Does My New Employee Need an Agreement?

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Table of Contents

• What Should an Employment Agreement Include?
• Do I Need to Give My Employee an Agreement in Writing?
• What Happens if I Do Not Give My Employee an Agreement?
• Key Takeaways

Welcoming a new employee into your business is an exciting time, but there are many legal requirements and entitlements you must consider as an employer. These include the practical aspects of how your new starter will work, such as their pay, working arrangements and training. You should include all of these considerations in writing in your employee’s agreement to ensure that both you and your employee are on the same page. This article will step you through what an agreement should include and the potential consequences of not having an employment contract.

What Should an Employment Agreement Include?

An employment agreement is an agreement between you, the employer, and your employee whom the agreement concerns. It sets out the nature of the employment, such as whether your employee is permanent or casual, the expected hours of work and other specific terms and conditions of the employment. 

Some of the key terms and conditions to include in an agreement to ensure the company is properly protected include, but are not limited to, a: 

• confidential information clause that prohibits the disclosure or misuse of the company’s confidential information;
• intellectual property clause that requires your employee to assign the ownership of all works created in the course of employment to your company;
• termination clause that details the notice period you will provide to your employee on termination and the circumstances in which termination without notice is allowable; and
• remuneration clause that details the employee’s salary and other pay entitlements. 

Additionally, in the remuneration clause, it is important that you state that the employee’s salary is intended to cover all entitlements that apply to them under a modern award or other legislation. This allows you to use any amounts you are paying in excess of minimum entitlements to offset any additional entitlements that may arise, such as overtime or penalty rates. 

Importantly, you must pay your employees, at a minimum, their minimum entitlements based on actual hours worked. 

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National Employment Standards

Under Australian law, regardless of whether there is an employment agreement in place, a set of minimum entitlements apply automatically to every worker. These are known as the National Employment Standards (NES) and include:

• maximum weekly hours;
• requests for flexible working arrangements;
• annual leave;
• parental leave and related entitlements;
• personal carer’s leave, compassionate leave and domestic violence leave;
• community service leave;
• long service leave;
• public holidays;
• notice of termination and redundancy pay; and
• the fair work information statement. 

You cannot enter into an employment agreement with an employee that undermines the entitlements set by the NES. Beyond these entitlements, you must also understand whether a modern award applies to your business and the relevant employee. Where a modern award applies, it will dictate additional entitlements beyond the NES that you must consider and cannot contract out of, including:

• minimum rates of pay; 
• additional allowances; 
• overtime rates; and 
• rostering requirements.

An enterprise agreement allows you to vary some of the terms of an award; however, there are some non-negotiable minimum standards that cannot be amended. Enterprise agreements must leave your employees ‘better off overall’ compared to the Award and usually require a lengthy bargaining process. The Fair Work Commission will assess this before allowing an agreement to be in effect. 

Do I Need to Give My Employee an Agreement in Writing?

While it is not a legal requirement to provide an employee with a written agreement, you may struggle if a dispute arises in the future and you do not have a record of the terms of employment. Maintaining a record of your employee’s start date, salary, entitlements, and workdays will help reduce the risk of a dispute arising in the future.

Throughout an individual’s employment, there may be a need to amend the terms of the written employment agreement, for example, amending your employee’s title or salary. 

These amendments can be put in place by way of a letter of variation. A letter of variation should stipulate the:

• exact clauses that are being amended; 
• nature of the variation; and 
• date at which the amendment comes into effect.

Additionally, the amendment should specifically state that all other terms and conditions of employment remain unchanged. You cannot unilaterally amend the terms of an employment agreement, as they require the consent of your employee as well. It is best practice for both you and your employee to sign a letter of variation to acknowledge that you both consent. 

What Happens if I Do Not Give My Employee an Agreement?

If you refuse to provide your employees with a written employment contract, a verbal agreement may be in place. Minimum entitlements will still always apply under the law, NES and any applicable award or enterprise agreement.

Further, even where you do not provide an employee with a written agreement, the law still requires that you provide every new employee with a copy of the Fair Work Information Statement. This Statement provides your employees with the required information regarding their rights under the NES.

Key Takeaways

Overall, an employment agreement enables you as an employer to clearly outline the terms of engagement and your expectations to the employee. Remember that regardless of whether you have a written agreement or not, the NES and the Fair Work Act 2009 generally will still apply along with any relevant modern award or enterprise agreement. Your agreement cannot provide employee standards that fall below those set out in the NES or modern award, if applicable.

If you have any questions or need assistance drafting your employment contract, our experienced employment lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1800 485 742 or visit our membership page.