Reviewed on 5/9/12
There could be legal issues concerning certain classes of employees where you should obtain specific legal advice, including:
This contract is prepared for standard non-award /non-enterprise agreement covered employees. It can also be used for award and enterprise agreement covered employees, although specific advice should first be obtained before using it with such employees since non-compliance with the provisions of an award/enterprise agreement exposes the employer to a number of legal claims.
An employer who is using the contract for award covered or enterprise agreement covered employees may wish to supplement the contract with an Individual Flexibility Agreement (IFA) which is available on the Agreements page of the HR Advance website. Those employers may also give consideration to utilising the following optional clauses which are included in the contract:
Compensation for all legal entitlements
The compensation for all legal entitlements clause is optional and may only be used for award/enterprise agreement-covered employees. You should be aware that it is not possible to ‘contract out’ of an industrial instrument using a contract of employment. Accordingly, if an employee is entitled to minimum conditions of employment in accordance with an industrial instrument, you should comply with the relevant industrial instrument.
This optional clause seeks to offset an employee’s total remuneration against any entitlement he or she may have under any law or industrial instrument. Adopting this approach will not extinguish an employer’s obligations under an industrial instrument or alter the fact that technically an industrial instrument was been breached, nor can it protect an employer from prosecution and imposition of a penalty for that breach. However, it does give the company good grounds to argue that an employee has been compensated in full for all entitlements and the employee should not be permitted to ‘double recover’ the amounts.
You should therefore carefully consider whether to use this clause and whether full compliance with the award, use of an IFA, enterprise agreement, giving a guarantee of annual earnings, or complying with an annualised salary provision of an award, are better options.
Guarantee of annual earnings
Rather than complying with the terms of an award, an employer can instead provide a written 'guarantee of annual earnings' to an employee. Such a clause is included in the contract and can only be offered to employees who are covered by a modern award and earn more than the high income threshold (presently $123,300), but doesn’t include certain remuneration elements.
The guarantee means that the employer agrees to pay the employee no less than the high income threshold (indexed annually and exclusive of superannuation and contingent elements such as bonuses and commissions) during the ‘guarantee period’ and in exchange for that guarantee, the relevant modern award that covers the employee ceases to apply.
The ‘guarantee period’ must be for 12 months or more, unless the employee is employed for a period which is less than 12 months. No more than 14 days can elapse from the date the guarantee is offered to the employee and the employee agrees to accept it and:
(i) the day the employee commences employment; or
(ii) a day on which the employer and employee agree to vary the employee’s terms and conditions of employment.
Further information on the Guarantee can be found in our newsletter published on 24 March 2010.
Annualised salary arrangement
Alternatively, some awards include a provision which allows an employer to offer an annualised salary to an employee which takes into account award payments such as overtime, penalty rates, and allowances. Where an employer offers an annualised salary as permitted by an award, the employer is then exempt from the obligation to comply with the award terms which have already been compensated for in the salary.
Depending on the nature of the duties being performed by the employee who will be subject to the contract, it may not be necessary to require an employee to agree to a post-employment restraint. You should seek to customise the restraint to relate to the specific employee.
In order for a post-employment restraint to be enforceable it must be 'reasonable' in the circumstances of the particular employee’s employment. Specifically, the restraint must be reasonable in relation to the activities sought to be restrained, the geographic area, and the duration of the restraint. The courts will not enforce restraints that impose an unreasonable restraint of trade on an employee, or that extend beyond protecting the legitimate business interests of an employer.
The particular restraint clause included in the contract includes provisions enabling a court, if it is to review the contract, to read down the covenants in relation to the employee if they are found to be void, invalid or otherwise unenforceable. ‘Reading down’ the strict wording of an unreasonable clause means to modify it until the clause is expressed in a way that is legally enforceable.
In NSW only, the Restraint of Trade Act 1976 gives the NSW courts power to read down the provisions of a restraint that would otherwise be unreasonable and thus unenforceable, unless the restraint is manifestly unreasonable on its face. That is, the employer should not include a clearly unreasonable restraint in a particular employee’s contract hoping it will simply be read down.
If the contract is intended to be used for employees who are situated outside NSW, the courts in other states are unable to read down the provisions of a restraint and therefore must apply the clause as it is drafted or delete offending provisions. For this reason, we have drafted the restraint to include cascading provisions that can be severed to the extent that they are unreasonable or unenforceable.
When writing restraints for potential employees it is advisable to obtain specific legal advice.
Policies and procedures
There is an increasing willingness of courts to incorporate policies into employees’ contracts of employment. Contracts of employment that do not expressly exclude such incorporation may cause problems for employers. While the contract contains an express exclusion, it is important that employers both comply with and broadly wordtheir policies and procedures, to further reduce this legal risk.
The 'Other Leave' clause in the contract indicates that long service leave, parental leave, and compassionate leave entitlements will be made in accordance with legislative requirements. If your policies provide for more generous entitlements, your employees may be entitled to receive such leave in accordance with your policies. Alternatively, you should seek legal advice before amending this clause of the contract.
Withholding amounts from employees
The contract indicates that the employer can withhold remuneration from the employee where the employee fails to provide the employer with adequate notice when terminating their employment, or fails to return the employer's property in a fair condition (including tools and uniforms). The general rule is that these types of clauses are not enforceable unless the employee specifically authorises the deduction. As such, the clauses allowing the employer to withhold remuneration for these reasons have been drafted to contain such an authorisation.
You should be aware however, that if you exercise your rights under the clauses, it is possible that the employee may make a complaint to the Fair Work Ombudsman, a court or industrial tribunal alleging that you have not paid his or her appropriate accrued entitlements or his or her guaranteed remuneration.
We recommend you seek legal advice if you are considering withholding remuneration from an employee. There may be other options available which can be explored.
Fringe benefits tax
The contract allows for employees to be provided with benefits such as mobile phones, company vehicles and laptops, with limits provided for. You should seek financial advice in relation to potential fringe benefits tax liability before providing an employee with company property which the employee is allowed for personal use.
You will need to provide the employee with a duplicate copy of the contract to sign, date and return to you.
This commentary is not intended to be provided to the employee.
Important note to subscribers
The commentaries and documents in HR Advance are updated as necessary, to keep them relevant. You should familiarise yourself with the relevant commentary each time you create a document.
This document has been drafted to suit a wide variety of businesses, with a number of options available to enable you to customise the document to better suit your business. Nevertheless, you may need to make other changes to the document so that it suits the specific needs of your business. If you make additional changes, we cannot guarantee that the changes and modifications you make to the document will be legally compliant or enforceable.
This commentary and any additional information provided to assist you in creating this document, does not constitute legal advice.
If you are unsure about any aspect of this document (including the changes or amendments you make to it), you should seek appropriate advice from a lawyer, skilled in these issues. You should consult with your financial advisor in relation to any relevant taxation or financial issues concerning the document you create.
After creating this document, you should read through it carefully to make sure it meets your business needs and is consistent with other industrial instruments, policies and procedures which operate in your workplace. This commentary is not designed to be provided to employees or other workplace participants.