Creating a comprehensive employment contract

Are you an employer in the process of hiring new staff members? Signing an employment contract is crucial, and understanding what should be included is essential for both parties. This guide will explore the critical elements of an employment contract, ensuring it is practical, legally sound and protective of the interests of both the employer and the employee.

Understanding a Contract of Employment

What Is a Contract of Employment?

A contract of employment is a legally binding document that outlines the agreement between an employer and an employee. It establishes the terms and conditions of work, serving as the foundation for the employment relationship. These terms include job responsibilities, salary, working hours, and various other conditions related to employment.

Purpose of a Contract of Employment

The primary purpose of an employment contract is to establish the conditions of work, delineate the rights and responsibilities of both parties and minimise misunderstandings. It acts as a legal document that provides a basis for dispute resolution and defines provisions for the duration of the employment.

Key Provisions in an Employment Contract:

  • Job Title and Description
    The contract should clearly articulate the job title, description, responsibilities and obligations of the employee, providing a comprehensive overview of the role.
  • Working Hours
    Specify the nature of the position (part-time, full-time, etc.) and clearly outline the expected working hours, including details about break duration.
  • Salary/Compensation
    The contract must provide explicit details about wages, including the salary, payment periods, any relevant leave entitlements and compensation awarded to the employee.
  • Probationary Period
    If applicable, outline the length and requirements of the probationary period, offering clarity on the conditions for transitioning to a permanent role. Typically, a probation period is 3 months.
  • Termination Clauses
    Clearly define the termination requirements for both parties, including any provisions related to severance pay, if applicable. Termination can be immediate in some situations where the conduct of the employee is deemed to be so serious that it justifies immediate termination. However, in most cases termination can only occur after a period of performance management.
  • Confidentiality Clauses
    Detail any restrictions placed on the use of workplace-acquired information by the employee, safeguarding the confidentiality of sensitive business information. Depending on the role it may be that an employee has access to confidential business information such as business plans, customer details and pricing policies. Protecting this information can be vital.
  • Intellectual Property Rights
    Include a clear statement specifying ownership of the work completed by the employee during their employment, protecting intellectual property rights. Employees can retain rights in intellectual property they create. It is important that ownership of any created intellectual property remains with the employer.
  • Dispute Resolution
    Specify the provisions for resolving disputes between employees and employers, ensuring a fair and structured process.

    Legally Binding Nature of Employment Contracts

Employment contracts establish a legally binding relationship between an employer and an employee. Breaching the contract can lead to legal action and remedies for the aggrieved party. It is crucial to note that any provisions in an employment contract that do not comply with industry standards or applicable laws will not be binding and therefore, not enforceable.

Necessity of Written Employment Contracts

There is no law which requires an employee should have a written employment contract. However, having a written employment contract is vital to establishing the rights and responsibilities of each party and ensuring that necessary provisions are in place to protect the best interests of the employee and employer.

Having a written contract is especially important to avoid disputes as to the responsibilities and obligations of the parties in the relationship by clearly outlining the terms and conditions of employment.

It is important to note that under the Fair Work Act 2009, all employees are entitled to a minimum set of working conditions, regardless of whether they have a written contract. This may include wages, leave entitlements, and other related rights and obligations. An employer cannot contract out of these minimum standards.

Employee Termination and Notice Periods

Termination can be complicated. Termination could be for redundancy, performance related issues or serious misconduct. How much notice is required will depend on the circumstances taking into account the reason for termination, terms of the contract and tenure of the employee.

Exception to Notice Requirement

Casual employees or situations with extenuating circumstances may be exceptions to the notice requirement.


Drafting a comprehensive employment contract is crucial for a transparent and mutually beneficial working relationship. It is not a case of one size fits all. Covering key provisions, ensuring legal compliance, and seeking expert guidance contribute to the success of your business.

Andrew Lord