5 reasons to update written contracts of employment

by Paul O'Halloran
1 September 2017

In brief - Employers should consider areas where they need protection

Case law shows that employers frequently neglect the importance of written contracts of employment. While enterprise agreements, modern awards and the National Employment Standards contained in the Fair Work Act 2009 (Cth) cover off on many statutory terms of employment, it is important to remember that these statutory benefits are usually orientated in favour of employees. The written employment contract can be used to “fill the gaps” in areas where employers require protection, and which are not dealt with by statutory instruments, for example, matters relating to discipline and dismissal, intellectual property, confidentiality and post-employment obligations. 
 
The employment relationship is fluid and subject to significant change over time. Employers should therefore consider reviewing and updating contracts of employment to ensure protection of commercial interests, reflect the changing circumstances of the employment and comply with evolving common law decisions regulating the law of employment.
 

TOP 5 TIPS WHEN REVIEWING EMPLOYMENT CONTRACTS

Here are five reasons why it is important to update written employment contracts:
 
  1. Recognise change: If an employee’s duties, position or level of responsibility have changed profoundly over time, the original contract may have been replaced by subsequent changes. This means notice of termination provisions and post-employment restraints in the old contract may be unenforceable. To reduce legal risks in this area, employers should conduct an audit of old contracts and seek advice about issuing amended contracts if there have been (or will be) profound changes to an employee’s terms and conditions of employment.
  2. Workplace policies: A number of infamous employment law decisions over the years have held that where a contract imposes obligations on employees to comply with policies and procedures, those policies and procedures may be incorporated by reference into the contract, unless the employer's reciprocal obligation to comply is expressly excluded. To avoid policies being incorporated into the contract as enforceable terms that can result in litigation, employers should have terms relating to workplace policies professionally drafted to make clear policies do not form part of the contract.
  3. Post-employment restraints: Restraints of trade are notoriously difficult to enforce. Most restraint provisions we see in contracts are invalid and unenforceable because they have not been properly considered at the commencement of employment. Updating contracts to recognise a promotion or at salary review time is an opportunity to ensure restraints are carefully tailored for the particular employee’s circumstances, as well as ensuring the restraint is reasonable in scope and duration, to improve the prospects of enforcement.
  4. Notice of termination: Does the contract include a notice of termination provision? It is surprising how many older contracts do not. To avoid a "reasonable notice" claim in which a court may imply a lengthy period of notice into the contract well in excess of statutory minimums, the contract must include an express notice of termination provision.
  5. The devil is in the detail: Does the contract adequately cater for the range of situations that may result in dismissal? For example, is the definition of "serious misconduct" in the contract broad enough to be relied upon in contemporary situations that might include misuse of social media? Do termination provisions impose onerous obligations on the company to comply with certain steps leading up to dismissal? Does the contract contemplate the discovery of misconduct justifying summary dismissal during the notice period? These are all issues the Courts have explored in recent cases and may be wise to reflect in the written contract.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.