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Human Resources: Contractual obligations

Every Issue

Cite as: (2004) 78(9) LIJ, p. 86

An important but often neglected part of the recruitment process is the provision of an employment contract.

Once you have selected an employee for a position, the next stage in establishing the employment relationship is to prepare a written employment contract.

The employment contract sets out the terms and conditions of employment and is legally binding.

Often employers can be too busy to complete the paper work and rely on verbal agreements. Establishing an employment contract can also be overlooked in circumstances where an employee has been working on a casual basis and is then made permanent. It is also best practice to have a written contract for casual employees.

Prospective employees can judge your business, and therefore their decision to work for you, by the experience they have during the recruitment process. A well-prepared employment contract can demonstrate your business’s professionalism and the fact that your employees are important to you.

The main advantage of having a written employment contract is that both parties have exactly the same understanding of the terms of employment. This understanding can reduce the risk of disputes in the future.

In addition to clearly describing the position that you are offering, the contract can also cover the following information:

  • position title;
  • correct and full name of the employee;
  • start date;
  • employment composition (full-time, part-time, casual or contract);
  • salary (including superannuation entitlements – minimum 9 per cent);
  • probation periods;
  • notice periods during termination and probation periods;
  • confidentiality agreements;
  • entitlements (annual leave, personal leave and long-service leave);
  • hours of work; and
  • public holidays.

When the contract is accepted, ensure both parties sign the agreement.

Employment contracts can also be beneficial when an employee has access to confidential and sensitive information about your business. Confidentiality clauses can be included to reduce the risk of employees using confidential information for their own gain. A contract may also include non-competition clauses and restraint of trade clauses that may protect you if an employee resigns.

An employment contract can also specify a probationary period, usually three months, which is a qualifying or trial period of employment when joining an organisation. During this period, dismissed employees do not have access to unfair/unlawful dismissal claims.

An employment contract is not a one-way street. The contract binds both you and the employee, which is an important consideration if the terms and conditions need to be altered in the future.

Employment contracts should be comprehensive; however, candidates can be put off by too many terms and conditions that appear restrictive.

Be prepared to answer questions in relation to the terms and conditions. Remember, you want the prospective employee to feel positive about joining your firm.

Although it can be time-consuming to prepare employment contracts, they can save you time and money later if disputes arise.

More importantly, the employment contract forms the foundation for a positive and open working relationship.

Refer to the LIV website http://www.liv.asn.au/services/hrdocs/20030610modelempagree.pdf for a copy of a standard employment agreement.


KATIE ROUND is the Law Institute’s human resources manager. For further information on this column and other HR issues tel 9607 9410.

hrcolumn@liv.asn.au

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