Every time an employee enters into a work agreement, a contract is set in place. Even if you haven’t signed anything, it might surprise you to know that a discussion and a handshake could be as legally binding as a signed document.
Whether it has been written or verbalised, any contract needs to be based on the following criteria:
- Offer
- Acceptance of the offer
- Agreement of all terms
- Intention to be legally bound
- A transaction – something is exchanged (eg, services for money)
So, what are the key differences between verbal and written, and which should you be using in your business?
Verbal Contracts
Also known as Handshake Contracts, verbal contracts or agreements (unilateral or bilateral) are often used by small business owners because they are convenient. Many small business owners want their staff to trust them, and as such, they feel a documented contract is unnecessary (or too formal). What many small business owners don’t realise is these verbal contracts are legally binding and if a dispute arises, it coupld potentially cause a range of legal issues.
Written Contracts
Written contracts frame the relationship between employer and employee. It helps keep the framework of the business intact, and shapes how the employee fits into the business itself.
It includes things like the names of the parties, payment amounts and methods, expected hours of work, annual leave, sick leave, and other leave entitlements, right through to intellectual property if required, confidential information and notice required to terminate employment. Employee expectations should also be in a policy and privacy agreement. And of course, a written contract outlines the actual role the employee will be taking within the company.
What should small business owners do?
Verbal contracts might be easier and less time consuming, but they don’t come without problems and can be extremely difficult to prove. You not only need to prove the agreement exists, but also the actual agreed terms. Basically it’s a case of one person’s word against another. In the case of a dispute, this can make court proceedings with former employees complex.
If you do not have a written contract in place, you will be required to provide evidence to support your version of the truth. In the case of a verbal agreement, this could include any emails or text messages that have been exchanged, pay slips, and so on.
Legally, you aren’t required to have a written contract. However, having it all on paper provides proof of the agreement if a problem should ever arise. You can easily outline the terms of the employment, and any expectations of the employee relationship. That means, neither you nor the employee have any stones left unturned. If you also include specific tasks and duties the employee is expected to complete, and information about uniforms and hours, etc; there can be no dispute.
Ways a written contract can help small business owners
A written contract is definitely one of the most proactive steps business owners can take to ensure their staff knows what is expected of them. Without a doubt, during the course of employment, there will be a question of the hours to work, agreed allowances, or wages. Written contracts provide all this from the outset, so there is no confusion.
Legally, it gives business owners a safety net, providing them a point of reference they can refer back to if they ever need to double check the specifics of an agreement. This means they can easily resolve any rights, duties and promises made by either party.
Essentially, a written agreement allows a small business owner to protect themselves, and their business.
Unlock employment relations support with Peninsula
Peninsula has worked with thousands of business owners in Australia, supporting them in matters of employment relations and workplace health and safety. We understand the needs of businesses and work together with them to create powerful systems and processes. If you’re feeling confused and want some advice, get in touch with the Peninsula team today.
This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.