Having issues with your contract of employment?
What could cause problems with your employment contract?
New employment contract: Before taking on a new role, it’s vital to review and negotiate the terms of your employment contract. While this is true for all new employees, it’s especially important for senior managerial or executive roles. Our experienced employment lawyers can review your employment contract in order to ensure it accurately reflects the terms and conditions of employment you have negotiated with your employer, provide advice on how to reduce risk, improve job security and tailor the contract to your individual needs
Contract breaches: A breach of contract occurs when an employer does not adhere to the terms of an employment contract. Where such a breach occurs, an employee may be entitled to sue for damages suffered as a result of that breach.
Restraint of trade: Restraint of trade clauses attempt to restrict a former employee's conduct once the employment relationship has ended. These clauses can prevent an employee from working for competitors or dealing with clients and staff when their employment terminated. They can have serious consequences for your future employment and business opportunities.
If you have concerns about elements of your employment contract, or are having issues with a current or past employer related to your contract, talk to Maurice Blackburn today.
We protect your rights
Laura was offered a senior position with a new employer. She was asked to sign an employment contract by her new employer. Laura wanted to ensure that the contract contained the benefits and entitlements she had been offered, and did not compromise her rights.
We reviewed Laura’s employment contract and advised on several areas that required amendment. This included her notice period (which was inadequate for an employee at her level of seniority), and the restraint of trade clause which was broad and onerous.
We offered recommendations on how these clauses should be amended to improve her job security and protect her interests. We also provided her practical advice on how to negotiate these changes with her new employer.
With the benefit of our advice, Laura successfully negotiated the changes we recommended, and signed with improved terms and conditions.
Frequently Asked Questions
The terms of an employment contract may be express and implied.
Express terms are those terms that are explicitly agreed. In a written employment contract, the express terms will be the written terms. In a contract that is partly oral and partly written, the express terms will include both the written terms and any terms agreed on verbally.
On rare occasions documents other than the written contract—such as policies—may form part of the contract.
Where no written contract exists, it may be necessary to examine all of the surrounding circumstances to determine the agreed express terms. This may include reviewing telephone conversations and SMS records, facsimiles, and e-mails to determine what agreement was reached by the parties.
Employment contracts often cover only the key elements of the employment relationship, such as position, wage rates, superannuation and work location. In order to make the contract effective, the law may 'imply' a range of other terms into the contract to ensure it can operate effectively.
Implied terms are those that the parties have not agreed to, but which nonetheless form part of the contract. Implied terms may arise from the operation of the law, from custom and practice or by matter of fact.
An example of an implied term is the duty to act in good faith. This requires an employer to not act capriciously, arbitrarily or irrationally when exercising a power of discretion. Reliance on this duty, by an employee, can arise when disputing an employer’s decision not to exercise its discretion to pay a bonus.
A further example is the implied duty of mutual cooperation. Mutual cooperation requires the contracting parties to actually do the things that they have already agreed on, so that the benefits arising from that agreement can occur.
Finally, another common implied term arises when an employment contract does not expressly state how it can be terminated. In such cases, the law will imply a term that the employment contract can be terminated on 'reasonable notice'.
Where the parties have reduced the employment contract to writing, there is less scope for terms to be implied. The more detailed the contract, the less willing the courts will be to imply additional terms.
Sometimes contracts contain 'entire contract' clauses. These clauses generally state that the written terms of the contract are the entire agreement between the parties. In some circumstances additional terms can be implied into these contracts, notwithstanding the 'entire agreement' clause.
Executive Remuneration Package components can include elements such as sign-on bonuses, commissions, relocation allowances, housing or accommodation, children’s education, share options, first-class air travel, interest-free home loans, and more.
An employment contract can be varied by agreement between the parties, subject to an express right conferred on the employer to make unilateral amendments. In the absence of such a right, an employer cannot unilaterally vary the terms and conditions of employment.
If an employer tries to vary the terms of a contract without agreement, this may constitute a repudiation of the contract and allow the employee to terminate the contract and sue for damages.
An employment contract may terminate in a number of ways, including:
- expiry of a fixed term
- completion of a specified task
- unilateral termination (such as dismissal or resignation) on notice
- instant dismissal for serious misconduct
- abandonment by the employee.
Either party may bring an employment contract to an immediate end if the other party commits a serious or fundamental breach of the employment contract. If a fundamental breach of contract has occurred, it may allow an employer to terminate the contract without paying the employee any notice or allowing the employee to resign without any notice.
An employment contract that does not have a fixed expiry date can only be terminated in accordance with its terms.
If the contract does not have a clause providing for how it can be terminated there is a common misconception that the employer can simply terminate the contract without notice. However, in these cases the law may imply a term that the contract can only be terminated on 'reasonable notice' or payment in lieu.
The definition of 'reasonable notice' depends on the circumstances of each contract. However, relevant factors include:
- seniority of position
- length of service
- anticipated length of employment
- any detriment the employee suffered in order to take-up the position.
In some cases reasonable notice can be as much as 12 months’ notice or payment in lieu. Therefore it is important that you seek legal advice about your reasonable notice entitlement.
More often, the contract will provide for termination on notice. The Fair Work Act 2009 (Cth) prescribes minimum periods of notice that an employer must give an employee. The notice provided for in the contract must be no less than that provided for under the legislation.
It is also common for contracts to give an employer the right to terminate the contract without notice if the employee has committed serious misconduct, such as fraud, theft or violence.
Employment contracts can include a term that allows an employer to make payment in lieu of giving notice. This means that the employer can pay to the employee an amount equal to what they would have earned had they worked during their notice period and bring the contract to an immediate end.
For employees covered by the Fair Work Act 2009, payment in lieu of notice must be calculated at the employee's full rate of pay, including allowances, penalty rates, bonuses and superannuation contributions.
If there is no provision in the contract that allows an employer to make payment in lieu of notice, an employer must allow the employee to work out their notice period. This can be important in circumstances where, for example, an employee's visa depends on them remaining in employment.
An alternative to payment in lieu of notice is to place an employee on 'gardening leave'. This term describes the situation when the employee remains employed and continues to draw a salary during their notice period, but is not required to attend or perform work.
Restraint of trade clauses commonly form part of the express terms of an employment contract.
Employers often seek to include cascading restraint of trade clauses in contracts. Cascading clauses contain a series of restraints that overlap. By doing this, any restraints that are held by a court to be unreasonable and unenforceable can be severed and the employer can enforce the remaining restraints.
A typical restraint of trade clause will:
- restrain an employee from engaging in work for a competitor of a former employer in a particular geographic area and for a specific length of time
- restrain a former employee from disclosing confidential information after the employment relationship has ended
- restrict an employee from poaching or enticing any other employee to work in competition with the employer
- restrict an employee from approaching or soliciting clients for a period of time and often in a particular geographic area after the employment relationship has ended.
Restraint of trade clauses will be enforceable to the extent deemed 'reasonably necessary' to protect the 'legitimate business interests' of the employer. The legitimate business interests of the employer refer to protecting the employer’s trade secrets, confidential information and ‘goodwill’ including, its connections with clients and staff. The employer or company seeking to enforce the restraint must show that the clause goes no further than what is reasonably necessary to protect the employer’s legitimate business interests.
If a court finds that a restraint goes beyond what is reasonable to protect the legitimate business interests of an employer, then the restraint of trade clause will not be enforced.
Whether a restraint of trade clause is enforceable depends on a number of factors. The courts will consider:
- the interests of the employer, including consideration of the nature, locations and goodwill of the employer's business and the location of the employer's clients
- the nature of the work of the employee being restrained, including the employee's seniority and the nature of the employee's role and duties, including the level of contact the employee has with clients
- the scope and duration of the restraint, including the time and area proposed to be covered by the restraint
- benefits to the parties from entering the restraint
- the bargaining position of the parties.
The first step that employers often take when they are considering enforcing a restraint of trade clause or relying on a common law doctrine against an employee is to issue a letter of demand to the employee. Sometimes, in the post-employment context, the former employer chooses to share this letter of demand with the employee's new employer.
If an employer believes there is imminent harm to its business from the breach of a restraint of trade, the employer may lodge an application in court seeking an interlocutory injunction, pending a full trial of the matter. To be successful in obtaining an interlocutory injunction against an employee, the employer must show that there are reasonable prospects for success against the employee (that is, that there is a serious question to be tried) and that the balance of convenience favours the granting of an injunction.
If an injunction is granted, the court will schedule the matter for a full trial. At a full trial, the criteria mentioned above will be considered and if the restraint is found to be enforceable the court will assess the damages flowing from any breach of the restraint by an employee.
Some states have legislation on restraint of trade. For example, in NSW, the Restraints of Trade Act 1976 allows the court to read down a restraint of trade clause so that it is reasonable. This means that the NSW courts can modify the restraint of trade clause in a contract to what a court believes is a reasonable restraint.
Experts in Employment law
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