Introduction
For small businesses with only a handful of employees, it can be tempting to rely on informal arrangements rather than entering into an employment contract. While you may think that this is okay because you know your team, everyone understands their role and there is a level of trust, informal arrangements can create uncertainty and risk.
A well-drafted employment contract is not just for larger businesses; it is an important tool for all businesses, no matter their size, as it sets clear expectations, protects the interests of everyone involved and builds stronger working relationships from the outset.
This article will explore why employment contracts matter, even for small businesses.
Key article takeaways
- Small businesses should not rely on informal employment arrangements, even when they only have a small team.
- Written employment contracts help clarify an employee’s role, responsibilities, pay, hours, entitlements and termination rights.
- Employment contracts can also protect the business through confidentiality, intellectual property and restraint clauses.
- A contract cannot override minimum legal entitlements, including the National Employment Standards.
- LawBase offers a fixed fee Employment Contracts Package to help SMEs put clear, practical employment contracts in place before issues arise.
Why employment contracts matter
Employment contracts are key legal documents that set out the terms and conditions of the employment relationship. These documents provide clarity on important issues such as an employee’s role, responsibilities, pay, working hours, entitlements and termination rights.
If a written employment contract is not in place, disputes can arise over what was agreed when the employee commenced with the business, as conversations during recruitment or throughout the employee’s engagement may not accurately reflect the expectations of either party months or years later.
Having a written contract in place gives both employers and employees a clear understanding of each party’s rights and obligations, reducing the likelihood of disputes or misunderstandings.
Protecting your business
Employment contracts can also include important protections for small business employers, including confidentiality obligations, intellectual property provisions and restraints that restrict certain activities of an employee after their employment ends.
For example, if an employee creates documents, processes, software, marketing materials or other valuable assets during their employment, a well-drafted employment contract can help clarify the ownership of the relevant intellectual property.
Similarly, confidentiality clauses can help protect small businesses sensitive business information including customer lists, pricing information, business strategies and trade secrets.
Additionally, a restraint can prevent an employee from soliciting the business’ clients and other employees for a period after their employment ends.
Reducing the risk of disputes
Workplace disputes often arise because clear expectations have not been set for employees. Issues relating to an employee’s performance, responsibilities, pay or termination can become significantly more difficult to deal with when there is no written agreement in place setting out the terms of employment and how any disputes are resolved.
While a contract cannot anticipate every circumstances that may arise, it provides a reference point that can help employers address problems earlier and more effectively.
It is also important to remember that while having an employment contract in place is valuable, it cannot override the minimum legal entitlements and protections under legislation, including the National Employment Standards under the Fair Work Act 2009 (Cth).
Conclusion
Ideally, every employee should receive a written employment contract before they commence work to ensure all parties understand the arrangement from the outset. It is a mistake to assume that a small team creates only small legal risks as the legal risks and the costs associated with such disputes can often significantly exceed the cost of preparing the correct agreement at the beginning of the employment relationship.
For small business owners, taking the time to put the right agreements in place from the outset can prevent confusion, protect the business and support positive employment relationships as the business grows.
LawBase can assist with preparing employment contract templates. LawBase specifically offers an employment contract legal package to assist business owners.
View our employment contract legal package
Additional resources
Frequently asked questions
Yes, small businesses should use written employment contracts when hiring employees.
Even if the business only has a small team, informal arrangements can create uncertainty about the employee’s role, pay, hours, entitlements, confidentiality obligations, intellectual property ownership and termination rights.
A written employment contract helps both the employer and employee understand their rights and obligations from the outset.
Schedule a Free CallA verbal agreement may still create an employment relationship, but relying on verbal arrangements can create risk.
Over time, people may remember conversations differently, or the business may change in a way that creates uncertainty about what was originally agreed.
A written employment contract provides a clear reference point if questions or disputes arise later.
An employment contract should usually deal with the employee’s role, duties, employment type, pay, hours of work, leave, notice periods, confidentiality, intellectual property, restraints, policies and termination rights.
The right clauses will depend on the employee’s position, the nature of the business and the risks the business needs to manage.
LawBase can help prepare practical employment contracts tailored for small businesses.
No. An employment contract cannot override minimum legal entitlements under the National Employment Standards or other applicable workplace laws.
This means an employee cannot be given less than their minimum legal entitlements, even if they sign a contract saying otherwise.
A well-drafted employment contract should work together with the applicable legal entitlements, modern awards and workplace obligations.
Confidentiality clauses help protect sensitive business information that employees may access during their employment.
This can include customer lists, pricing information, business strategies, trade secrets, supplier information, internal processes and financial information.
For small businesses, this information can be extremely valuable, so it is important to make clear how it can and cannot be used.
Intellectual property ownership can depend on the circumstances, including the employee’s role, what was created and what the employment contract says.
If an employee creates documents, software, marketing materials, designs, systems, processes or other valuable assets, the contract should clearly deal with ownership and use of that intellectual property.
Clear IP clauses can help reduce disputes and protect important business assets.
Yes. Casual employees should also have written employment contracts.
A casual employment contract helps clarify the nature of the engagement, the employee’s casual status, pay, hours, expectations, confidentiality obligations and termination arrangements.
Because casual employment has specific legal rules, small businesses should ensure their casual contracts are properly drafted and kept up to date.
Yes. LawBase offers a fixed fee Employment Contracts Package designed for SMEs hiring or growing teams.
The package includes permanent and casual employment contract templates, core protections such as confidentiality and intellectual property clauses, one revision round, and email and phone support.
This helps small business owners put clear, practical employment contracts in place before issues arise.
Exployment Contract PackageThe information in this article is for general purposes only and you should obtain professional advice relevant to your specific circumstances.
Get Your Employment Contracts Sorted
Clear employment contracts help small businesses set expectations, protect confidential information, clarify intellectual property ownership and reduce the risk of disputes.
LawBase offers a fixed fee Employment Contracts Package for SMEs hiring or growing teams, including permanent and casual employment contract templates, one revision round and email/phone support.
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