Why you can’t afford to take your eye off the ball when it comes to old contracts

Employers may be exposing themselves to unnecessary risk due to old employment contracts that have not been updated to reflect their current policies.

A recent decision in the Brisbane District Court has seen former Wallabies coach John Connolly awarded a sum of $150,000 (excluding costs and interest) as a result of his former employer, Queensland Rugby Union, terminating his employment.

The termination occurred under the mistaken belief that an oral contract entered into between the two parties contained a termination clause. Although three separate contracts had been prepared, none of the contracts had been executed by both of the parties and instead an oral contract had been entered into.

Importantly, this oral agreement contained no explicit or implicit reference to a termination clause. As such, Connolly sued Queensland Rugby Union and was successful for the breach of contract and loss of future earnings.

What is a Termination Clause?

Termination clauses are terms within a contract that outline ways in which employment may be terminated. This may include continual poor performance, not meeting benchmarks or any other predetermined factor.

Contrary to standard terms of an employment contract, a breach of a termination clause will often give rise to the right for an employer to terminate employment and severely limit the amount they must pay an employee upon termination. A termination clause will often provide a way of calculating notice that is less than the common law, and slightly more or equal to the minimum legal requirements under the National Employment Standards, Enterprising Bargaining Agreement or Award.

The intention to be bound

Another important feature of any contract is the intention for both parties to be bound by the terms of the contract. Although contracts may be operative without a signature, the main reason the District Court judge found the prior contracts to be non-operative in Connolly’s case was because Connolly had contested several of the terms within them.

Contesting clauses within a contract has been seen to be indicative of displaying an intention not to be bound, and as such, the three earlier contracts did not give rise to any legal relationship.

What does this mean for you as an employer?

You must maintain up to date contracts

As seen in the above case, an employer must strive to ensure that all contracts are maintained with regard to policy or structural changes within the company.

This is particularly relevant where senior level staff members have received a promotion or undergone a position restructure, but their employment contract was not updated to reflect these changes. Maintaining up to date contracts can help avoid substantial legal costs should the employee-employer relationship breakdown.

Oral agreements may be binding

Unless they have been specifically contracted out, oral agreements may still have an ongoing effect and bind an employee even if they sign subsequent contracts. Additional steps must be taken when contracting with an employee who was employed outside the ambit of a written contract.

What can have the effect of changing the terms of a contract?

Wondering how you can now update an employment contract that is out of date? Here is a non-exhaustive list of factors that may have the effect of changing the terms of an employee’s contract:

  • Director appointments;
  • Promotions;
  • Role changes;
  • Awarding equity shares;
  • Position description variations; and
  • Company restructuring

Could you be at risk of out-dated employment contract? Call us today on +61 (07) 3876 5111 to book a consultation.

Written by

Jonathan Mamaril,
Principal and Director
NB Lawyers – the Lawyers for Employers
[email protected]
(07) 3876 5111