Having succinct yet comprehensive employment contracts is an important consideration when starting or streamlining a business.
A recent decision in the New South Wales Court of Appeal is a reminder for businesses throughout the country. It has emphasised the importance of ensuring that bonus provisions in contracts of employment properly reflect the intent of the parties. This issue would be worth considering in the context of employment contracts when developing an employment plan or thinking about the business year ahead. Employers should be vigilant in setting objectives for employees and examining performance against those objectives. The recent outcome in Silverbrook Research Pty Ltd v Lindley highlighted a few key issues surrounding bonuses:
• It may now be considered a breach of contract to not set performance criteria and assess employee performance, when a contract states that you will do so.
• Making a bonus ‘discretionary’ will not excuse an employer from other obligations to consider how a bonus might be assessed.
• If a bonus is able to be withheld at the discretion of the employer, even if the performance objectives have been achieved, the contract must clearly state that as the case.
The court was clearly not suggesting that a bonus had to be paid if a contract suggested that one could be issued, but rather that the contract was breached by failing to assess the performance of the employee when the contract said they would do so.
From this case, it is clear that it is worthwhile taking the time to make sure both the employer and employee understand all the features of the contract. A contract is essential and should feature all rights, obligations and conditions of employment. Remember that the provisions in the Minimum Conditions of Employment Act 1993 are implied into all contracts.
As well as personal details and pay information, consider including:
• Key job duties and standards of performance
• Uniforms or dress standards
• Training and development
• Safety issues
• Customer service requirements
• Company policies and rules
• Use of work equipment
• Board/travel arrangements
• Leave without pay
Take the time to go through the contract with the employee, to make sure they understand all its features. Doing so will promote a better relationship with an employee, as well as ensure they understand their roles and responsibilities within the company.