What should an Employment Contract include? (Australia)

In many circumstances, when a business owner offers someone a job, they issue a letter of offer and if the potential new employee accepts, a start date is set and some tax office paperwork is sent through for them to fill out. However, often there is either no formal employment agreement (or contract), or it is not up to date and compliant with what is required of Australian employment contracts. 

This type of informality may not get you into trouble while everything works well, but for the times that it doesn’t, you will be wishing you had an agreement in place.  Even if you have an employment contract in place, it may not be up to date with current legislation. So, read on to know what you should be aware of that is specific to employing people in Australia, before issuing any new hire their employment agreement or contract. 

So, in Australia, what should an employment contract include? This article will bring you up to speed about the most important elements to be familiar with when hiring employees in Australia. We explore:

  • What must business owners know about hiring employees in Australia?; and 

  • What should an employment contract include?

What to know when employing anyone in Australia

1. All employees in Australia are covered by the National Employment Standards (NES)

The National Employment Standards (NES) are 10 standards that apply to all employees covered by our national employment law. The standards cover things like leave, working hours, requests for flexible work, casual employment conversion requests, termination notice and redundancy pay. 

All employers must comply with the NES. However, this is very much the minimum standard for an employment contract. A good employment contract has other elements in addition to the NES which protect you as the employer, as we’ll explore in more detail below.

2. Determine if Awards are applicable to your employees

Awards are legal documents created by the Australian Government for certain occupations to establish minimum pay rates and conditions of employment.

These awards include information such as: 

  • Role/Job Classifications 

  • Pay rates (including minimums, penalty or overtime rates etc)

  • Rostering Hours

  • Conditions of employment (e.g flexible work, notice periods, breaks etc)

  • Dispute resolution process

  • Termination 

  • Redundancy (may not be payable if less than 15 employees)

  • Leave, allowances and other entitlements.

In Australia there are currently over 100 Awards in place. If the job you offer fall under the Award, you must follow the Award, or make sure what you are offering is the same or better than the Award. Check on Award coverage first before you offer a job and a pay rate, because the obligation is with business owners to be aware and comply, or risk significant financial penalties.

If the role falls under an Award, the Award should be mentioned in the employment agreement/contract. If an Award exists but an employee has requested flexibility, such as the ability to fulfil their role outside of regular hours, you may also need an Independent Flexibility Agreement as well as an Employment Agreement.

You can find more information about that on the FairWork website here.

3. Determining permanent versus casual employment - is your employee really casual?

As we have explored in more depth in this article, changes were made to the Fair Work Act that mean that casual employees can have a right to be made permanent after a time, if they have a predictable routine of doing the same shifts.  

When you hire someone as an employee, or get an existing casual employee into an employee agreement, you need to look at their proposed hours and determine if they are casual, or in fact permanent employees.

Permanent employees are employed for set hours each week on an ongoing basis - until either the employee or the employer ends the arrangement. A permanent employee is entitled to leave (annual leave, sick leave etc) and can be full time (38 hours per week) or part time. Where part time, the employee is paid all entitlements pro rata. For example, if a permanent full time employee is entitled to 20 days annual leave, then a part time employee who worked 2 days per week would be entitled to 8 days annual leave per year.

Casual employees accept work knowing that they have no guarantee the role will continue or that their hours of work will be the same each week. As detailed above and in this article, once a casual has been in a role for at least 12 months on regular and systematic hours, they may be entitled to convert to permanent employment in certain circumstances. This is known as a casual conversion.

Your employment contract will need to state the type of employment (permanent full time / permanent part time, or casual) and the clauses within the agreement will need to correspond with this (inclusive of any relevant Award).

Essentials to accompany any Employment Contract in Australia

Alongside any employment agreement you offer, it is law that you must also provide the following:

Additional clauses for inclusion to consider 

To ensure that any employment agreement or contract you put in place is helpful to you as a business owner, you may also benefit from including clauses that cover:

  • Confidentiality and intellectual property (IP) protection

  • Probation and performance reviews

  • Termination 

  • Restraints on working for competitors 

  • Rules about poaching clients

1. Confidentiality and IP 

Consider including clauses that provide protection where the employee is required to access your IT systems and use passwords or has access to confidential information. This includes both private and confidential business data and insights relating to your business and clients’ businesses.

When you take steps to ensure you cover this, like we have included in our template, this makes it very clear to potential employees that they are not to share private and confidential information of any kind.

In addition to including this in their employment agreement, have a conversation about this, and the subsequent items that you choose to include in a contract. It can go a long way in helping ensure there aren’t any unintentional lapses in judgement.

2. Probation and performance reviews

When you hire someone it is common to put them on a period of probation, so you and they can see if you are a good fit and either party can end the agreement with minimal notice (for example, a week). Most employers tend to include either 3 months or 6 months as the probationary period for new hires.

Including this information in the employment contract makes it very clear that the probationary period exists and it is also a good place to make clear how often you will conduct performance reviews. As before, talking about this with the potential employee in addition to including it in the contract is a good idea to ensure they are aware and prepared to accept the role with these terms included.

3. Termination

Your employment contract should also clearly detail any grounds in which employment can be ended and how much notice would be given. 

Also be clear about which actions would constitute immediate dismissal. It is important that you as an employer are clear on what is a valid reason for dismissal and what is considered harsh, unjust or unreasonable in your working environment. As an example, fraud, dishonesty and violence are often detailed as examples of gross misconduct and immediate dismissal without pay as the outcome.

There are specific rules for small businesses, that is, 15 or less employees. At the date of publishing this article, where businesses that have more than 15 employees would have to pay redundancy, in most cases, small business employers will not need to make a redundancy payment. Small business owners are also exempt from unfair dismissal claims, provided you follow the Code.

4. Restraints

A restraint of trade (or non-compete) clause is a clause in an employment contract designed to protect you and your business as an employer. It operates at the time an employee leaves your employment to limit where they can work, the clients they can work with or the types of work they can do. 

It is important to know that including a restraint in the agreement, may not always be enforceable. So, it is important to set reasonable constraints. For example, saying someone could not work for any competitors in your industry in Australia would be unreasonable and likely not upheld if required to go to Court. There is something known as ‘public policy’ which is designed to protect employees from unreasonable constraints. So, restraints aren’t suitable for casual employees. These clauses are more suitable for full time employees. The broader the restraint is, the less likely it will be able to be upheld. 

5. Non solicitation

This type of clause is suitable where an employee’s role has substantial client contact. For example, an executive, accounts or sales role. In these types of roles it may be tempting for them to ‘go out on their own’ or move to a competitor and take clients with them. A non solicitation clause provides clarity about what the conditions are if they choose to accept the role in your business.

While a highly customised employment agreement drafted by a lawyer is the most comprehensive way to cover all bases, that is not always within a small business owner's budget. And, additional clauses like those above, won’t be found in any free employment contracts you find online. So, fitting in the middle, for Australian business owners we have created an Employment Agreement template (along with a separate one for casuals) that does include these provisions and are entirely editable and customisable to suit your brand and the role you have on offer.

Final Considerations 

Now that you have the answers to ‘What should an employment contract include in Australia?’, my final recommendations, as someone who has reviewed countless employer and employee contracts over the years, are these…

  • While any employment agreement should be beneficial to both the employer and the employee, if they are without these additional considerations and clauses, the contract will sit firmly more in the employee’s favour than the employers. So, to protect yourself and your business, consider a more comprehensive agreement.

  • When things go wrong, which they do because we’re talking about people and human relationships, you need a contract that is helpful, not one that will cause you more problems. When emotions are high, and that is likely when discussing performance or termination of employment, you want to be able to refer back to an agreement that is supportive of your position and clearly outlines the terms of employment.

  • And finally, in addition to the additional provisions, I always recommend you have a discussion about them. Don’t just leave the document to do the talking. You want to ensure there is no doubt that they are clear about your expectations. If they have a problem with any of them, it is far better to know now, than after you’ve employed them.

Our employee agreement templates include not just the usual sections but also considerations including confidentiality and intellectual property, probation, termination, restraints and non-solicitation clauses. Purchase the agreement that you need for your casual and permanent employees. You can find our Permanent (full time or part time) Employment Agreement here and our Casual Employment Agreement here.

In reading this article from Ready to Boss Legal (Article), you have not asked us to provide legal advice to you and this Article should not be used in substitution for legal advice. This Article contains information only and Ready to Boss Legal is not acting as your lawyer in providing this Article or other information to you. Ready to Boss Legal is a legal publisher and legal contract template provider and NOT a law firm. If you require specific legal advice you should seek that from a practising lawyer.

Online BusinessEmma Heuston