Senior managers in executive positions are not usually covered by any form of collective agreement or award. Whilst their employment conditions are reflected in their executive contract, there are still basic standards set out by the Fair Work Act 2009 (Cth).

In this respect, perhaps a starting point for an employer is to understand the legislative provisions of the Fair Work Act 2009, which sets out the 10 minimum standards which constitute the National Employment Standards in Australia.

These 10 standards relate to maximum hours of work, annual leave, personal leave, parental leave, flexible working arrangements, community service leave, long service leave, public holidays, notice/redundancy and the requirement that employees be given a Fair Work Information Statement, irrespective of the employee’s seniority or status.

Those standards, however, are basic conditions. Executive contracts will reflect far more than salary, leave and redundancy/termination, providing greater detail on employment terms such as sign-on bonuses, commissions, relocation allowances, housing or accommodation, children’s education, share options, first-class air travel, interest-free home loans and more.

A key sticking point in many executive contracts is often found in notices of termination. An employer’s right to terminate an executive contract requires careful thought and legal advice to avoid giving an executive a cause of action when, for whatever reason, the relationship doesn’t work out.

The absence of these provisions can leave an employer open to claims by a dissatisfied executive for compensation, including for “reasonable notice” to be assessed by a Court which could be considerably greater than what otherwise could have been agreed in a contract.  Issues can also arise in respect to deferred compensation from prior year bonuses, current year bonuses and guaranteed bonuses that otherwise require continued employment until a vesting date.

While a salary cap prevents most executives from seeking redress for unfair dismissal through the Fair Work Commission, alternative causes of action may lie under the General Protections provisions of the Fair Work Act 2009 (Cth), under State or Federal equal opportunity legislations, the Commonwealth Consumer and Competition Act, or a claim under common law for breach of contract.

Again, a well-drafted executive contract will limit the way in which the termination provision operates, as well as address other common ‘grey’ areas: the definition of duties and responsibilities, clarity on which legal system applies when it comes to interpretation of the contract, the meanings and implications of key performance indicators, and provisions around restraint of employment if the executive leaves the business.

It’s important for an employer to remember that when dealing with an experienced, highly competent executive, that person will likely have a high degree of knowledge and previous experience when it comes to negotiating terms of employment most favourable to their interests.

Employers may want to ensure they retain certain rights such as the ability to vary an executive’s duties and roles and to set annual KPI’s specifying the standard of performance expected of an executive.

Employers need to be aware of the most effective ways to structure executive contracts to ensure initial dealings with a prospective executive are professional and reasonable, to minimise exposure to possible future legal action by a disgruntled manager and to negotiate with an executive who may seek to include employment terms above and beyond those typical of the position.