Why you need a contract of employment

Many small businesses employ workers on a verbal agreement. But what happens if a dispute arises over the terms and conditions of someone’s employment – and there is nothing in writing?

Businesses without a written contract can run into problems when there is a dispute. If you don't have a written contract, arguments can erupt when employees query their remuneration or working arrangements.

DO I NEED A WRITTEN EMPLOYMENT CONTRACT?

An employment contract is an agreement between you and your employee. It can be written or verbal.

A contract outlines the working relationship between an employer and an employee. It allows both parties to clearly understand their obligations and the terms of employment.

A clearly written contract can help understand your employee’s rights to certain pay and conditions and manage your employee’s expectations of their new role.

HOW DO I CHOOSE THE RIGHT TYPE OF EMPLOYMENT CONTRACT?

Each type of employment contract has different benefits and consequences.

The contract needs to be tailored so that it carefully reflects the agreement between you and your employee.

Common types of employment contracts include permanent employment contracts, fixed-term contracts, and casual employment contracts.

HOW IS MY BUSINESS AT RISK IF I DON’T HAVE EMPLOYMENT CONTRACTS?

Dean Tyler, senior associate at Australian Business Lawyers & Advisors (ABLA), says if a dispute arises between your business and an employee and you don’t have a written contract of employment, it is very difficult to prove what the agreed terms and conditions of employment are.

“It will be a matter of your word against theirs which gets very tricky in a courtroom,” he said.

“A written employment contract will help to ensure that the rights and obligations agreed to by each party are clearly understood from the start of the employment relationship. That way, these rights and obligations can be enforced by both parties.”

But Mr Tyler warned that a contract must be drafted carefully.

For example, if an employee leaves your business taking clients and other staff with them to a competitor, you would want a well-drafted restraint clause that prohibits them from doing so.

In the absence of such a clause, the business will have no way to stop them from doing so which could significantly impact your business.

Mr Tyler said while each contract of employment should be drafted carefully and tailored to the role being performed, each contract of employment should deal with matters such as:

a) what notice each party is required to give upon termination
b) excluding company policies and procedures from the contract
c) expressly stating that any above award rate or salary compensates the employee for all legal entitlements, such as overtime, penalty rates etc, and
d) detailing what kind of workplace surveillance your business will undertake, among many other matters.

“If you are unsure about what the contract of employment for your business requires, you should seek specialist legal advice,” Mr Tyler said.

Do you need an employment contract? Use My Business Workplace to create an employment contract that’s tailored to your business needs and complies with workplace laws. It also includes easy-to-understand information on the legal minimums you need to include.

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