4 Reasons Written Employment Agreements are Essential

In Australia, there is no legal requirement for a written employment agreement. However, having one is essential to mitigate risk of misunderstanding by either party of what is promised versus what is delivered.

In this week’s Akyra blog, we identify the reasons that written employment agreements are essential and outline some key tips on how to create fair and effective agreements.

Why are written employment agreements essential?

1. Legal disputes: Without a written agreement, misunderstandings can arise regarding terms and conditions; leading to disputes between employers and employees and potential claims lodged with Fair Work.
2. Uncertainty: Relying on verbal agreements or assumptions can create uncertainty as either or both parties may have different recollections of what was agreed upon.
3. Financial consequences: Employers may face unexpected costs if they fail to outline termination notice periods or other entitlements – e.g. deductions from termination wages.
4. Reputational damage: Not providing an agreement can harm the business’s reputation, especially if employees feel their rights are not adequately protected.

An employment agreement provides clarity and security for both the employer and employee because it outlines rights, duties, and obligations, reducing ambiguity and potential disputes.

An employer can’t contract out of its obligations under employment law and industrial relations legislation. An employment agreement will set out at least the minimum entitlements designated in the relevant industrial instrument – e.g. National Employment Standards (NES), Modern Award or an enterprise agreement.

Since June 2023, employment agreements cannot include pay secrecy terms – i.e. the terms and conditions can be discussed between employees. If an employee is asked by another employee about their terms and conditions of employment, the employee being asked the question can refuse to answer.

How can you create a fair and effective employment agreement?

Workplace bullying is not just a workplace issue; it is also a serious health and safety hazard.

Creating a fair and effective employment agreement involves several key steps:

• Clarity: Clearly outline the terms of employment, including job responsibilities, work hours and probation. Avoid vague language to prevent misunderstandings.
• Compensation: Specify the salary / wage, benefits and any bonuses or incentives that may apply. Be transparent about how pay is calculated and when it will be paid.
• Industrial instrument: Where a Modern Award does not apply, the industrial instrument is the National Employment Standards. Where a Modern Award does apply, the name of the Award and classification of the employee should be identified.
• Leave and holidays: Detail annual leave, sick leave, family and domestic violence leave entitlements and expectations around public holidays. Ensure compliance with legal requirements.
• Termination: Define grounds for termination, notice periods and termination pay. Consider both employer and employee entitlements.
• Confidentiality, Intellectual Property and Restraint: Include clauses on confidentiality and, where applicable, in relation to intellectual property and restraint.
• Compliance: Ensure the agreement complies with relevant laws – e.g. the Fair Work Act, Anti-discrimination legislation etc.

5 common mistakes to avoid

1. Failing to update agreements: Keep your agreements in line with current employment law; ensuring they reflect legal changes – e.g. minimum wage requirements and leave entitlements.
2. Inconsistency between offer letter and agreement: Make sure any letter of offer and the employment agreement match, as inconsistent terms can confuse employees and lead to disputes.
3. Including inflexible terms: Avoid overly strict terms and conditions of employment. Business models change, and rigid clauses may backfire. Be open to amendments with employee consent.
4. Using outdated templates: Templates can become outdated. Customise agreements to suit your specific business needs and comply with current legislation.
5. Not protecting business interests: Consider restraint, intellectual property and confidentiality clauses to safeguard your business.