Negotiating an executive employment contract: what you need to know

When you’re offered a new role, some considerations are obvious: pay, location, and the job description. But depending on your role, your employment contract may become the most important document governing your working relationship.

Depending on where you work and what you do, the minimum terms and conditions of your employment may be set by the Fair Work Act, state-based industrial legislation, a state or federal award, or an enterprise agreement.

For many employees, particularly senior executives, the contract of employment is the key document that sets out their terms and conditions of employment and shapes their working life. Many of those terms can and should be negotiated.

1. Incentives and bonuses

Base salary is not always the most important part of a remuneration package. Particularly for senior executives, a significant part of the package may come from conditional payments such as short- and long-term incentives, including cash or share-based payments and bonus payments.

It’s not enough to look for a big bonus or incentive percentage. A bonus that looks generous in an offer discussion can become much less valuable if the granting is entirely discretionary, if the criteria are vague or inappropriate to your role, or if the assessment process isn’t clear and fair.

Make sure you look for:

• whether your access to bonuses or incentives is a right set out in your employment contract or is left entirely to the discretion of your employer
• clear performance criteria that are realistic and appropriately calibrated for your role
• clarity about who assesses performance, whether there are review mechanisms, and how any dispute is resolved
• when payments will be made
• what happens to your incentive payments or share rights if you leave your position through resignation or termination

2. Duties, reporting lines and role changes

You know what role you applied for and what you discussed with your potential new employer. But what does the contract say about changes to your role?

Be on the lookout for broad language such as “other duties as required”, or language that grants your employer an unclear power to alter your duties, location or reporting arrangements. Those clauses can matter more than they first appear to.

You might accept a role because of its seniority, remit, location, or strategic importance. If the contract allows the employer to substantially change your duties without your agreement, you may discover that the role you accepted is not the role you are now required to perform.

Your contract should clearly set out the role you are being employed to perform. It should also set some boundaries around changes to your role. If the contract gives your employer discretion to require you to perform additional duties, there should be protections in place to ensure that those duties are within your experience and qualifications, and do not result in a demotion. If the scope of the role expands significantly, there should also be a defined pathway to revisiting your title and remuneration.

3. Notice periods and termination provisions

When you’re starting a new relationship, you don’t want to think about how it might end. That goes for employment relationships as well as personal ones. However, many people overlook termination clauses, even though they’re some of the most important parts of an executive contract.

Minimum notice periods for most employees in Australia are set out in the National Employment Standards in the Fair Work Act. The maximum period is five weeks. For many senior executive roles, that minimum notice period is inadequate, as it can take months to secure a comparable role.

You may want to negotiate a longer contractual notice period than the statutory minimum. A stronger notice clause can provide breathing room, preserve your income during a transition, and change the dynamics of an exit negotiation.

Does the contract allow for termination without notice? Check what might trigger this and make sure the circumstances are clearly defined. This can help protect you if the employment relationship breaks down. 

4. Restraint of trade clauses

Restraint of trade clauses are common and controversial, and there is increasing momentum to limit their reach.

A restraint may limit where you can work, for how long, for whom, or the work you can do after your employment ends. Restraint clauses are typically one of two types:

• non-solicitation clauses, which may prevent a former employee from soliciting or dealing with former clients or poaching former employees
  
• non-competition clauses, which may prevent a former employee from working in competition with the former employer.

Whether a restraint of trade clause in a contract is legally enforceable is assessed on a case-by-case basis. The starting position at law is that restraints of trade are contrary to public policy and unenforceable, except to the extent that the restraint:

• protects a legitimate business interest of the former employer, such as confidential information and trade secrets
• goes no further than is reasonably necessary to protect that interest, taking into account factors such as the geographic reach of the restraint, how long it applies, and the activities it covers.
  

Depending on which state laws apply to the contract, there may also be additional relevant legal principles. 

It is common for employment contracts to have “cascading” restraint clauses. These seek to maximise protection for the employer if a court finds some aspects of the restraint unenforceable.

Restraint clauses can be difficult to negotiate before employment starts. Whether you should seek changes depends on your circumstances and the drafting of the clause. It’s important to get legal advice before signing. 

5. Clauses that are unclear, inconsistent or surprisingly broad

Contracts are legal documents, but they are not always well drafted. They may contain outdated wording, inconsistent provisions or unnecessarily broad language. If you're unsure what a clause means, get advice before signing.

How we can help

Our experienced team of employment lawyers can review the fine print and explain how recent legal developments may affect your contract. But legal advice isn’t just about interpretation. It’s also about strategy.

What can you realistically negotiate? Which clauses matter most in your industry and for your circumstances? What terms are worth pushing for now because they will be much harder to change later? How do the legal implications of various clauses relate to your personal values, goals and concerns?

Getting legal advice at the start can help you avoid significant problems later. And if a problem does arise, a better contract can give you a much stronger starting point.