Executive Employment Contracts

An executive employment contract (or agreement) is a key document outlining the terms and conditions of employment for high-ranking employees in Australian businesses. These contracts define the relationship between the employer and the executive, providing clarity about expectations, and guidance for the resolution of potential disputes. Given the high stakes involved in executive employment, it is vital for businesses to create comprehensive and legally sound employment contracts when engaging workers at this level. This article looks at the key terms and conditions of an executive employment contract in Australia.

Key components of an executive employment contract

Employers have distinct expectations for executives compared to other employees, and these differences should be clearly outlined in the employment contract.

Description of the role

An executive employment contract should clearly state the executive’s primary responsibilities. This section of the contract should include a detailed job description and specific expectations relating to the executive’s performance of their role.

Clarity in the wording of this section will help prevent misunderstandings and avoid ambiguity in the future. To achieve this outcome, however, it is essential to tailor the contract to the individual executive and their role. Relying on a generic contract will often result in contracts that overlook critical nuances of the role and the organisation’s needs. Such clarity also establishes a solid foundation for performance evaluations. This section of the contract should enable both parties to understand what success in this role looks like in the short, medium, and long term. As such, regularly reviewing and updating the wording of an executive contract is important to reflect changes in the executive’s role, the objectives of the business, the business environment, and applicable laws.

Terms of employment

The contract should state the terms of employment, including the start date and any reference to a fixed duration or ongoing employment. Fixed-term contracts should clearly outline any conditions for contract renewal or conversion to permanent employment. This section will also typically contain references to any probationary periods that apply to the appointment.

An executive contract may indicate the usual full-time work hours of the position. However, an executive is usually expected to work well beyond the standard hours of work due to the nature of their role. Their contracts typically reflect this expectation of greater responsibility and specify generous remuneration and other entitlements.

Compensation and benefits

The section of the contract relating to an executive’s compensation package may include the:

• base salary (annual or monthly salary, salary reviews and increases);
• sign-on bonuses and relocation allowances;
• eligibility for and timing of performance-based bonuses and incentives;
• equity compensation, such as shares, stock options or other forms of equity-based compensation, with clear terms relating to vesting schedules and conditions;
• provision for housing and accommodation; and
• additional employment benefits such as travel, health insurance, car allowance, retirement plans, and other perks.

Termination and notice periods

It is crucial to include termination clauses in an executive contract. This section should state the conditions under which the employer or executive can terminate the contract. For instance, the contract should note the circumstances that justify summary termination, such as breach of contract or serious misconduct. The contract should also state the notice periods that apply in each dismissal scenario, as well as any termination entitlements, such as redundancy or separation payments. 

Executive contracts often contain some provisions relating to unfair dismissal, as employees who earn over the high-income threshold cannot access statutory unfair dismissal protections. Most commonly, these provisions include an agreement as to the jurisdiction that applies in cases of disagreement over termination. This clause (or a separate dispute resolution clause) usually also sets out a process for first attempting to resolve contract disputes through mediation or arbitration, rather than litigation.

Confidentiality and non-disclosure clauses

As senior personnel, executives have access to sensitive and proprietary information not available to most workers. As such, an executive employment contract should have effective non-disclosure clauses to prevent the executive from sharing the company’s confidential information both during and after employment.

Restraint of trade clauses

It is also common for executive contracts to have restraints of trade clauses to further protect the organisation’s interests. Non-compete clauses, for instance, restrict the employee from working for a competitor company or opening a competing business for a specific period after leaving the company. Non-solicitation clauses prohibit an employee from soliciting the company’s customers, clients, or employees for a specific period.

Employers should keep in mind that restraint of trade clauses are only legally enforceable to the extent that they are reasonably necessary to protect legitimate business interests and do not conflict with public policy. This usually means that the restraint cannot be too geographically wide (such as covering the whole of Australia, when it is only reasonable to restrict trade to one state) or too long in duration (such as in perpetuity, when it is only reasonable to restrict trade to one or two years).

National Employment Standards

Workers in Australia are protected by numerous laws and regulations, including the Fair Work Act and the minimum legal entitlements contained in the National Employment Standards (NES). The NES applies to all employees in the national workplace relations system, though executives receive compensation packages that limit their access to the protections of the Fair Work Act. As such, the NES minimums do not directly apply to executive agreements. However, the NES does set standards for what is “reasonable” for workers in this country, and as such, an executive’s contract should be drafted in light of these minimums. For instance, an executive may be expected to regularly work more than the “maximum” number of hours specified for other workers under the NES, but this expectation is balanced against the provision of generous remuneration.

An executive employment contract not only sets out terms and conditions but also establishes each party’s rights and obligations and how their interests are protected under Australian law. Our employment law team can help negotiate an executive employment contract. Please contact the team on 1300 636 846 today for assistance with drafting or negotiating an executive employment contract.