Key Clauses in an Employment Contract

As you may have seen in our Essential Documents article, having an employment contract in place may help to avoid uncertainty and/or misunderstandings between an employer and employee, which may consequently result in a costly and unnecessary legal dispute.

Although not exhaustive, below are the key clauses that should be included in your template contract of employment. Some of these clauses may need to be tailored, depending on the nature of the employment relationship.  


What clause?

Why is it important to include this clause in a contract of employment?


Status of employment


An employee can be engaged on a full-time, part-time, casual, fixed-term or maximum term basis.


To ensure that there are no disputes in respect of Modern Award rates of pay and/or applicable penalty and overtime rates, it is important for both parties to have a clear understanding of the status of employment.



Set off clause

A contractual set-off clause enables the employer to reduce or eliminate any liability resulting from Fair Work modern award classification or monetary claims.

Where employees are provided with remuneration or benefits that exceed the employee’s minimum entitlements, including under any modern award or enterprise agreement, an employer can use the excess amounts to satisfy or “set off” any minimum entitlements that would otherwise be owed to the employee.



Visa clause


Now that Australia’s borders have reopened, many employers are looking to engage or sponsor employees on working visas.


Employers should always check an employee’s working rights through the Department of Home Affairs’ verification portal - Visa Entitlement Verification Online (VEVO) – and note any specific conditions or limitations on employing the individual.


The employment agreement should contain a provision which provides that (ongoing) employment is subject to the employee obtaining and maintaining a current and valid working visa.



Intellectual Property / Confidential Information


Definitions for intellectual property and confidential information should always be included in an employment agreement as it helps to establish boundaries in relation to the ownership, use and protection of valuable and sensitive business information, either generated or accessed during the course of an employee’s employment.



Restrictive covenants


Restraints of trade are key to protecting proprietary interests and preventing employees from engaging in activities with competitors post-termination of employment.


The restraint of trade doctrine as it exists at common law is concerned with balancing the ability of an employer to take reasonable steps to protect its legitimate business, without unreasonably restraining competition.


Generally, the Courts will strike down clauses considered to be unreasonable but refrain from any attempt to rewrite the terms of the restraint.


Restraints should be personally tailored for each employee, depending on their seniority and access to confidential information / client relationships.



Termination provision


Contracts should contain a notice of termination provision. Without this, an employee may be entitled to ‘reasonable’ notice.



Entire agreement clause


An entire agreement clause prevents an employee from relying on statements or assurances provided to employees prior to entry into the employment contract



Noting the above, the start of a new financial year is an excellent time for employers to conduct a thorough review of their template employment agreements to ensure that that all the above clauses have been considered and included as applicable.

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