A well drafted employment agreement staff is vital for the stability of your business.

Not having them puts the business at serious risk of customer defections and increased overheads in staff recruitment.

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Employment Agreements

What is an Employment Agreement?

An employment agreement is a contract between an employer and employee that clearly defines the terms and conditions of the employment.

Depending on the nature and requirements of a business, the employment agreement can be simple or detailed. However, it is important to make sure that the agreement distinctly states the rights and responsibilities of each party to ensure that future misunderstanding and disputes are avoided.

 

What is included in an Employment Agreement?

An employment agreement will generally include the following:

  • Duration of the position
  • Performance standards
  • Remuneration components
  • Competition Restraints
  • Termination
  • Confidentiality and protection of customer lists etc.
  • Specific conditions e.g. hours of work, annual holidays, superannuation etc.

Benefits of an Employment Agreement

Defines Expectation

An employment agreement clearly defines an employee’s responsibilities and expectations- and the remuneration that is payable if adequate performance is achieved- before they start in a position.

A term that non-award staff must “work as many hours as is necessary so as to perform the role and all assigned tasks” makes expectations very clear.

Division of salary into a base component- with additional sums for process compliance, productivity achievement and revenue outcomes – can all be documented and recorded.

Protects Intellectual Property and Confidential Information

To protect a company’s intellectual property, client lists, business processes and other confidential information, a confidentiality covenant is essential.

The covenant should prevent employees from making copies or otherwise recording by any means – including in social media contact lists – customer details and the contents of strategic and business sensitive information.

Preserves Goodwill

Employers certainly don’t want staff to leave their business, set up in opposition and take their customers with them. But that’s exactly what can happen if a carefully crafted non-competition restraint is obtained from the employee.

Post-termination competition restrictions must however be reasonable and risk being struck out if they unfairly prevent the employee from earning an income or engaging in fair competition.

Performance monitoring

The agreement must also regulate processes and risks employers face employees regarding performance management, termination and disputes.

A well- crafted agreement will specify the processes to be undertaken so as to provide clarity and avoid uncertainty.

Non-compete restraints

What is a non-compete restraint?

A business is entitled protect its goodwill by preventing staff from dealing with its customers after their end of the period of service. On the other hand, a former employee can’t be prevented from earning a living and is generally entitled to compete with its former employer.

Thus there are two competing considerations. In fact, any “restraint of trade” is illegal unless it is for the bona fide projection of goodwill arising out of  employment or similar situation.

The courts have adjudicated many employment agreement “restraint of trade” or “non-compete” clauses over the years have been struck down for being unduly restrictive.

What are the elements of a valid binding “non-compete” clause.

An agreement not to solicit directly or indirectly or be engaged on behalf of the employer’s customers for a number of years (depending on the type of business) is usually reasonable and enforceable.

Likewise an agreement not to set up shop within a particular distance of the employer’s premises for a number of years, is also usually reasonable and enforceable. The distance (expressed as a radius) is dependent on the nature of the particular business. For a café, a distance beyond 1 km might be regarded as unduly restrictive and therefore void. However for a dentist, a distance of 10 km radius might be considered reasonable.

A carefully drafted non-compete clause can include an enforceable and worthwhile covenant that is not in danger of being struck down and can confidently be relied on even to prevent – by injunction – former employees from breaching their clear obligations.

An employment agreement with appropriate non-competition and confidentiality clauses definitely adds value to your business.

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