DIY contracts could cost you money later

Whenever an employee comes to us for advice about a dispute with his or her employer we have a standard opening question – do you have a copy of your employment agreement?

Sometimes employment agreements can hold a simple answer to the dispute, but other times they can create a raft of problems – and mainly for the employer.

For many small businesses it may seem like a great money-saver to draft your own employment agreements for your employees.

The perks of drafting your own employment agreements, however, could be significantly outweighed when disputes arise and you find out that certain terms you have included in your DIY employment agreements are unenforceable, unreasonable, incomplete, or illegal (and in the worst cases, all of the above).

I know what you are thinking – but there are employment agreement templates online that tell you what you can include and give examples of clauses to add. And you are right – there are.

What those templates and websites do not have, however, is a sound understanding of your business, and how certain clauses of an employment agreement may impact on others.

You can write whatever you like in an employment agreement and if both parties sign, then happy days.

However, when a dispute arises, employers may find themselves in hot water during mediations, or before the Employment Relations Authority or Employment Court, with a poorly drafted employment agreement that even the employer may not understand.

Employers then face having to cough up compensatory money to their aggrieved employees, as well as penalties for non-compliant employment agreements.

Below are some examples of clauses I have come across in employment agreements that have been drafted by the employer, without obtaining legal advice, and points that the employer needed to consider.

Example 1: ‘‘The Employee will be prohibited from working in a similar industry to that of the Employer for a period of two years following the termination of employment’’.

The employer thinks that they have successfully added a restraint of trade. However, when they are only paying their employee an annual salary of $45,000, this restraint is likely to be unreasonable and unenforceable if it was challenged by the employee.

Example 2: ‘‘The Employee will work as many hours as required to get the job done’’.

Recent law changes place a higher burden on employers to be specific as to how many hours a week the employee will work. Where possible, an employment agreement should provide a guaranteed minimum number of hours, or, at the very least, an indication of the hours to be worked and where flexibility in those hours may occur.

Example 3: ‘‘The Employee is a casual employee. They shall work 30 hours per week.’’

Broadly speaking, casual employees have no pattern of work, no expectation of work, and no obligation to say yes to any work that is offered.

As soon as a pattern of work arises, even if it is only every Wednesday from 3-5pm, the employee is not a true ‘‘casual’’.

If a dispute was to arise, the true nature of the relationship will be determined, which can cause problems for the employer.

Example 4: ‘‘The Employee is prohibited from engaging in any other employment whatsoever’’.

The law now requires employers to include a ‘‘genuine reason’’ for why they wish to prohibit the employee from having another job in their employment agreement.

This requires consideration of potential health and safety issues, commercial obligations, or confidential information concerns of your business.

The law continues to change and different obligations are placed on employers frequently, meaning employment agreements should be regularly checked over and updated.

Unfortunately, it is pretty much impossible to create a ‘‘bullet proof’’ agreement.

What is possible, however, is creating an employment agreement that complies with the law, covers potential areas or concerns employers may not have considered, supports the individual needs of a business, and will at the very least, be enforceable if a dispute with an employee ever did arise.

Whilst obtaining legal advice may seem like an expense that you want to avoid, speaking with someone in person allows for your individual needs to be understood and any legal issues can be identified.

This can ensure an effective agreement will be drafted that best reflects your business and protects your position as an employer, which could save you more money in the long run.

Alice Anderson is a law graduate at Preston Russell Law.