As the end of another financial year approaches, now is the perfect time for employers to review and update their employee's existing employment agreement.
Employment agreements are usually reviewed carefully by both the employer and the potential employee just prior to, or at the time of signing. They are then often placed in the employee's personnel file and forgotten about until the need arises for the employer to exercise its rights under the agreement. If this occurs a number of years after the written agreement was signed and in that time the employee's position and/or responsibilities have changed, there is a real likelihood that a Court may find the written agreement has come to an end and been replaced by a new oral employment agreement which does not contain any of the clauses which were set out in the previous written agreement. This means that all the conditions in the previous written agreement relating to termination notice, post-employment restraints and other employer protections will no longer apply.
It is therefore important that employment agreements are reviewed regularly to ensure their terms are still relevant to the employee's position and responsibilities and, that they comply, in all respects with the current legislation.
The problem for employers, however is that employees cannot be forced to sign a new employment agreement. An employee will usually only agree to sign a new employment agreement if the employee is provided with an incentive to do so.
There are two key occasions where an employer is in a position to require an employee to sign a updated employment agreement, without offering any extra incentive. The two occasions are when:
- The employee's salary is being increased, which usually happens around the end of the financial year; and
- The employee is to be promoted to a more senior position.
Tips for Reviewing Existing Employment Agreements
When reviewing any existing employment agreement to decide whether it needs updating, particular attention should be paid to the following matters:
- Is the position and duties still accurate?
Courts have found that a written employment agreement can be displaced by a new oral employment agreement where the employee has assumed different or additional responsibilities to those set out in the written agreement. Any review of an existing agreement should look closely at whether the position and duties, as set out in the agreement, are the same as those which the employee is currently performing.
- Does the agreement comply with the current legislation?
The Fair Work Act and the National Employment Standards commenced on 1 January 2010. It is likely that any agreement entered into prior to that date would not have been drafted with the provisions of the Fair Work Act in mind and will require review and updating accordingly.
In respect of executive employment agreements, if the employer is a public company, it is critical that employee agreements comply with the provisions of the Corporations Act and the ASX Listing Rules in relation to the payment of termination benefits to directors and senior executives.
- Is the termination notice period still appropriate?
An employer may wish to impose a longer notice of termination period for senior employees than the notice period for more junior employees.
- Are post employment restraints appropriate?
Unless there are express terms to the contrary in the employment agreement, an employee will be able to commence work for a competitor or go into business in competition with the employer as soon as the employment agreement is terminated. The more senior the position the employee has with the employer, the longer the employer may wish to have the employee bound by post-employment restraints.
Post-employment restraints will only be enforced by a Court to the extent that they are reasonable to protect genuine and legitimate interests of the employer. Therefore, it is important that any post-employment restraints are commensurate with the level of seniority of the employee's position.
- Does the employment agreement protect the employee's confidential information?
Although there are common law protections available for a businesses' confidential information, an employer may also wish to include express terms protecting same in an employment agreement. The more senior the position the more likely it is that an employee will have access to an employer's confidential information. A company's confidential information is often one of the company's core assets. It is therefore important to ensure that if an employee moves into a role, confidentiality provisions of the employment contract are appropriate for the position.
- Does the employment agreement correctly deal with remuneration issues and policies?
Often, the more senior the position, the more sophisticated the remuneration package. If there are salary sacrifice components or a bonus scheme to which an employee may become entitled as part of a salary increase or promotion, at least the general nature of these benefits - for example how the bonus scheme works, the KPI's to be achieved, or whether the scheme is discretionary, should be recorded in the employment agreement.
Employment agreements should also be reviewed to determine whether:
- Any company policies apply to the employee; and
- If any company policies should be expressly excluded and/or included in the employer's agreement.
Some of the employer's policies may not be relevant to senior employees.