Employment Contracts: Written vs Verbal

Every time an employee enters into a work agreement, a contract is set in place. Even if you haven’t signed anything yourself, it might surprise you to know that a discussion and a shake of the hand 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:

1. Offer
2. Acceptance of the offer
3. Agreement of all terms
4. Intention to be legally bound
5. 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 Agreements

Also known as Handshake Contracts, verbal agreements 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 that a documented contract is unnecessary (or too formal). What many small business owners don’t realise is that these verbal contracts are legally binding and if a dispute arises, it may cause a plethora of legal issues.  In addition, it is a legal requirement to have a written employment agreement and employers may be fined if they cannot produce this upon request.

Written Contracts

Written contracts frame the relationship between employer and employee which help to 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, holiday leave and sick leave entitlements, right through to intellectual property if required, confidential information and privacy agreements, and contract termination expectations. And of course, it outlines the actual role the employee will be taking within the company.

So what should small business owners do?

Verbal contracts might be easier and less time consuming, but they don’t come without problems and they can be extremely difficult to prove. They also do not meet your legal requirement as an employer.  You not only need to prove that the agreement exists, but also the actual terms agreed to. 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 and messy.

If you do not have a written contract in place, not only will you be liable for a penalty, but 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.

How 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 of this from the outset so there is no confusion.

Legally, it allows business owners a safety net, providing them a point of reference that 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. If you’re feeling confused and want some advice, get in touch with the Employsure team today.