The Importance Of Employment Contracts: Protecting Your Business

Nov 23, 2020 • JOHN WALTON

Once again SaucedIt Founder John Walton and host extraordinaire Derek Reilly are joined by Legal Eagle and Employment law mastermind Tim Horne, Principal of Horne Legal. The focus of course, being the under acknowledged importance of employment contracts for businesses.

An employer-employee relationship is understood universally as one which poses a significant power imbalance between two parties - particularly in reference to the employee’s vulnerability. However, with the implementation of National Standards dictating minimum requirements of employment ensuring some safe work policies and procedures, an employee contract might seem unnecessary and possibly irrelevant to some employers - with many business owners not comprehending the potential damage that can occur to their business without further methods of protection.

Although the NES provides standard entitlements such as annual leave (and other basic workplace policy and procedure[1] ), which cannot be contracted out of, employers create potential risks for themselves when they do not have personalised employee contracts. Essentially, opening pandora’s box to the possibility of legal arguments with employees about employment details, especially after dismissal. This is difficult to argue when no evidence of an agreement exists.

This can occur in situations where managers may be allowed certain benefits, and an employee might argue for the same entitlements when the manager moves on - if nothing is clarified in writing. Tidying up all possibilities will ensure the smooth running of business particularly when it comes to dismissals.

Tim’s expert advice would be to ensure creating a strong contract with main obligations, requirements and structure. This should be complimented with either a suite of policies or at the minimum, a code of conduct - setting out the principles and values of the workplace - such as honesty, integrity, teamwork, confidentiality, respecting the business and respecting the law. This should act as a general cover to almost any situation of harassment, law breaking, disrespecting the company (or another employee) on social media.

Particularly when dealing with casual employees (especially in sectors such as hospitality), working with younger individuals without years of experience as to expected standards, a strong Code of Conduct acts as a compass. Similarly with safety clauses, acting hand in hand with workplace policies to ensure that business, other employees and customers are not put at risk, which can often result in instant dismissal if contravened.

Case law contains a plethora of cases where non-adherence to policy has resulted in dismissal. Particularly for situations of breach of dress code, fighting, assault, offensive emails, misuse of social media. The nature of working in a modern workplace is that any of these breaches can result in a total recourse of control. Especially true of social media, as one bad post can not only disrupt business, but paint it in a bad light. However, if the employer has not created policies then an employee may be able to claim unfair, unjust or unreasonable dismissal for a dismissal in such an event. The code of conduct acts as a broader, overarching statement for business and can be quite industry specific. For example, an employee was dismissed from a butcher for refusing to remove eyebrow piercing, which the court found to be reasonable dismissal.

Thus, for employment contracts one size certainly does not fit all (but the minimum a business should have is a code of conduct). This enables control over staff, not in a strict sense but in order for the business brand to be protected, and ensure that the public continues to have a good perception of business.

Further advice is the use of probation periods. If someone is not a good fit for the business - which can usually be determined quite early on in their employment, then this ensures simpler release without the need for long justification - and ultimately, no love lost.

As with all contracts, there can be the issue of signature.

Employment contracts need not be signed per se in order for them to take effect, but there must be some acknowledgement for the contract to have commenced. This is very much a case by case situation, and signature is definitely preferred, however an employee has little room to stand on if they have received an email, acknowledged it and commenced work. Thus, email is also helpful for evidentiary reasons.

The SaucedIt platform actually acts as human resource management software and can record when an employee has reviewed a document (and also enables virtual signatures), so that even if signature does not occur acknowledgement is often implied. Policies of the business are also stored on the platform’s library to ensure that an employee has constant reference to all these documents.

This HR resource management software acts as safety nets both for the employer, but also ensures transparency and openness of the business - ensuring a safe workplace (including policy and procedures) is created. This is particularly relevant with issues in the media surrounding underpayment (obvious examples being Woolworths and George Colambaris). The safest way to avoid this is through a contract.

So what about dismissal when referring to a vexatious employee?

For SMEs, one angry employee can sink the entire ship. From culture to loss of customers. Clearly, it needs to be dealt with quickly. The 3 warning method is not required by law, however there should be some notification to employees (depending on severity of actions). This gives an opportunity to address the problem as long as it is not serious enough to warrant instant dismissal (e..g stealing, harassment, bullying, dismissal).

Of course, there must be evidence and this dismissal even when relating to illegal behaviour, cannot just be assumed (clear from Hoyts case where employee stealing lollies from cinema snack bar). Good practice would be to run a dismissal past a lawyer to ensure self-protecting.

In summary: an employee contract has no template though it should include position, role, location of workplace, hours, minimum requirements (e.g. certain licenses), confidential information, financial information and remuneration (which is expressed under the relevant award. It should also set out clear requirements of the rules of the workplace as long as justifiable (and even if seeming extreme in certain cases). Negotiations should be welcomed in regards to cashing in annual leave (noting that sick leave and entitlement cannot be negotiated). All of this is to protect the business from the very beginning of the employer-employee relationship to ensure that.