Understanding the legalese behind employment contracts

Unless you’re a lawyer or a linguist, legal jargon can often leave you scratching your head in confusion. But as an employer, it is important that you understand the legalese behind your employment contracts – If you don’t understand it, how can you expect your prospective employees understand it? 

We’ve compiled a list of some common phrases in standard form employment contracts – along with their plain English meanings - to demystify the confusion surrounding them.   

Award 

In the employment law sphere, an award is not something you attend a ceremony to receive. Rather than something you win, an award under employment law is a legal document that sets out entitlements and obligations specific to the industry that your business operates in. An award sets out things such as pay rates, overtime and other allowances and entitlements for your workers. The award system includes 122 awards and applies to a broad range of industries and occupations. Ensuring your business is complying with the relevant award is critical or it could land you into some hot water! 

Moral rights 

For any business, the protection of your intellectual property (IP) is incredibly important. If you don’t protect your IP correctly, it may give rise to an employee or ex-employee using your IP for their own benefit - and to the detriment of your business. This is why your employment contracts should specifically deal with IP and serve to protect your business. However, it is important to note that employees have moral rights at law in relation to any IP they create in their capacity as your employee. This means that they have the right to be attributed to their work, and to the integrity of their work, despite its value vesting with you, the employer. Therefore, it’s important that you understand both the IP and ‘moral rights’ clause in your employment contracts so that you can make sure they interact correctly and protect your business from any potential claims an employee may make on their IP.  

Probation/probationary period 

Probation periods are an important opportunity to test and observe new workers in their new role, and the characteristics and abilities that they bring to the job during the early days of their employment. Usually, in standard form employment contracts, a probation period is commonly 3 to 6 months long. It's important that there’s a clear understanding between employer and employee as to what will happen during this time, how the employee’s performance will be assessed and what process will be followed leading up to the end of the probationary period.  

Top tip: We generally recommend that you include in your employment contracts the ability to extend any probationary period in case you are unsure as to the employee’s long-term viability. For example, you can insert a 3 month probationary period with the right to extend that period if thing aren’t going smoothly or you need more time to assess performance. Importantly though, probationary periods should not extend beyond 6 months.  

Remuneration 

The remuneration clause in your employment contacts should include the base salary, superannuation, allowances, any benefits that have a financial element (example a work car, tools of trade etc) and other incentives such as bonuses. If the remuneration package changes during employment, you should update the employment contract to reflect this.   

Restraint of trade 

As an employer, the longevity and the prosperity of your business is a matter that you hold close to your heart. But what if your employee “loves you and leaves you”? You need to protect your business in the event that one of your former employees does something to undercut your business.  

That’s where a ‘restraint of trade’ clause comes into play in your employment contracts. This clause, when drafted effectively in your contracts, imposes restraints on existing and new employees in the event of their resignation or termination. This type of clause aims to protect your business interests by limiting the ability of an employee to compete with your business, or poach your staff and/or clients, during and post-employment. If a dispute does arise, this type of clause will help you protect your legitimate business interests, however you as the employer, will need to demonstrate that the enforcement of such a clause is reasonable and therefore it is crucial that this type of clause is regularly checked to keep it up to date in line with case law in this area.  

Next steps 

At Law Squared we understand there are so many factors in your business to consider and employment of staff adds an additional layer of complexity given the risk exposures. If you need any further help in understanding your employment contracts, the team at Employment by Law Squared would be happy to chat. Contact us by clicking here and filling out our contact form.