Why you Need Employment Agreements drafted by a Lawyer and not the Internet

In today’s complex legal landscape, having well-drafted employment agreements is essential for protecting your business as an employer. While it might be tempting to download templates from the internet to save time and costs, doing so can expose your business to significant legal risks. Properly tailored employment agreements, drafted by a lawyer, are an investment in the long-term security of your business.

Why Employment Agreements Matter

An employment agreement is more than just a formality; it is a legally binding contract that defines the relationship between an employer and employee. A well-crafted agreement provides clarity on the rights and responsibilities of both parties and offers legal protection in case of disputes. In the absence of a comprehensive agreement, or where poorly drafted templates are used, employers may find themselves vulnerable to costly litigation or claims for unfair dismissal, underpayment, or breach of contract.

Risks of Using Template Agreements from the Internet

Many businesses turn to online templates to save time and costs, but generic agreements often fail to cover the complexities of Australian employment law, leaving significant gaps. Here are some of the key risks associated with using template agreements:

1. Lack of Compliance with Australian Laws: Employment laws in Australia are governed by the Fair Work Act 2009 (Cth), Modern Awards, and other legislation specific to industries. Templates found online may not be tailored to comply with these laws, leaving employers exposed to potential breaches. For example, standard clauses on termination, leave entitlements, and redundancy may not align with the National Employment Standards (NES).
2. Failure to Address Specific Business Needs: Every business is unique. Using a one-size-fits-all approach often means that key clauses are either missing or too generic to effectively protect your interests. A well-drafted agreement, customised by a lawyer, will cover critical areas such as confidentiality, intellectual property rights, post-employment restraints (non-compete, non-solicitation), and tailored dispute resolution procedures.
3. Vulnerability in Litigation: Poorly drafted agreements increase the risk of costly disputes. If a dispute arises, courts will scrutinise the terms of the agreement. If key terms are ambiguous or non-compliant, the employer may find themselves liable. This was highlighted in WorkPac Pty Ltd v Rossato [2020] FCAFC 84, Workpac Pty Ltd v Rossato [2021] HCA 23 where ambiguity in contractual terms regarding casual employment led to a costly legal dispute. Ensuring your agreements are legally sound helps avoid similar pitfalls.

How our Employment Agreement Protects Employers

A well-drafted employment agreement tailored by a specialist lawyer ensures that your business is protected from potential legal disputes and financial liabilities. These are the critical areas that a comprehensive employment agreement should cover to safeguard your interests as an employer:

1. Employment Status and Classification: One of the most important elements in an employment agreement is the accurate classification of the employee’s status. Misclassification (e.g., casual vs. permanent, contractor vs. employee) can lead to disputes over entitlements like leave, notice, and redundancy payments.

• Why it’s important: Clearly defining the employment status protects you from claims for unpaid entitlements and ensures compliance with the Fair Work Act. In WorkPac Pty Ltd v Skene [2018] FCAFC 131, ambiguity around the employee’s status led to significant financial liability for the employer when the court found that the casual employee was entitled to paid leave. This case was then a catalyst for Workpac Pty Ltd v Rossato [2021] HCA 23, both of which were lengthy disputes that went through appeals and potentially could have been avoided altogether with clearer definitions of the employment status.

2. Remuneration and Benefits: The agreement should outline in detail how employees will be paid, including the structure of their wages or salary, bonuses, allowances, and overtime entitlements. It should also address other benefits such as car allowances, superannuation contributions, and any incentives tied to performance.

• Why it’s important: A clear remuneration structure ensures compliance with Modern Awards, Enterprise Agreements, or the National Employment Standards (NES). It also helps avoid disputes about pay rates or entitlements.

3. Confidentiality and Intellectual Property (IP) Protection: Confidentiality clauses are crucial for protecting sensitive business information, trade secrets, client lists, and intellectual property. A strong IP clause ensures that any inventions, designs, or content created by employees during their employment are owned by the business.

• Why it’s important: In the absence of confidentiality or IP clauses, employees may exploit your proprietary information or claim ownership of intellectual property developed while employed.

4. Restraint of Trade (Non-Compete, Non-Solicitation): A restraint of trade clause, including non-compete and non-solicitation provisions, prevents employees from working with competitors or poaching clients and staff for a certain period after leaving your company. This is critical for protecting your business's commercial interests.

• Why it’s important: Well-drafted restraint clauses can prevent employees from taking clients, key staff, or business secrets to a competitor. These clauses need to be reasonable in scope, duration, and geographical reach to be enforceable. In Cushman & Wakefield Agency (NSW) Pty Ltd v Hudson (No 2) [2023] NSWSC 884 , the court upheld a restraint of trade clause that restricted the employee from having dealings with customers or competitors for a reasonable period after leaving the company.

5. Termination and Notice Periods: The employment agreement should include clear terms for termination, including the notice period required from both the employer and employee. It should also address the grounds for summary dismissal (termination without notice) and specify how payments such as redundancy and final pay will be calculated.

• Why it’s important: Clearly defining termination terms helps avoid claims for unfair dismissal or breaches of the Fair Work Act, ensuring that both parties understand their rights and obligations when the employment relationship ends.

6. Performance and Conduct Expectations: Performance management clauses allow employers to set expectations around performance standards and conduct, as well as outline disciplinary procedures. This helps provide a structured approach to managing underperforming employees.

• Why it’s important: Clear expectations regarding performance and behaviour protect employers from claims of unjust dismissal when performance issues arise. By including a documented performance management procedure, you can demonstrate that you acted fairly and reasonably before terminating an employee for poor performance.

7. Leave Entitlements: All leave entitlements, including annual leave, personal leave, parental leave, and long service leave, should be clearly defined in accordance with the National Employment Standards (NES). The agreement should outline how these entitlements are accrued, taken, and paid out.

• Why it’s important: Clearly defining leave entitlements helps ensure compliance with NES and reduces the risk of disputes over how much leave an employee is owed.

8. Dispute Resolution Procedures: Including a dispute resolution clause in the agreement provides a clear pathway for resolving any employment-related disputes before they escalate to litigation. This can involve a mediation or arbitration process, helping resolve issues efficiently and privately.

• Why it’s important: Having a defined process for dispute resolution helps avoid costly court proceedings and promotes early settlement of disputes. By outlining a dispute resolution process, you can manage workplace conflicts in a more controlled and less adversarial manner, reducing disruption to your business.

9. Workplace Policies and Procedures: The employment agreement should refer to key workplace policies and procedures, such as those relating to occupational health and safety, harassment, and equal opportunity. This helps enforce compliance with these policies.

• Why it’s important: Referring to policies ensures that employees are contractually bound to follow them, providing you with stronger grounds to take action in case of breaches. In Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No. 3) [2017] FCAFC 102, the lack of clarity around whether a workplace policy formed part of the employment contract led to a costly legal dispute.

10. Variations and Flexibility: The agreement should include provisions allowing for variations to employment conditions, ensuring the employer retains flexibility to adapt to changes in the business environment, such as changes to role responsibilities, working hours, or location.

• Why it’s important: A flexible clause allows employers to make necessary changes to an employee’s terms without needing to renegotiate the entire contract, while still ensuring transparency and fairness.

Protect Your Business with Tailored Employment Agreements

Covering the key areas in your employment agreements not only helps you avoid legal risks but also ensures that your business runs smoothly, with clear expectations for both you and your employees. By having a lawyer draft your agreements, you can be confident that the terms are enforceable, compliant with Australian law, and tailored to your unique business needs.

At Enterprise Legal, we specialise in drafting employment agreements that provide robust protection for employers. Whether you're a small business or a larger organisation, our expert team can help you navigate the complexities of employment law, ensuring your agreements are watertight and suited to your unique business needs.