December 9, 2017

How to use an employment agreement

How to use an employment agreement

Updated: 8 December 2019

While an employment agreement can be verbal, written or a mix of the two,  it is a good idea to have a written employment agreement to set clear expectations early and minimise disputes.

And the beginning of the employment relationship is when you would typically expect to provide an employment agreement.

But did you know there are other times you may wish to revisit your worker’s employment agreements? 

Let's go through each of the scenarios.

1. When you first hire a worker

First, when you hire a worker you should give them sufficient time to review their employment agreement.

This is to be fair to your worker and to avoid a situation where a worker says they were unfairly forced to sign quickly. 

2. Temporary role changes

If you decide to temporarily change a worker's role, It's a good idea to have that change in writing.  here is what you should include:

  • position title
  • start and finish date
  • new duties; 
  • higher pay for that period of time (if applicable)
  • return to former position.

By doing this you avoid the risk of any dispute about expectations for a temporary change to be ongoing.

3. Directors

Directors that are also completing day-to-day work as employees should also have an employment contract that sets out their position.

And, if a director role is unpaid, you should make that clear upfront in writing.

4. Employment agreement vs founder's agreement

A founders agreement is suitable when you first launch your startup, particularly if you have a few founders and are still  figuring out how to divide up roles.

Also paying for a single founders agreement can be more cost effective than paying from multiple employment agreements.

Don't forget you can always pay for employment agreements later on once  you have a better idea of how you want to divide up roles at your startup. 

Remember, founders are those people first involved in bringing an idea to market.

Key points

Below are the key points for issuing and using employment agreements:

  • give your recipient plenty of time to review an employment contract;
  • document role changes in a contract even if they are only temporary;
  • if your directors are also employees,  give  them an employment contract; and
  •  consider a founders agreement if you have multiple founder’s rather than an employment agreement for each when you first launch.

Do you have questions or comments about employment agreements? Be sure to leave them below. 

I wish you success in your ventures!

About the author 

Vivian Michael

As founder and lawyer at Michael Law Group, Vivian advises Australia's top entrepreneurs on business and employment matters. Clients benefit from Vivian's commercially focussed and pragmatic legal advice, business experience, and commitment to deliver the best quality business legal services to her clients.

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