Should Employers Use a Generic Employment Contract?

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Table of Contents

• 1. Confidential Information and Intellectual Property Clauses 
• 2. Restraint of Trade
• 3. Nature of Engagement
• 4. Award Coverage and Rates
• 5. Changes to the Law
• Key Takeaways
• Frequently Asked Questions

Are you considering hiring an employee and want a written employment contract? If so, you may have come across many free online resources detailing generic employment agreements. However, a generic employment contract will not, by nature, be specific to your business’ needs. Hence, this article discusses six key issues when deciding whether to use a generic employment contract.

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1. Confidential Information and Intellectual Property Clauses 

Intellectual property (IP) and confidential information hold significant financial value for your business. Hence, it is vital to protect your IP and confidential information both during an employee’s employment and after their employment ends. One way you can protect your business’ IP is with robust clauses in your employment contract. 

A well-drafted IP clause will clarify that any IP your employee creates during their employment will belong to the business rather than the individual employee. As a result, your employee cannot misuse your business’ IP. In contrast, a confidential information clause will prohibit an employee from using confidential information without your consent. 

As such, an employment contract should clearly define IP and confidential information. Further, if an employee breaches any of these clauses, you may be able to seek a legal remedy for breach of contract. 

2. Restraint of Trade

A generic employment agreement does not usually contain restraint of trade, non-solicitation and non-compete clauses. A restraint of trade is a clause that aims to prevent employees from:

• working for a competing business;
• soliciting any of the employer’s clients, suppliers, employees or contractors; or
• interfering with the employer’s relationships with its clients, suppliers, employees or contractors.

If the generic employment contract does include such clauses, the clauses are often inflexible and do not distinguish between different levels of restriction that may apply. For example, you would generally have a stricter restraint of trade clause in an employment contract for a senior manager than a general administrative assistant. Hence, you should consider your business’ needs when drafting a stronger restraint clause. 

3. Nature of Engagement

A generic employment agreement also may not be tailored for the different ways in which you hire your employees. Therefore, it is essential to determine whether you are hiring an employee as:

• full-time;
• part-time; or 
• casual.

This classification is vital since it affects an employee’s entitlements, such as paid annual and sick leave. Therefore, hiring an employee on a generic contract which does not include this classification can leave you open to liability. For example, an unclassified employee may argue they are part-time rather than casual and lodge a formal complaint to the Fair Work Ombudsman (FWO) to receive back-dated paid annual leave.              

4. Award Coverage and Rates

A generic employment contract may not include mandatory provisions under a relevant award.  Awards set out the minimum conditions of employment and pay rates for the employees it covers. Moreover, the national employment standards (NES) and the Fair Work Act also dictate the rights and obligations of employees and employers in the workplace.

5. Changes to the Law

Generic employment contracts may be out-of-date or based on changed laws. Therefore, relying on them can be dangerous. Notably, the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (the Act) made significant changes in the following areas. 

Pay Secrecy Clauses 

The Act prohibits the inclusion of pay secrecy clauses in employment contracts. Pay secrecy clauses prohibit employees from disclosing their remuneration and conditions of employment. 

You will likely find pay secrecy clauses in generic employment contracts drafted before the changes occured. Hence, if you were to use such a generic employment contract, you may unknowingly breach your obligations. 

Use of Fixed-Term Employment Contracts 

The Act limits the use of fixed-term employment contracts where: 

• the contract term is longer than two years; 
• a renewal under the contract will increase the term to be longer than two years; or 
• there are consecutive contracts for the employee to perform the same or substantially similar work. 

Key Takeaways

Hiring a new employee can be an exciting yet daunting experience for your business. Nevertheless, a lawyer can draft a specialised employment agreement for you to ensure it:

• reflects your expectations as an employer; and
• grants your employee their legal entitlements. 

As a result, avoid potential employment disputes by remaining compliant with the law. 

If you need help drafting an employment contract tailored to your business, 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 1300 544 755 or visit our membership page.

Frequently Asked Questions