December 3, 2014

Practical contracts of employment

Recently I wrote about the challenges facing small businesses when hiring and firing staff. Both of these events are critical stages of any employer/employee relationship. However, the most important part of any employment is the bit in between.

Indeed, if you get this bit right, then you usually don’t have to do as much of the hiring stuff, because you have a stable workforce and if you ever have to do the firing, then it can be an easier, less stressful process.

Obviously, an employment relationship is like any other relationship… it is based on trust, mutual respect and open and honest communication. If any one of these three criteria is missing, then the relationship is not a healthy one and is unlikely to survive.  However, employment relationships are very different to other relationships in that the parties to this relationship generally want very different things. Personal relationships are formed when two people share a mutual attraction to each other and partnerships rise out of shared passion and dreams. However, the fact remains (as much as we all don’t want to admit it), an employer is looking for a service from their employees, and the employees are primarily looking for a regular pay cheque.

This fundamental difference of focus is the primary cause for any breakdown in any employment relationship. People can talk until the cows come home about how important lifestyle is to them, that work/life balance is the key to an enduring and stable workforce. What they really mean is that they are prepared to take less money in exchange for non-financial benefits. For what it is worth, I have found that the opposite is equally true … people will put up with a lot if they are being paid accordingly.

It is important to note, however, that just because an employee’s primary motivation for working is a wage, does not mean that they are not a good employee … often it is quite the opposite.

The same goes for employers … Culture is important and in particular, how an employee will interact with and influence a business’ culture, but it is not the primary reason for hiring an employee. An employer’s main motivation for hiring one person over another is that they believe that the successful candidate will give them a better return (i.e. revenue generation and/or expense reduction) on the their investment (i.e. the wage they are paid).

The keys to successfully managing a relationship in which the two parties have different and sometimes competing priorities is to have clear expectations of what each party expects out of the relationship and to communicate those expectations, and more importantly, what is excluded from those expectations. It is a clichéd; however, the saying “you don’t know what you don’t know” is very apt when it comes to employment relationships…

I have, in the past, been very disappointed when an employee (who always arrived 10 minutes late to work) wanted overtime pay when I asked them to work back because we had an emergency.

On reflection, however, I realised that the employee hadn’t really done anything wrong. All they had done was follow the (implied) rules I had created. Let me explain:

1. The contract of employment that I had given to the employee had two relevant clauses in it … one said that they would comply with the work hours I set, and the other clause said that if they were required to work extra hours, they would be paid overtime;

2. Even though I had at the start of the employment said that work started at 8:30am, because I did not say anything when this particular employee started coming in late, I impliedly (and accidentally) changed her start time to 8:40am. The employee (quite reasonably) had expected that if I had an issue with her arriving 10 minutes late, I would have raised it with her. I, however, didn’t raise it, because I had assumed that she would have first asked for permission to come in 10 minutes late. It turned out that she started coming in late as a result of the bus she had to catch to work changing its route.

The point of this story is that the contract of employment is the key I mentioned above. The contract MUST be simple and easy to read and it MUST be a relevant and living document.  Many employment contracts are overly technical and only focus on the start of the relationship (commencement dates and starting wages) and what happens if and when the employment relationship ends (termination clauses, restraint of trade clauses, etc.). These documents often do not provide any assistance to the parties DURING the relationship, which is when such a document should be most useful.

How many businesses get their employees to sign an employment contract, then give them a duties list or position description, then have a policy and procedure on business activities or culture? By having three separate documents, what you are impliedly saying is that the employment contract is not really relevant. This then can cause the parties to not respect it. Remember what I said at the beginning about mutual respect being a cornerstone of any relationship?

Ideally, the contract of employment should be the only document that defines the entire employment relationship from start to finish and INCLUDING during. The employment contract should be the document that both parties can go to at any time as a resource if they are unsure of what to do in a situation. Further, it should be clear to both employer and employee that the contract of employment should be adhered to at all times and if, for any reason, it can’t be, then that is the exception, not the norm, and the parties need to communicate with one another about it. Again, not to sound like a broken record, open and honest communication is another cornerstone of any relationship.

The following are essential guidelines for effectively managing an employment relationship:

1. The contract of employment should be the only document used;

2. The contract of employment should incorporate any position description and “company rules”;

3. As most jobs in the hospitality industry are covered under an award, the contract of employment should incorporate/be based on the relevant award; i.e. no need to replicate redundancy processes in the contract, as these are already mapped out in the award;

4. The contract of employment should be written in such a way so that it is easy for both parties to use it as a resource. In other words, it should be written in the first person and as an instructional manual, not as a theoretical document.

With this in mind, the following are some practical examples of parts of an ideal contract of employment (these are real issues, so feel free to incorporate them into your current contracts):

These are your Hours of Work

Your hours of work are 8:30am to 4.00pm.  You will need to ensure that you arrive at work early enough to get yourself sorted so you can commence your duties at 8:30am. If you can’t commence your duties at 8:30am on the dot, I need you to advise me. I won’t be micro-managing your time.

What Happens when you stop working for us?

While working for me, you will have developed relationships with customers, other employees and suppliers. You will also have had access to information that I have developed over time and which is of value to me. If you take any of this information or use these relationships when you move to another business that competes with my business, this will have a negative impact on my business. Therefore, you promise not to use these relationships or information in any way that would compete with my business. You agree to check with me and get my consent before you want to use any of these relationships or information.

The important thing to remember is to keep it simple. My advice to employers (about employment contracts) is:

1. Draft your own contract from scratch.

2. Start with a job description (what you are employing someone to do and how you want them to do it).

3. Add in what you are going to do for them in return, i.e. pay them!

4. Add to that the company rules (how you want them to behave when doing their job).

5. Finally, if you really need to, add in anything you want them to do or not do, if and when they stop working for you.

Once you have done that, cut it down so that it all fits onto ideally 2 to 2.5 pages. If the contract of employment is more than 3 pages, then it is too long.

Michael Drummond – Director of Corporate Services, Di Bella Coffee.
Michael Drummond is a qualified lawyer who owned his own practice (focused on the hospitality industry) for over 10 years before he decided to enter the corporate world (instead of just consulting to it) by taking on his role at Di Bella Coffee (a position he has held for nearly two years).


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