When your startup enters the hiring phase, you should be aware of several new risks and considerations. Hiring employees, or even bringing on independent contractors, should be done with caution and due care – otherwise, you risk potentially exposing your business to unnecessary liability.
So, what do employment lawyers do, anyway? It’s wise to consider hiring a lawyer with experience in employment law. Having legal expertise in this area will allow your lawyer to assist in drafting and reviewing employment contracts, contractor agreements, and other employee documentation such as contract reviews and potential employee grievances.
An employment contract is required to best mitigate the risks that can come with hiring. A contract of employment is essentially a written agreement between an individual employee and your company, the employer, which defines the enforceable terms of their employment. This may cover everything from pay schedules to non-compete clauses.
The clauses in the contract (what should go into an employment agreement)
Your lawyer will tailor contracts as required, but here’s an overview of the main components. Here are nine things to make sure you get right in your employment contracts:
- The job description
An employment agreement should include a complete job description with tasks, duties, and goals clearly outlined. These must be specific to the role, within reasonable expectation, and of course, legal.
- The financials
Ensure the contract covers salary or payment, superannuation offered, payment schedules, and PAYG tax details. Pay levels must be in accordance with Australian legislation.
- Time off arrangements
Leave is heavily regulated by legislation and regulations, but an employment contract will usually state the different types of leave, how many days are available, and what processes are required in order for the employee to use their leave. For example, many employment contracts require the employee to produce doctor certificates to make use of sick leave.
- Confidential information and non-disclosure
Including a non-disclosure or confidentiality clause in your employment contracts is always wise. Your company must prioritise maintaining any trade secrets, intellectual property, or proprietary knowledge, especially when an employee may leave under challenging circumstances.
- Intellectual Property
For most startups, intellectual property is the name of the game, and the main source of value in the business. Accordingly, it’s very important for employment agreements to have really watertight IP clauses to ensure that all IP properly vests in the company. Smart contract writers also include a clause that says that any inventions which the employee comes up with during the course of the employment will also belong to the employer.
- Company policies
Company policies covering all aspects of the business, such as the use of IT equipment, should be provided alongside the employment contract. This ensures new hires are aware of their obligations, and your company is protected in the case of a contract breach.
- Termination clauses
Should things head south with an employee, having a solid termination clause baked into the original employment agreement will help your company protect its interests while providing a fair outcome to leaving employees.
- Non-competition and restraint clauses
These are clauses that aim to stop the employee from starting (or working for) competitors, poaching staff or talking to customers and suppliers after termination. Whilst they are not always 100% enforceable, it is still extremely important to include these in. Because the enforceability of these clauses is quite tricky, they should always be drafted by a professional, expert lawyer who is familiar with navigating the nuances of how to make these clauses actually work.
- FairWork Australia’s requirements
Lastly, your employment contracts must abide by the rules and legislative requirements dictated by FairWork Australia. This includes obligations on the part of your company to provide certain types of information and documentation. An employment lawyer well versed in this can ensure you don’t fall astray of these critical legal guidelines.
The contract type (What type of employment you are offering)
Depending on the role requirements and your company’s budget, you will also need to choose the right type of employment contract. This can be a little more complicated than just choosing between full-time and part-time. There’s not always a short answer to “what is a short-term contract” either. An employment lawyer can provide guidance on your obligations under each type of employment, as well as the complexities involved if you would like to offer startup-specific perks such as employee share schemes.
You’ll generally need to choose from the following options.
A full-time employment agreement typically ranges from 35-40 hours per week, depending on your industry standard. Full-time employment agreements are often salaried and include superannuation, multiple types of paid leave, and other benefits. These contracts are ongoing and require notice of termination or redundancy.
Like full-time contracts, part-time employment contracts are ongoing, require notice of termination, and employees are entitled to the same benefits and leave packages as the full-time employees. These entitlements are, however, on a pro-rata basis tied to the standard hours worked
While fixed-term employment contracts are usually tied to a project or to fill a temporary staffing need, these contracts can be full-time or part-time. A fixed-term agreement still entitles the employee to the same benefits and leave as a permanent employee for the duration of their contract.
A casual employment contract is markedly different from the above types. Casual employees are not entitled to any type of paid leave, work irregular hours as required, and can turn down offers of a shift. In addition, casual employees can be terminated with no notice. However, the legislated hourly rates for casual workers include loading (ie, higher minimum pay rates) to account for these terms.
An independent contractor, also often called a freelancer, is self-employed. Freelancers generally hold their own insurance, set their own fees, and are not considered an employee of your company. It is, however, essential to define the working relationship in the contract. If a contractor working solely for your company claims they meet the definition of an employee, you may be liable for entitlements such as superannuation. Still, even defining it in the contract will not necessarily protect you from the “contractor” being deemed an employee by the tax office or the Fair Work Commission. You should always seek expert advice on this issue.
With the complexities of choosing a suitable employment agreement, drafting solid terms and conditions of employment, and defining your supporting policies and documents, hiring can be fraught with risk for a new company. A startup lawyer with employment law experience is highly recommended when engaging in this process.
At UX Law, we specialise in supporting startups with their legal needs. We provide startups and entrepreneurs with practical legal solutions to protect and empower their business. Reach out for a free consultation to learn more.