Nine important things to consider before signing an employment contract

In Australia, it is not necessary for an employer and employee to sign a written contract to create an employment relationship. Usually an employment contract is nothing more than a statement of conditions that would apply under the relevant Award, or the
general law. Often it’s just a statement of things that have already been documented in negotiations that led to the offer of employment. However, if your new employer asks you to sign a contract they have prepared, there are a few things you should consider before you do.

1.  Ask for some time before you sign

The contract will be the primary document governing the conditions of your employment. If problems arise in the course of your employment relationship, it will be the ‘go-to’ document to help you resolve these. It’s important you understand all the terms in the contract before you sign it.

You are within your rights to ask your employer for some time to review and consider all the terms. Read it carefully and take note of any parts that you do not fully understand, or appear to be different from the negotiations you had when the job was offered to you.

2.  Discuss and negotiate

You may be anxious to sign the contract and commence work but try not to rush this part of the process. If you find things in the contract that you don’t understand or have been omitted, you should speak with your potential employer about them first. The employer should respect you for doing so, as it is in the interests of both parties that the contract clearly states all the relevant details.

The job description should repeat exactly what you have been told your work will involve during your job interview or negotiations. Read it very carefully to ensure you understand what you will be asked to do, particularly in relation to salary and hours of work.

If the contract differs to what you were originally offered, make a time to discuss and negotiate further with your potential employer. You should never feel forced to accept conditions you don’t understand or agree to just because you need the job. This will never work out well for you as you will be unhappy in your position from the get-go. It will lead to all sorts of headaches in the long run. If the employer will not negotiate and alter the terms, you do not have to sign the contract. While this is disappointing, remember that often a better opportunity waits just around the corner!

3.  Understand the probation clause

Most employers will require you to serve a period of probation. This is a trial period allowing you both time to judge whether a long-term employment relationship is right for you. A probation period of 3 months is usually considered reasonable. If the contract offered to you asks for a longer period, you should query the reasons. During the probation period, either party can terminate the employment relationship without any reason. No legal consequences arise if it is. From your point of view, the shorter the probation period, the sooner you can be sure that your job is permanent and secure.

4.  Ongoing versus fixed term employment

It is common for employers to prefer fixed term contracts rather than ongoing positions. However, from an employee perspective, it is better if the position is ongoing as you will have greater job security. You also won’t find yourself continually having to re-apply for your job when a fixed period ends and face the prospect of re-negotiating your salary and conditions yet again. You should weigh this up during your contract negotiations.

5.  Disciplinary clause

There are standard clauses in many employment contracts covering the rights of the parties when allegations of misconduct or poor performance are made. Generally, as long as the contract provides for the employee to be given details of the unsatisfactory conduct, and be given a chance to respond, such provisions are considered fair.

6.  Termination clause

Modern employment contracts usually set out what is considered to be reasonable if a party wishes to break the employment relationship. There should be a requirement that a minimum period of notice be given, and also reference to any Award or minimum requirements set by the general law.

7.  Restraint of trade-restrictions

Be sure to check for any clause that restricts you from working in the same job, industry or place after you leave. This is known as a Restraint of Trade clause.

The law surrounding the meaning and legal validity of this clause is very complex and not always understood by employers or employees … that is until one of them is directly affected by it. Usually the clause will specify a time period and/or geographical area in which the employee cannot work in competition with the employer after the relationship ends.

Legally, Australian courts will not allow an employer to use a Restraint of Trade clause if it unreasonably prevents the employee from earning a living in his or her usual occupation. The shorter the period, and the smaller the area, the more likely it is the Court may consider the clause reasonable. But each case depends on its own facts, the nature of the business/skills involved, the nature of the customer base, and any other specific circumstances affecting the parties.

This uncertainty makes it difficult to negotiate the precise terms of a Restraint of Trade clause. If the clause the employer presents to you seems unreasonable, one could advise you not to ask for changes. This is on the basis that it is so unreasonable a court would not enforce it anyway. However, this would be a time we suggest you seek legal advice (see the next point).

8.  Tax

Consider the tax implications of the employment offering.  For example, salary packaging can seem attractive but if the employer pushes the tax liability on you, you may actually end up worse off because the tax rates for fringe benefits tax may be higher than your personal tax rate.

9.  Seek expert advice

There is no standard form of employment contract. Some are very formal and detailed. Others only set out the basic information, such as job description and salary, and refer to an Award where other conditions can be found. It is advisable, but not necessary, to have an independent person who has some knowledge of employment law look over your contract and explain any parts you do not fully understand.

We hope you found the information in this article valuable but keep in mind it is no substitute for legal adviceIf you need further legal assistance to help you understand your employment contract, please contact us at Know The Law. We have a good network of lawyers who can help you should you need it.


More helpful articles and resources

1. General information about employment law

Adam Ahmed is an Australian international tax lawyer. Adam has over a decade of experience working at 3 of the big 4 accounting firms and one of the top tax law firms in Australia. He is currently the managing director of Adam Ahmed & Co.  This article is reproduced from Adam Ahmed & Co.

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