Employment essentials for every startup.

Startup Series

8 June

Written By AGH Law

Employment essentials for startup businesses & companies

In this Startup Series, we aim to help your startup navigate the employment law landscape and highlight the importance of getting your employment arrangements right from the outset.

Which industrial relation system must you comply with?

In Western Australia, two different industrial relations systems operate concurrently, each with differing minimum entitlements, awards and obligations. It is critical to understand which regulatory system your startup falls within to ensure that you comply with the requisite employment obligations and avoid significant financial consequences.

The National Fair Work System

The National Fair Work system (National Fair Work System) created by the Fair Work Act 2009 (Cth) (FW Act), covers most Australian private sector employees. That is, if your startup is an incorporated entity that engages in trading (e.g. Pty Ltd companies), it will fall within the ambit of the National Fair Work System.

However, if you operate as a sole trader, partnership, other unincorporated entity or a non-trading corporation your business will fall within the Western Australian state system.

The key features of the National Fair Work System include the National Employment Standards (NES), the national modern awards for specific occupations and industries, the national minimum wage and protection from unfair dismissal.

The NES sets out 11 minimum standards of employment which all industrial instruments (whether it be an award, enterprise agreement or contract) operating in the national system must meet or exceed. These include maximum weekly working hours and circumstances in which an employee may refuse to work unreasonable additional hours, the right of certain employees to request flexible working arrangements, various leave entitlements, notice requirements around termination and redundancy pay and the obligation to provide new employees with a copy of the Fair Work Information Statement.

Awards are legal documents which outline the minimum rates of pay, terms, and conditions of employment according to the type of industry the business is in and the type of work the employee is engaged to perform. They also cover penalty rates and set out any allowances to be paid by the employer. Awards, registered agreements and employment contracts cannot exclude or provide terms less favourable than the NES, otherwise they will have no effect.

Employers may enter in collective or individual agreements known as "enterprise agreements" which may alter the obligations under the relevant modern award. Such an agreement will be unenforceable unless it satisfies the ‘Better Off Overall Test’, effectively leaving each employee better off under the enterprise agreement when compared to the NES and applicable modern awards.

The Western Australian State System

The Western Australian industrial relations system (WA State System) is created pursuant to the Industrial Relations Act 1979(WA) and the Minimum Conditions of Employment Act 1993 (WA) (MCE Act). In many respects, the entitlements afforded to employees under the WA State System mirror those provided under the National Fair Work System.

The minimum entitlements of all non-national system employees are provided for in the MCE Act or industry specific awards. The minimum entitlements under the MCE Act include standard rates of pay, hours of work, various leave entitlements, public holidays and redundancy. Provisions in any employer-employee agreement (EEA) will be unenforceable to the extent they fail to satisfy the no-disadvantage test and provide the employee with conditions leaving them worse off than the relevant state award or the MCE Act.

Employee or independent contractor: An important distinction

If your startup is considering hiring new team members, it is important to accurately classify the working arrangement as certain entitlements and protections are afforded to employees both at common law and under the legislative framework, however, they do not extend to independent contractors. It is critical that your business gets this right from the outset to avoid significant financial consequences. Below we consider the key differences between employees and independent contractors.

Employees are engaged under a contract of service and typically work exclusively within your business. Employees enjoy the range of entitlements and protections provided for under the FW Act including the NES, industry awards, enterprise bargaining and unfair dismissal. Further, if your staff are employees you are required to withhold tax (PAYG withholding) from their wages, pay superannuation for eligible employees and report and pay fringe benefits tax (if applicable). Finally, employers may be held responsible for the wrongful actions of employees by virtue of the doctrine of vicarious liability.

Contrastingly, independent contractors conduct their own business and may provide services to multiple persons or businesses. In contrast to the minimum terms and conditions provided for employees under the various legislative schemes, the services contract dictates the rights, entitlements, liabilities, and obligations of an independent contractor. Contractors are responsible for their own superannuation contributions and tax reporting – apart from those contractors who are natural persons as opposed to incorporated entities.

The courts have imposed significant penalties for the misrepresentation of the employment arrangement pursuant to section 357 of the FW Act. The section applies where an employee is mischaracterised as an independent contractor and consequently deprived of the wide-ranging entitlements and protections afforded to employees (as outlined above). The section also applies to a 'sham contracting arrangement', where a third party is introduced, such as a labour hire company, to disguise the employment relationship.

Classification: Applying the multi-factor test

To ascertain whether your staff should be considered employees or independent contractors, you must consider the totality of the working arrangement. Below are some of the relevant factors to be considered in making your determination (however, it is important to note that no one factor is determinative):

Degree of control – Employees typically perform work under the direction of their employer while contractors have a high level of control over the work they perform. The ability to subcontract or delegate work to others suggests a contracting arrangement.
Hours of work – Employees generally work standard or set hours. The hours worked by contractors are decided by agreement.
Expectation of work – Employees have an ongoing expectation of work, whereas contractors are usually engaged for one-off or specific tasks.
Risk – Employees generally bear no financial risk and are covered by the employer’s insurance, while contractors bear the risk for making a profit or loss on each task and generally have their own insurance policy.
Tools and equipment – Employees use those supplied by the employer, while contractors generally use their own tools and equipment.
Method of payment – Employees are paid regular wages or salary, whereas contractors have an ABN and submit invoices for work completed.
Leave – Only employees are entitled to be paid leave or casual loading in lieu of leave.

Key terms to include in employment agreements

Every employment agreement is different. We can assist to ensure your employment agreement is tailored to reflect the type of business you are operating as well as its current and anticipated commercial needs. We recommend entering into written employment contracts with your staff as they define with clarity the obligations of both parties and reduce the risk of misunderstandings and (costly) disputes arising in the future.

An employment contract will be unenforceable to the extent it fails to provide the legal minimums under the National Fair Work System. Therefore, regard should be had to the relevant modern award and minimum entitlements when drafting.

Below are some common inclusions in employment agreements, while not always required, that you should consider:

A clear job description – A clearly expressed job description should set out the roles and duties that the employee is required to fulfil. However, a well drafted description would also provide a degree of flexibility, allowing the employee to perform other duties to meet the demands of the business from time to time.
Remuneration and benefits – It is essential to set out the employee’s salary or wage as well as any additional entitlements. Keep in mind, the agreement cannot provide remuneration below the national minimum wage or the applicable Fair Work award. Superannuation entitlements should also be included.
Nature of employment – On what basis will the employee be engaged (casual, part-time, fixed term or full-time)? The answer will determine the extent of employee entitlements.
Hours of work - This is particularly important if the employee’s ordinary hours exceed 38 hours per week. Usually, provision should be made to permit the employee to work reasonable additional hours.
Leave entitlements – The agreement should clearly set out the employee’s paid and unpaid leave entitlements, such as annual leave, parental leave, personal/carers’ leave and compassionate leave as are provided for by the NES.
Protection of intellectual property (IP) – Where the employee’s role includes the creation and invention of IP, it is essential to ensure that the agreement assigns the ownership of IP to the employer. For further information on this, see below.
Confidentiality – We reccommend clearly defining the term "confidential information", the obligations with respect to such information and the period the obligations endure.
Termination and dispute resolution process – We recommend clearly setting out how each party may terminate the contract and corresponding notice requirements.
Restraint and non-compete clauses – A well-drafted restraint clause is crucial to restricting the employee from partaking in conduct adverse to the interests of the business (such as soliciting clients or undertaking employment with a competitor) while employed and during the period after their employment has ceased.

Protect your intellectual property

Intellectual property (IP) considerations will likely be among the most important considerations your startup will encounter. IP is often one of the most valuable assets of a startup, and its protection is fundamental to the success of the business. As such, startup founders should understand how to protect IP created for the business to avoid ownership disputes arising in the future.

The nature of the employment relationship is critical in determining who owns the IP created for your business. In Australia, the IP created in the course of employment is owned by the employer so long as it is created within the scope of the employee’s duties and unless otherwise stipulated in the employment agreement. It follows that the employee’s position will likely determine the importance and scope of IP protection that is required. Consequently, it is essential that your startup’s written employment contract includes:

a precise description of the scope of the employee’s duties (extending to invention and creativity); and
a carefully drafted IP assignment clause, ensuring that all IP created during the employee’s employment is owned by the employer.

Independent contractors are often engaged to create IP for businesses in the form of business and marketing plans, logos, websites, designs, technical guides and software.

Who owns intellectual property created by independent contractors?

In Australia, IP created by an independent contractor will belong to the contractor, unless the agreement stipulates otherwise. As such, both parties to the arrangement should ensure the contract for service adequately addresses the ownership of IP.

So how can you avoid ownership disputes over IP? Best practice is to be clear about any IP issues and enter written agreements with carefully drafted IP clauses from the conception of the business. Note, however, it is important the clause is not too broadly drafted so as to render it unenforceable.

Policies and procedures

Workplace policies effectively communicate to employees expected standards of behaviour and provide a great basis for establishing a positive workplace culture by setting clear benchmarks from the beginning of the employment relationship. Workplace procedures set out methods for dealing with policy breaches, among other issues, in a consistent and transparent manner. In addition, policies are effective risk management tools and may assist employers in satisfying legal requirements as well as constituting evidence in defending claims by employees, such as unfair dismissal.

Specific policies you might adopt include the following:

Anti-Discrimination Policy;
Bullying and Harassment Policy;
Diversity Policy;
Disability Access and Inclusion Policy; and
IT Policy.

You may consider whether documenting your workplace policies and procedures in a "Workplace Policy Manual” or "Staff Handbook" is appropriate, depending on the size and nature of your organisation. As it is not a legal requirement, there are no hard and fast rules as to the form such documents should take or the matters to be included, although we recommend having a professional review to ensure they are legally compliant and fit for purpose.

Do you need help with your employment agreements?

The AGH Startup Hub is a dedicated place for startups and entrepreneurs to access legal services in a way that works for them, including startup employment agreements.

Within the AGH Startup Hub we offer a range of fixed price Document Packs to suit your startup. Each Document Pack has been carefully curated by our lawyers to give you the high-quality essentials that you need, at an affordable fixed price.

We understand that you may not want or need overly complex legal documents. You also don’t want to risk it by using a template document you found online. You just want quality legal essentials to protect you and your business, and to help you get back to business.

Build the right team for your startup and get your employment documents right from the start. Our Team Pack includes a tailored employment agreement or contractor agreement, a Fair Work information statement, the necessary director resolutions and a 30-minute consultation with a dedicated lawyer, all for a fixed price of $1,500 (incl. GST).

Get in touch with our team to get started or learn more about our fixed price Document Packs.

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Important

The contents of this publication should not be relied upon as legal advice, but instead as commentary and general information. Specific legal advice about your circumstances should always be sought separately before taking any action based on this publication.