A recent case heard by the FWC[1] highlights the problems that follow when employment contracts are poorly drafted. Next Residential Pty Ltd, a building company in Perth, attempted to trade off award provisions by paying a higher annualised salary but got itself into legal trouble when it failed to identify the applicable award or specific provisions it ousted.

A former employee claimed that her employer owed her $29,000 for overtime and lunch breaks worked as directed. However, her employer insisted that she had no entitlement to this as she was paid an annualised salary in accordance with her employment contract. Furthermore, her employer denied that it directed the employee to work overtime or through her lunchbreak and maintained that any additional hours worked by the employee were set off against early finishes, late starts and half days worked.

The employee’s contract stated that her salary was “inclusive of any award provisions/entitlement that may be payable under an award”. The FWC found that the contract failed to identify the applicable award it referred to, nor did it indicate which award provisions were to be satisfied by the payment of the annual salary. The FWC stated that the use of broad based generic terms in relation to her annual salary prevented the employment contract from being drafted with sufficient certainty.

This case acts as a reminder for employers to take care when preparing employment contracts, especially when annual salaries are used to counteract specific award provisions. In those situations, the award may require that the contract specifies the precise award conditions that are being replaced.

It is imperative that the terms and conditions of the employment are correctly documented to avoid confusion about the rights and obligations of employees and employers. Typically, well drafted contracts include express terms such as:

• Employment status (permanent/full or part time, casual)
• Commencement date
• Position description and duties
• Probation period
• Remuneration (can include bonus, commission and incentive arrangements)
• Leave entitlements
• Confidentiality obligations
• Termination

Depending on the position, contracts may also include restraint of trade clauses. Employers must be mindful that the employment contract cannot provide for terms and conditions less favourable than the minimum standards as set out in the NES, award or enterise agreements.

Lessons for employers

• Employment contracts should in writing so that the terms and conditions regulating the employment relationship are clear to both parties.
• Care should be taken to ensure the employment contract is drafted in accordance with the terms of the applicable award.
• Consider whether workplace policy documents are best kept out of the employment contract. Not only does this give greater flexibility for employers to add or amend policies, but an employer may be exposed to a breach of contract claim if it fails to abide by a policy that is included in an employment contract.
• If your employee is being paid an annualised salary or a rate that is above the award rate and you are unsure of the correct contract terms – seek advice as different requirements apply depending on the type of payment and the terms of the specific award.

Summary

A recent FWC decision highlights the risk for employers when employment contracts are poorly drafted. Therefore, the importance of clarity in Employment Contracts cannot be understated.