Better HR regularly come across poorly-drafted employment contracts which expose the employer to significant legal risk.
In an effort to understand just how widespread this problem is, we decided to offer a free ‘contract review’ service during January, February and March this year. During these three months, anyone was welcome to submit an employment contract to our team of experts for high-level review.
We received a total of 29 contract review requestsâ€¦and the results were shocking.
Only one – yes one – of the 29 contracts was fully-compliant with both the Fair Work Act 2009 and the Modern Award which applied to the employee in question.
To be clear, Australian-based employers are not legally-required to issue written contracts to their employees. If an offer of employment is made and accepted – and if the employee performs work and is paid – a binding contract exists regardless of whether or not it has been recorded in writing.
However, issuing clear and comprehensive written contracts is strongly recommended for a range of reasons, not the least of which is the certainty such documents create for both employers and employees.
Crucially though, written contracts must be consistent with Australia’s complex web of employment laws and ‘instruments’, including the Fair Work Act 2009, applicable Modern Awards or Enterprise Agreements, and even anti-discrimination legislation.
For example, a full-time employee covered by the Fair Work Act must accrue a minimum of 4 weeks of annual leave each year (and more if they are covered by some specific Modern Awards and Enterprise Agreements). Accordingly, a contractual clause which only provides for 3 weeks of annual leave would be inconsistent with – and is overridden by – the Fair Work Act. If the employer tried to rely on and enforce such a clause, they would be at significant risk of prosecution and penalties.
There were a number of specific issues our consultants encountered time and time again when conducting their reviews. These included:
– Clauses which purported to allow deductions to be made directly from an employee’s wage or salary (under the Fair Work Act, almost all such deductions are unlawful)
– Leave-related clauses which misrepresented an employee’s legal right to take personal/carer’s leave and/or compassionate leave (these entitlements are specifically defined in the Fair Work Act and cannot be undercut in a contract)
– Leave-related clauses which purported to allow employers to ‘reset’ an employee’s annual leave or personal/carer’s leave balance back to a zero balance if the leave is not taken within a specific period of time (this is not permitted by the Fair Work Act)
– Contracts issued to Award-covered part-time employees which did not meet the very strict requirements imposed by the applicable Modern Award (such as an obligation to expressly confirm the employee’s hours and days of work – and break times – in writing)
– Contracts issued to Award-covered employees offering payment via an annualised salary, but which did not comply with the strict ‘annualised salary’ requirements imposed by the applicable Modern Awards
– Contracts issued to Award-covered employees which made no mention of the applicable Modern Award and/or the employee’s classification level within that Award
Most clients were extremely surprised to receive the results of the contract review conducted by our team. Many were dismayed because the contract they submitted had been prepared by a so-called ‘expert’ (and, in a small number of cases, by a lawyer) and had charged hundreds or even thousands of dollars.
The moral of the story: make sure the contracts you’re issuing have been prepared by employment law specialists who are familiar with Australia’s uniquely complex employment laws. Doing anything else is just not worth the risk.