Top 5 myths about employment contracts

The contract of employment is the first port of call when determining the rights and obligations of an employee and employer. Unfortunately, contracts are complicated. Read on as we dispel five myths to help make things simpler.

1.  The contract must be signed: while it is always preferable that an employee sign their contract of employment, it is possible to enforce a contract in the absence of a signature in certain circumstances. If an employee has demonstrated unequivocally through their conduct an intention to be bound by the terms of an unsigned contract, they often will be.

2.  Paying “above the award” means the award doesn’t apply: rates of pay and award application are different concepts. An employee who is paid in excess of the minimum rate of pay prescribed by an applicable award will still be entitled to the benefit of the other provisions of that award – for example, those regarding the manner of payment of wages and the process that must be followed in the event of a redundancy.

3.  A worker will be a “contractor” if the contract says so: the way in which a contract describes a worker is just one aspect of determining the nature of the relationship between that worker and the organisation that engages them; it is not final. Other relevant considerations include:

  • the degree of control exercised by each party; 
  • the way in which the worker is paid; and
  • whether the worker is held out to represent the organisation.

4.  Restraints of trade are never enforceable: restraints of trade are among the most complex of contractual provisions, and with good reason. Restraints that, for example, have insufficient regard to the nature of an employee’s role or are against the public interest will not be enforced. But if drafted properly, they can and will often be an appropriate means of protecting an employer’s legitimate interests.

5.  Contractual terms won’t change over time: employers should not assume all is said and done once an employee signs the contract. If, for example, an employee receives a significant promotion or new legislation is introduced, it is possible certain terms will become inoperative or new terms will be implied. Contracts should be reviewed regularly to ensure they are up-to-date and reflective of the employment relationship as it stands.

If you think your contracts might need a spring clean, please don’t hesitate to contact any one of our legal team.

​To Deed or not to Deed? That is the Question

Knowing when to offer terms to settle a matter (or “Deed” a person) is as much of a strategic decision as it can be a commercial decision. Offering an employee something in excess of their contractual or statutory entitlements can be the ideal sweetener for convincing them to agree to a release from existing or potential legal claims. It can also certainly save an organisation a lot of time and worry associated with litigation. Here’s our take on calculating your organisation’s exposure and considering if you need to do the Deed.

Consider a Deed if:

  • You’re in the midst of litigation, or there is significant potential for litigation: Even if you think your business might win, it is important that you do a cost-benefit analysis as to whether it is worth your business defending a claim, or if it would be better placed taking steps to bring the matter to an end. Standing on principle can, and likely will, cost more time and money than you bargained for. And even if you do “win” (in the legal sense), a court decision can be appealed – more than once. Strategically and commercially, it can be better to put a Deed on the table to put a matter to bed than sink resources into litigation.
  • There is significant financial or commercial risk to your organisation: If a claim or other potential consequences of a claim (for example, penalties imposed under legislation, which in certain circumstances can be up to $54,000 per breach) are significant from a financial or commercial perspective, they can threaten the ongoing viability of your business. In those circumstances, it is important to consider the risk of the financial impact of defending a claim or even an adverse decision against your business against the shorter term “pain” that may attach to settling the matter under Deed.
  • There is a significant reputational risk to your organisation: Depending on the type of claim involved, litigation or threatened litigation can have a significant impact on the reputation of your business. This is especially so if the matter is a sensitive one or one that may peak the interest of the media (for example, underpayment of employees or the termination of a high-profile executive’s employment). One way of minimising these risks is to resolve the matter under Deed, as Deeds typically contain a confidentiality clause requiring the parties to keep their lips sealed about the existence and terms of a Deed.

Reconsider the Deed if:

  • The cost of paying a ‘premium’ to settle is not justified in the circumstances: It is unlikely that an employee will enter into terms of settlement (and a Deed) unless they perceive that they are receiving benefits over and above their statutory or contractual entitlements. In many cases, and typically where executives are concerned, the employee’s contractual entitlements are far in excess of their minimum statutory entitlements, and the costs of defending a claim in respect of those contractual entitlements, when considered against the prospects of successfully defending the claim, can be justified by your business.
  • Settling the claim is unlikely to be in the best interests of your business: There will likely be occasions when principle triumphs over concerns about the potential cost of a claim in your cost-benefit analysis about whether to settle a claim. In those circumstances, you should be clear about why your business will not pursue a commercial settlement – whether it is to establish a precedent or because you are confident that your business can support its position. It is important to remember though, that how you communicate your business’ position may impact on your strategic options further down the track. For example, if circumstances do change, it remains open to your business to pursue settlement, but the likelihood of settling will be impacted by the relationship between the parties at that time.

There is a growing level of understanding about the commercial and strategic advantages of entering into a Deed – so don’t feel like it might appear as though your business is admitting defeat if it does enter into a Deed. However, it is also important to consider how the resolution of a matter will be communicated, as sometimes the perception created by the circumstances of a matter being resolved (including entering into a Deed) can be more damaging than your business taking the risk and losing.

These are general examples and every situation is different and has its quirks. If you need assistance with drafting, negotiating or entering into a Deed of Release, call PCS today.

Top 5 Best Practice tips for Commissions

In many industries, remuneration by way of commission is part and parcel of their business model. In others, it is used as an ad hoc way to provide financial incentive for their employees. No matter which approach an organisation takes, there are number of significant issues that the organisation needs to consider when implementing commission arrangements – here are our Top 5.

1. Commission Only Arrangements – generally it is unlawful to pay an employee on a commission only basis unless the employer is permitted to do so by an applicable Award. For example, the Real Estate Industry Award 2010 permits remuneration by commission only where as the Commercial Sales Award 2010 does not. Irrespective of whether they are Award-covered or not, employees must be paid at least the National Minimum Wage or the minimum wage set by an applicable Modern Award, whichever is the greater.

2. Know the Award requirements – Some Awards contain administrative requirements that employers and employees must adhere to before a commission scheme will be operative, for example a requirement that the employer must provide written confirmation of the commission scheme’s terms within 14 days of the employee commencing work. Failure to comply with the requirements of an Award may result in the commission scheme being ineffective and can cost an employer up to $54,000 per breach so it’s worth confirming your organisation’s obligations.

3. Commission as “earnings” – Organisations need to take care when determining when commission will be included in the calculation of employee entitlements. For example, commission payments are almost always considered ordinary time earnings for the purposes of calculating superannuation guarantee contributions, however they need not be taken into account when calculating paid leave entitlements (which are generally based on an employee’s base salary). In the context of unfair dismissals, commission payments are not counted towards earnings when determining whether an employee’s income takes them over the high income threshold as commissions are typically contingency payments that cannot be determined in advance.

4. Strategy – Commission structures should be designed around your organisation’s goals. Encourage teamwork with group sales targets. Keep motivation levels high and steady by matching the frequency with which you pay commissions with the average sales cycle. Think about the proportion of total remuneration that will be salaried vs. commission based, keeping in mind employee’s minimum entitlements as referred to above. Ensure that the commission arrangements are encouraging and achieving the desired behaviours. For example, Aggressive salespeople may be driven by high commissions but if client service and long standing relationships are of more importance, it may be more suitable to pay a higher base salary to retain loyal employees.

5. Clarity – Avoid unnecessary disputes and possible litigation with employees by drafting a clear commission policy. Simplicity is best and can serve to keep employees motivated if they are certain of what they need to do to earn a commission.

PCS can assist your organisation to take an innovative approach to incentivising and rewarding employees through commission schemes. Get in touch with us today to discuss your organisation’s needs. 

The Great Penalty Rate Debate Continues

The introduction of a new public holiday in Victoria this weekend (Grand Final Eve public holiday on 2 October 2015) and the imminent public holidays in other Australian states and territories have stirred further debate about penalty rates and their role in a modern workplace relations system.

Most Australians are excited about the prospect of a public holiday, and consumers expect that supermarkets, retailers, restaurants and cafés will still be trading on public holidays and weekends. For example, how would Melbournians fare if they weren’t able to get their usual piccolo latte while picking up a last minute outfit down Chapel Street for their Grand Final Day BBQ the next day? 

However, public holidays can come at an enormous cost to the national economy and business owners, with little thought given to matters such as who bears the increased cost of wages when public holiday penalty rates are applied. 

According to PwC Australia, the new Grand Final Eve public holiday alone may cost the economy as much as $852 million as a result of the closure of businesses that would normally be open on a Friday. 

The cost to businesses that remain open is also potentially significant, given that a majority of employees are likely to be entitled to penalties rates of as much as two and half times their regular wages for working on a public holiday. 

The Australian Government is under increasing pressure from stakeholders in affected industries (including retail, hospitality and entertainment) to make changes to the current penalty rates system, particularly with respect to new public holidays and Sunday penalty rates. 

In August of this year, the Productivity Commission’s draft report into Australia’s workplace relations framework was released. This included, amongst other things, recommendations that:

  • employers not be required to pay for leave or any additional penalty rates for any newly designated state and territory public holidays; and
  • Sunday penalty rates that are not part of overtime or shift work be set at Saturday rates for the hospitality, entertainment, retail, restaurants and café industries. 

Defenders of the penalty rate regime argue that it is necessary to compensate employees working “unsocial” hours and that the increase in revenue for businesses that attaches to public holidays largely offsets any increase in wages.

The position of those who support the removal of penalty rates is that, for many, what was once “unsocial” is now “preferred” as a result of the changing nature of society and work. For example, for many groups, such as university students, working weekends and public holidays often fits in better with their existing commitments. 

Further, with increases in technology and globalisation allowing people to work from anywhere at any time and across multiple time zones, the concept of a regular working week with set social and unsocial hours is becoming more and more diluted. 

It is also argued that it is far from guaranteed that businesses will experience sufficient increases in trade to offset the penalty rates that are payable. The alleged increase in revenue, unlike the resulting penalty rates, is not a one size fits all approach. 

With most workers having the day off on Friday in Melbourne and Monday in other major metropolitan areas (including Sydney), tumbleweeds are predicted to be rolling down the main streets of the CBD. This may not bode well for many café owners and retail outlets and others within affected industries. 

It is unlikely that these issues will be resolved in the immediate future and, while the debate continues, penalty rates still apply. It therefore remains critical for employers to understand and comply with their obligations in relation to penalty rates. 

PCS can assist you if you have any questions about your business’ obligations in relation to penalty rates or how to comply with them.