Introduction
There are so many risks in the modern world of work that can trap unsuspecting employers. If you employ staff that prove unsatisfactory you can spend time and money in ending the relationship before you have received any productivity in return. Relying on probation periods is not enough. Employers are well advised to apply condition precedents and warranties in the employment contract to reduce the risks of adverse action claims and frame employment relationships in favour of the employer.
Condition precedent
A condition precedent clause in an employment contract is an express term setting out prerequisite obligations or actions that must be fulfilled by the employee to commence the employment relationship. If an employee fails to satisfy the pre-requisite obligations necessary to form a contact of employment, an employer may choose not to proceed with the contract and employment.
This approach to employment minimises the regulatory risk an employer may incur as a result of an employee’s failure to comply with obligations fundamental to the employment and limit access to statutory remedies such as unfair dismissal and adverse action claims. Evidence of a mandatory qualification or working with children’s check are examples of ‘condition precedents’ or prerequisites to commencing employment in many occupations. If a person fails to satisfy these obligations the employment cannot commence or proceed beyond the initial appointment.
Warranty
Warranties are terms in a contract that require employees to guarantee to the employer their capacity and qualifications to do the job to agreed standard and/or meet the requirements of ‘fitness for the role’.
Non-compliance with a warranty in the contract does not automatically terminate the contract. The contract of employment continues subject to the offending party rectifying the breach. For example, an employee may have failed to renew their Working with Children Check. A suitable course of action (included in the contract) may be an obligation imposed on the employee to rectify the oversight or error within 7 days. If the employee fails to do so, the injured party (the employer) is then entitled to terminate the contract and claim a remedy of damages. A more fundamental breach such as fraudulent claims of qualifications or experience may result in the right to terminate immediately.
Interaction of contractual and statutory conditions affecting the employment
It is important to note that any rights or obligations in relation to condition precedents and warranties may be limited by legislation such as laws covering unlawful discrimination and workers compensation.
For example, the Workplace Injury Rehabilitation and Compensation Act 2013 (Vic) entitles an employer to require a potential employee to disclose all pre-existing injuries and diseases that an employee is aware of, which could reasonably and foreseeably affect their capacity to perform the duties of the employment or proposed employment.
Although this law is primarily applied for the purpose of eligibility for any subsequent accident compensation claims, it is also relevant to whether the employment can be terminated without the risk of an adverse action or unfair dismissal.
The entitlement to compensation is one thing, but how does an employer manage an employee who is no longer capable of performing the job they were employed to perform? The employee may not be entitled to accident pay but when can the employment be terminated? We know there are other statutory obligations, such as the obligation to make reasonable adjustments to the work environment and procedures under the Equal Opportunity Act 2010 (Vic) and Disability Discrimination Act1992 (Cth) that will inhibit the employer’s right to end the employment relationship.
Although the statutory limitations on the contractual obligations are challenging, they are not insurmountable. We recommend you incorporate conditions precedent and suitable warranties in the contract of employment.
Elements of the Condition Precedent Clause:
The elements of your pre-employment condition precedent clause should contain the following:
- Pre-Employment Conditions – this section must clearly indicate what the clause addresses the conditions that must be met prior to the commencement of employment.
- Conditionality – outline that the employment offer is conditional upon the completion of the pre-employment requirement.
- Consequence of Non-Compliance – explain the potential outcomes if the employment conditions are not met (e.g., withdrawal of the offer or postponement of the start date until the condition is met)
- Continuing Obligation – outline the requirement of renewal if applicable and the rate at which renewal should occur (e.g., Annual Working with Children or National Police Check)
- Obligation to Notify – outline the employee’s obligation to notify the employer of any changes in their circumstances that would impact the pre-employment conditions (e.g., a new criminal charge or revocation of any required licences)
For expert guidance on integrating pre-employment requirements into your contracts, reach out to us for tailored advice here