While employers often take great care to ensure that their employment agreements robustly protect their interests, far fewer employers regularly review them to ensure that they are up to date.
Where an employee’s role or responsibilities have changed since they were first employed, their employment agreement may become out of date and, in some circumstances, may no longer apply at all.
It is appropriate when an employee is receiving a promotion or a pay increase (for example, after an end of financial year review) to review the employee’s contract to ensure that is still appropriate. If it is no longer adequate, employers should seek to have the employee sign a new agreement which does adequately address the new circumstances. Employees cannot be forced to sign a new contract, but it can be made a condition of a pay rise or promotion that they do so. In these circumstances, employees will generally be quite willing to sign a new agreement.
The main areas of the employment agreement that may need to be reviewed include:
- Restraints – If the employee has a more senior role than previously, it may be appropriate to have stronger restraints against the employee competing against you or stealing customers from you after the employment ends.
- Is the position description still accurate? It is important to update this. There have been cases where the description was no longer accurate with the result that a Court has found that there is a new (unwritten) employment agreement and that the existing written employment agreement no longer applies. This can have serious consequences, such as the employee being entitled to “reasonable notice” of termination (which, depending on the circumstances, could be several months) rather than the 4 weeks’ notice (or 5 weeks for employees over 45 years of age) that most employment contracts provide for.
- Notice of termination – More senior and experienced employees are obviously harder to replace than more junior ones. It may therefore be appropriate to have a longer notice period so as to provide an adequate opportunity to find a replacement should the employee resign.
- Remuneration package – the various components, including car allowance, laptop, super (including salary sacrifice) should be accurately set out. In particular, if there is any bonus scheme, it is important to set out to what extent it is discretionary and what happens if employment ends mid-way through a financial year (i.e. are any KPIs “pro rated” or is the employee only eligible for a bonus if they are still employed at 30 June?).
Paul Hesse and Craig Healy are our employment law team and are able to advise businesses that need to review and amend employment agreements.