Employment law: The Ultimate guide for Startups and Small Businesses

Introduction

Employment relationships are governed by:

1. The Fair Work Act 2009 (Cth);

2. Any applicable modern award;

3. Any applicable enterprise agreement; and

4. The individual employment contract (which may be written or oral).

Types of employees

Employees may be employed on:

1. A full-time basis;

2. A part-time basis;

3. A fixed-term basis (which may either be on a full-time basis or part-time basis); or

4. A casual basis

1/Full-time employees

Full-time employees are employed for an indefinite period and are generally employed to work around 38 hours a week. Full-time employees are entitled to personal / carer’s leave, annual leave, long service leave, parental leave and redundancy pay.

2/Part-time employees

Part-time employees are employees who work a regular number of hours and are paid on an hourly rate. Part-time employees are entitled to same entitlements as full-time employees, but these entitlements accrue proportionally.

3/Fixed-term employees

A fixed-term employee is a person employed for a “specified period of time”.

Fixed-term employees accrue personal / carer’s leave and annual leave. Fixed‑term employees are usually not employed long enough to accrue long service leave.

On expiry of the fixed-term, fixed-term employees are not entitled to:

1. Minimum notice of termination (or payment in lieu);

2. Redundancy pay; and

3. Unfair dismissal rights.

Care needs to be taken when drafting a fixed-term employment contract, as certain clauses from permanent employment contracts, when included in a fixed-term employment contract, can result in the fixed-term employee having rights to bring an unfair dismissal claim when terminated on expiry of the contract.

Casuals usually work less hours than full-time and their hours of work usually vary.

Casual employees are not entitled to public holiday pay, personal / carer’s leave,annual leave, long service leave, parental leave and redundancy pay.

Modern award usually provide loading for casual employees to compensate them for the lack of employee entitlements.

Types of employment contracts

Employment contracts can be categorised as:

1. Award-based contracts;

2. Enterprise agreement-based contracts; or

3. Non-award contracts.

1/Award-based contracts

If an employee is covered by an award, then that award will set out some of the minimum conditions that must be provided to the employee. The parties cannot contract out of these minimum conditions. The parties may, however, agree on more favourable conditions for the employee.

The Fair Work Ombudsman provides a “Find my award” tutorial where you can find out whether a modern award applies.

2/Enterprise agreement-based contracts

Enterprise agreements are collective agreements made at an enterprise-level. Employees must be better off under an enterprise agreement when compared to the relevant award.

3/Non-award contracts

A non-award contract is where there is no applicable award for the position. The employment relationship will be governed by the National Employment Standards and the individual employment contract.

National Employment Standards

The National Employment Standards set out 10 minimum standards that apply to the employment of employees, which cannot be displaced by an enterprise agreement or employment contract.

The 10 minimum standards are:

Types of employment contracts

Employment contracts may be written or oral. A written employment contract may be binding even where an employee does not sign it.

Written employment contracts will typically cover:

1. The type of employment (i.e. full-time, part-time, fixed-term or casual);

2. The commencement date, and expiry date in the case of a fixed-term contract;

3. Any applicable probationary period (which should be for a maximum of six months, or 12 months in the case of a small business employer);

4. The employee’s classification level under any applicable award;

5. The employee’s remuneration;

6. The grounds for termination and notice periods;

7. Protection of the employer’s confidential information;

8. The ownership of intellectual property;

9. In the case of key staff and executives, non-compete and non-solicitation restraints.

Termination

Termination During Probation period

The only time an employer may terminate an employee’s employment for convenience (that is, without having a “valid reason”) is during a probationary period.

The probationary period should not exceed:1. Six months; or 2. If the employer is a small business employer,12 months.

This is because employees do not gain access to unfair dismissal rights until they have completed at least six months continuous service with an employer (or 12 months in the case of a small business employer).

Termination without notice

To summarily dismiss an employee, the employee’s conduct must constitute “serious misconduct”.

Serious misconduct includes theft, fraud, assault, intoxication or refusal to carry out a lawful and reasonable instruction.

The full definition for serious misconduct can be found in Fair Work Regulation 2009 (Cth), regulation 1.07.

The Small Business Fair Dismissal Code provides some protection to small business employers where they have a reasonable basis for believing the employee has engaged in serious misconduct.  The Small Business Fair Dismissal Code applies where a business employees fewer than 15 employees (calculated on a simple headcount of all employees including casual employees who are employed on a regular and systematic basis). small business employers  may be able to avoid a full hearing about the fairness of a dismissal if it can show the dismissal was consistent with  The Small Business Fair Dismissal Code (Fair Work Act 2009 (Cth), section 396).

Termination with notice

To terminate by giving notice, an employer must have a “valid reason” (i.e. poor performance). Otherwise, the employee may succeed in bringing an unfair dismissal claim.

The minimum periods of notice set out in the Fair Work Act 2009 (Cth), section 117(3) ar

Redundancy

An additional 1 week is to be added if the employee is over 45 years old and has completed at least 2 years of continuous service with the employer at the end of the day the notice is given. 
A genuine redundancy is where:

1. The employer no longer requires the employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s enterprise; and

2. The employer has complied with any obligation in a modern award or enterprise agreement that applied to the employment to consult about the redundancy.

There will be no genuine redundancy if it would have been reasonable in all the circumstances for the person to be redeployed within:

1. The employer’s enterprise; or
2. The enterprise of an associated entity of the employer.

The redundancy pay periods are:

See Fair Work Act 2009 (Cth), section 119(2).

Redundancy pay reduces to 12 weeks at the 10 years to take into account the employee’s eligibility for long service leave.

Where an employer makes an employee redundant, the employer must give the employee the minimum period of notice (or payment in lieu) under section 117, as well as pay the redundancy pay period set out in section 119.

Redundancy pay will not be apply if:

1. The employee does not have at least 12 months of continuous service with the employer; or

2. The employer is a “small business employer”.

Unfair dismissal

An employee may bring an unfair dismissal claim if:

1. The employee who has completed six months of continuous employment (or 12 months in the case of small business employer), and earns less than the high income threshold (currently $148,700, excluding superannuation); or

2. The employee is covered by a modern award or enterprise agreement.

An employee will succeed in bringing an unfair dismissal claim if:

1. The person has been dismissed (this includes forced resignation);

2. The dismissal was harsh, unjust or unreasonable;

3. The dismissal was not consistent with the  Small Business Fair Dismissal Code; and

4. The dismissal was not a case of genuine redundancy.

The maximum amount Fair Work Australia can award for unfair dismissal is 26 weeks’ pay.

An employee must file an unfair dismissal claim within 21 days from when the dismissal took effect.

Post-employment restraints

Restraints of trade are not implied into contracts. They have to be in a written agreement.

Restraint clauses can be categorised into:

1. Non-compete clauses;

2. Non-solicitation clauses; and

3. Trade secret / confidential information clauses.

Non-compete clauses usually seek to prohibit the employee from being involved in a competing business. They are only usually enforceable in the case of high-level executives in possession of confidential information or trade secrets.

Non-solicitation clauses

Non-solicitation clauses do not seek to prohibit a person from working for a competitor or starting their own firm, but rather they seek to prohibit a person from encouraging others to come with them. There are three types of “non-solicitation” clauses. They are:

1. Restraints on soliciting clients;

2. Restraints on being employed by clients; and

3. Restraints on soliciting employees, contractors or suppliers.

The employee must be in a position to gain trust and confidence so as to be relied on in a client’s affairs and there must be a possibility that the employee may take the client’s business with them.

The likelihood of enforceability increases with increases seniority and pay.

Courts are more ready to strike down restraints of trade in employment contracts than those contained in commercial contracts such as shareholders’ agreements and business sale agreements. 

Trade secret / confidential information clause

Trade secret / confidential information clauses seek to prohibit the restrained party from exploiting trade secrets or confidential information acquired in their former position.

Determining enforceability

The overriding principle to keep in mind is that the restraint must be reasonably necessary to protect the employer’s interests.

There are three questions of reasonableness:

1. Is the prohibited activity reasonable?

2. Is the restraint period reasonable?

3. Is the restraint area reasonable?

The starting point is that restraints of trade are presumed to be void. It is on the enforcing party to satisfy a court that a restraint goes no further than reasonably necessary.

The reasonableness and validity of a restraint clause must be assessed at the time of entry into the employment contract. That is why it is important that a new employment contract is entered each time an employee is promoted or given a significant pay increase.

See our Restraints of Trade—The Ultimate Guide for further information on restraints of trade. 

Resources

1. Fair Work Act 2009 (Cth)

2. Fair Work Regulation 2009 (Cth)

3. Fair Work Information Statement

4. Small Business Fair Dismissal Code