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Two documents that govern the relationship between you as an employer and your employees are the:

  1. employment agreement; and
  2. employee handbook.

An employment agreement is a binding contract, whereas a policy is a written summary of the standards of behaviour expected of your employees. It is important to understand the distinction and which items go where given the documents’ nature. This article explains what:

  • an employment agreement is;
  • an employee handbook is; and
  • the key differences are between these two documents.

What Is an Employment Agreement?

An employment agreement is a key contract that binds you and the employee. Although not expressly required by law, it is important to have an employment agreement to govern the relationship between you and your employees. Some key terms of an employment agreement include the following and are crucial for the corresponding legal reasons.

Clause

Description

Notice Period

An employment agreement should include a notice period. Here, it should confirm how much notice you and the employee need to terminate the relationship. For permanent employees, if there is no notice period, this can create ambiguity and the notice period that applies will be ‘reasonable notice’. What amounts to the reasonable notice will vary in the circumstances. It may result in disputes between the parties which could have otherwise been avoided by having an employment agreement.

Intellectual Property

An employment agreement should also mention who owns the intellectual property created in the course of or in connection with the employment. An intellectual property clause’s commercial importance may vary depending on the position.

For example, it may be less crucial for a cleaner to have an intellectual property clause because they create limited intellectual property. 

By contrast, it is critical to have a strong intellectual property clause for a content creator or a software developer who creates valuable intellectual property.

Confidential Information

The employer should ensure the employment agreement includes a confidentiality clause which prohibits the employee from disclosing confidential information. This obligation should continue even after the termination of employment.

Restraints

Most employers want to restrict employees and former employees from poaching their clients and sometimes from operating a competing business, post-termination. The courts are generally reluctant to enforce restraints, and so if there are none in the contract, it is very unlikely they will do so.

Further, the restraint should be drafted to address what the courts will consider when determining the restraint’s enforceability.

Commercially, an employment agreement may also assist with setting expectations.

For example, although the employee is entitled to leave at law and does not need to agree, some employers choose to set out employees’ entitlements to annual and personal/carer’s leave in the agreement for convenience.

What Is An Employee Handbook?

An employee handbook is made up of policies, and it is useful to think of polices as a written summary of your directions to employees. A policy can cover a range of different topics and can be broadly classified into two categories: core policies and operational policies.

  • core policies speak to your vicarious legal liability, i.e. whether you are responsible for an employee’s acts or omissions such as a health and safety policy or an anti-discrimination policy; and
  • an operational policy is anything other than core policies and speaks purely to operational matters such as how to submit leave, uniforms, punctuality, etc. If you have a direction you would like to clearly communicate to the company as a whole, a policy is a practical way of doing so.

Key Differences Between Employee Agreement and Handbook

 

Employment Agreement

Employment Handbook

What type of document is it?

An employment agreement is a contract and therefore creates binding obligations on the parties. If a party breaches its obligations, the other party can ultimately go to court to seek to enforce the agreement.

An employer may also take disciplinary action or dismiss the employee if the employee breaches the contract.

A handbook is a collection of policies. Policies are not a contract and cannot be enforced in court. If an employee breaches a policy, you may take disciplinary action such as issuing a warning or termination.

What does the document cover?

An employment agreement includes the key terms which remain the same throughout the term of the employment relationship (unless varied in writing by agreement).

A handbook should include core policies such as a:

  • work health policy;
  • anti-discrimination, bullying and harassment policy; and
  • IT policy.

It can otherwise include a range of operational matters and can therefore be very detailed, down to how to complete timesheets or expenses.

How can the document be amended?

An employment agreement cannot be unilaterally changed. Both parties must agree to the change, generally using a signed letter of variation or signing a new agreement.

You can change a handbook without seeking the employee’s approval.

For example, you can change the way expenses are processed and document it in the policies without employees agreeing to it. It is useful for employees to be notified of any changes, and you may also wish to seek their written acknowledgment.

Who has obligations to who?

Both parties owe obligations to each other.

For example, both parties agree to provide the specified notice period if they wish to terminate the employment.

A handbook should be drafted so only employees have obligations to you. This is because they are your directions to employees, and it is best to avoid imposing obligations on yourself.

Key Takeaways

The employment agreement should cover critical items and items that you may want to contractually enforce during and after the employment. The handbook covers details of some critical items for which you may be vicariously liable and operational matters. You must seek the employee’s agreement to vary the employment agreement, but a handbook can be unilaterally changed given your directions to employees may change over time. If you would like assistance with drafting your employment agreement or handbook, contact LegalVision’s employment lawyers on 1300 544 755 or fill out the form on this page.

FAQs

What is an employment agreement?

An employment agreement is a key contract that binds you and the employee. Although not expressly required by law, it is important to have an employment agreement to govern the relationship between you and your employees. 

What is an employee handbook?

An employee handbook is made up of policies, and it is useful to think of polices as a written summary of your directions to employees. 

What workplace policies should my business have?

A handbook should include core policies, such as a work health policy, anti-discrimination, bullying and harassment policy and IT policy.

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