In the lead up to the end of financial year, there are likely to be many employers conducting performance and salary reviews, and issuing updated employment contracts.

Some may also onboard new employees, using their ‘standard’ contract, as they always have.

These seemingly routine practices can get employers into strife said employment and workplace safety lawyer Will Snow, who is a partner at Finlaysons.

He stressed the importance of carefully reviewing each employment contract before it is issued and signed.

“I saw a situation in which a junior admin person was given the task of issuing contracts for onboarding new employees,” Snow said.

“This poor person mistakenly swapped the templates for the junior and more operational staff with that of the senior executive staff.”

According to Snow, “dozens” of contracts were issued to junior staff at the appropriate salary, but with a 3-month notice period.

“That immediately crystallised the problem, where if you did need to terminate someone because of performance or conduct, you would be obliged to give them three months’ notice or pay them in lieu – and that is big dollars.”

When the law and expectations change

Snow said another problem with a ‘set and forget’ approach to contracts is that the law and expectations change.

One example is employment contracts entered into or changed after 7 December 2022, which cannot include pay secrecy terms.

“There’s data overseas that says, if people can talk about pay more openly at work, then that goes towards narrowing the gender pay gap,” he explained.

To work from home – or not

Snow advised that contract negotiations can often prompt a discussion about rights, entitlements and expectations in the workplace – including the flexibility to work from home, whether it is in the contract or something that can be agreed on as time progresses.

The latter, he said, would be a more likely scenario as it benefitted employers and employees who wanted flexibility for family obligations and other commitments.

“I think many employers would be reluctant to set in writing that a particular part of the work will be done from home on any particular day and indefinitely,” he said.

“The solution needs to suit the current and possible future issues that arise as needs change.”

Remuneration done right

How remuneration is addressed in contracts is an area that Snow feels needs to be better managed by employers.

“It’s amazing how often bonus terms get argued and become problems,” he said.

“Some employers think that if a bonus is discretionary, that means they can just make up their mind for whatever reason.

“But courts have held that you can’t exercise that discretion unreasonably.

“If a worker has hit the targets, done everything that bonus requires, and the business has the capacity to pay – you can’t decide as a boss not to pay the bonus.”

Fair and unfair non-compete clauses

He said another issue often arising from employment contracts was the obligation owed to the business during employment and afterwards.

“Restraint or non-competition obligations are very common in contracts, but courts will only uphold them so far as they are reasonable and protect the proper interests of a business,” he explained.

“I could say, ‘after you leave, you can’t try and take our customers that you’re working with for six months’ – and that would in many situations be reasonable.

“But if I said, ‘after you leave, you can’t work in your occupation, where you’ve got the most capacity to earn money to support your family, for five years’ ­– that’s very unreasonable.

“A court would not uphold that, except in very extreme circumstances.”

When to stand your ground as an employer

For a business that is offering reasonable non-compete terms, this is one area in which Snow said employers should not negotiate.

“If it really is important to have that restraint or non-compete obligation, stick to it, or only modify it as far as is reasonable for you. Because if that gets taken off the table, then there can be harm that gets caused your business.

“The other issue is ongoing obligations after you leave. People can work in positions where they get very close to the business information and customers.

“They need to keep that information confidential forever. You can spell that out and if it’s breached, as the employer or former employer, you can take action.”

“If it’s signed, it’s binding.”

Snow stressed that employers should have each and every contract looked at in detail, not necessarily by a lawyer, before an offer is made.

“If its signed it’s binding. Even if it’s unsigned, usually the parties to the contract will be bound to it,” he said.

“You can get out of it, but that’s usually only if the other side is tolerant and understanding and they want to go with the flow.”

If this doesn’t happen, he said it can be a costly legal exercise. So, what of those earlier contracts issued by the junior staffer?

“The company stuck by them.”

It is a timely warning to all businesses as they head into end of financial year.

Finlaysons is a leading independent corporate and commercial law firm in Australia, with offices in Adelaide and Darwin, working with clients across Australia and internationally.

Will Snow offers expert advice in employment and workplace safety law, cutting through the complexity and giving clear guidance, advice and strategy to deliver results for his clients. Connect on LinkedIn to follow Will’s short, concise videos on tricky HR issues, or download a free copy of The Compact Legal Guide to HR.

This article provides general information only and does not constitute legal advice. Do not act on the basis of this content, but seek specific advice from your legal adviser.