Getting your contracts right

I came across a question on employment contracts this morning on a social media message board I use and it got me thinking that this is an area I commonly see businesses exposing themselves to significant risk. There is a range of recurrent misunderstandings I come across that leave businesses open to breaches of the law or prevent them from using their workforce in the most effective way. Here are some of them and what to avoid:

- The non-genuine casual contract. When you employ someone has a genuine casual, your employment relationship with them starts at the beginning of their shift and ends at the end of it. You are under no obligation to employ them again if you don’t wish to and they are under no obligation to accept work from you. But to be a genuine casual … they must be employed … casually. That is they fill unexpected or irregular holes in your roster, they might help with a backlog of work from time to time for example. They may work for you often – you might call on them every week to cover sick leave or because you unexpectedly need extra resources, but the nature of their employment is sporadic and generally unplanned. Someone is potentially not a genuine casual if you have them rostered on for the same day each week for an extended period (and/or they would have a reasonable expectation of ongoing regular work); someone is also potentially not a genuine casual if you have applied a fixed term to their contract – then you’re moving into zero minimum hours part-time contracts which are not a thing. You’re also adding complexity by incorporating a fixed term (more on that below). If you’re employing someone on a casual contract but you are not utilizing them in a way that would be determined to be on a genuine casual basis you may need to treat them like you would an ongoing or fixed-term employee (accrual of leave entitlements, access to unfair dismissal, etc). Many Awards have flexibility around the use of part-time hours, this is often much cheaper and more likely to be legally compliant.

- Fixed-term contracts. These look awesome on the surface. You employ someone, if you need them longer you just give them another one until you don’t want them anymore. All the benefits of a permanent contract without the commitment. Not so much. One of the key risks with fixed-term contracts is having to pay someone out the remainder of their contract if they’re not working out. You must use very careful wording in your contract to ensure the utility of probationary periods and performance or conduct termination clauses. And even then you must be very careful in how you conduct the termination if you seek to rely on them. Further, you can’t just put people on them over and over again. People often ask ‘how many times can I renew it’; there isn’t an answer to that question – if an employee were to test it with FairWork they would be looking to see if the role is actually an ongoing one and you’re just trying to avoid your legal obligations. Also, if you accidentally (or intentionally, because you only need them for a 'bit longer') let the person stay on after their fixed term has ended you run the risk of them been then deemed as an ongoing employee as you're effectively ratifying their ongoing employment after that date. I strongly recommend getting advice before using them. You will often find an ongoing contract represents less risk and that depending on the expected term, notice and redundancy entitlements are often considerably less than the potential payout costs of the contract.

- Trying to contract out of minimum entitlements. I see this most often with overtime and minimum shifts, but it can apply to other things too. Your employee will most likely be covered by an Award (a few categories of employee aren’t – FairWork can help here if you’re not part of an industry association or don't have access to legal advice – those employees are cover by the National Employment Standards as a minimum) or an EBA. This is the minimum set of entitlements a person has. You can give them more but you can not contract out of any of those entitlements. You can use individual flexibility agreements to mutually agree on trading, say, overtime rates applied to maximum shift hours for a reduction in the length of the work week but the staff member must be better off overall (this needn’t be monetary), it must be in writing, it must be by mutual agreement and it must be able to be terminated by the employee (among other things).

Obviously this isn't an exhaustive list of the things you can get wrong with your employment contracts, but they are common mistakes. You can strategically (and lawfully) structure your workforce in such a way as to minimize risk and salary costs, but you need to understand the boundaries of the legal and statutory requirements you’re working within. Don’t hesitate to get in touch if this is something you’d like assistance with. If you think you may be using non-compliant contracts, speak to an industrial relations lawyer, your industry association or give us a call (we will refer you on if the matter is beyond our scope) as these can be sensitive matters to resolve.

Please be aware that while we are skilled in industrial relations principles, this content does not constitute legal advice, are not intended to be a substitute for legal advice and should not be relied upon as such.