should be carefully and drafted, and regularly reviewed.

Standard employment contracts

Most employers use standard employment contracts, some of them many years old. Worse still, many employment contracts come from adapting another company’s standard template which, in itself, may be inappropriate or superseded.

As the laws relating to employment have changed over the years, it is important to ensure that standard employment contracts are up-to-date. Issues can arise for both employers and employees if they are using an outmoded or inappropriate standard contract.

This article is intended to provide a starting point only and attempts to clarify some of the important information all parties should know.

Employees and contractors

An important preliminary issue is whether the person is engaged as an employee or a contractor. In February 2022, two decisions of the High Court changed what had been regarded as the accepted law. Prior to those decisions, whether somebody was an employee or contractor depended on the reality of the relationship, regardless of the terms of the contract. You could not turn an employee into a contractor simply by signing a contract.

However, the High Court determined that the person will be deemed to be a contractor if that is what the contract says, unless, of course, the conduct of the parties is completely different from what the contract provides.

There are significant legal consequences of incorrectly assuming an employee is a contractor, or vice versa. The true nature of the working relationship should be considered at the time of drafting an employment contract or a contract for services.

Superannuation for employees and contractors

The employer is responsible to ensure that appropriate superannuation contributions are paid into the employee’s nominated superannuation fund. Even if a person is working as a contractor, the employer may still be legally required to make superannuation contributions on their behalf.

When offering employment you should clearly state if that offer includes superannuation.

What terms should always be in an Employment Contract?

Naturally there are some preliminary matters. For example, the identity of the parties needs to be set out as well as the duration of the contract (if fixed).

The contract then needs to specify the terms.

Before the terms are considered, the application of any statutory provisions or award or collective agreement must be considered. Generally speaking, employers and employees cannot contract out of awards or collective agreements.

The following would be mentioned and the particular entitlements need to be specified, including:

• The remuneration;
• The frequency of remuneration reviews;
• The period of the contract (if fixed term);
• The basis of remuneration adjustment and performance management/appraisal;
• Termination conditions;
• Any professional indemnity;
• Specific employment conditions including
  • hours of work;
  • annual leave;
  • annual leave loading;
  • public holidays;
  • long service leave;
  • superannuation;
  • reimbursement of expenses;
  • sick leave or carer’s leave;
  • parental leave; and
  • other leave.

Depending on the nature of the employment and industry it may be important to also include:

• Intellectual property;
• Restrictive covenants;
• Professional development and training; and
• The location of employment.

A statement of duties should be attached to the contract. For this attachment itself to become part of the terms of the contract, it should be expressly incorporated into the contract by a statement which makes it part of the contract in the body of the contract itself or as an annexure.

Implied entitlements

Some entitlements and obligations that exist in the employment relationship are implied. This means that they apply, even if they are not written down or stated.

The implied terms include:

• An employee must exercise reasonable skill and care in their performance of duties;
• A general duty exists for an employee to obey all lawful and reasonable directions by their employer;
• There must be fidelity and confidentiality within the employer/employee relationship; and
• If there is no provision for termination within the contract then “reasonable notice” for termination must occur unless in circumstances of “serious misconduct”.

Conclusion

The terms of a standard employment agreement are important and complacency can lead to contracts with inappropriate or superseded terms. Both employers and employees should carefully consider the terms of employment contracts, and seek legal advice as required.

For further information please contact Tim Somerville or Andrew Somerville on (02) 9923 2321 or enquiries@somervillelegal.com.au.