Employment Contracts – Mortgage Brokerages beware!
Employment Law: 16 November 2023
Author: Bianca Mazzarella - Our People
Mortgage Brokerages like all businesses must protect themselves and ensure that they have comprehensively drafted contracts to prevent the following:
- Sham contracting claims;
- Post employment restraints not being enforced; and
- Commission structures and payments being challenged.
Don’t let the old saying ‘if it’s not broken don’t fix it’ fool you as not ‘fixing’ something as a preventative measure can be costly for many businesses.
Why do you need a properly drafted employment contract?
Properly drafted employment and independent contractor agreements which reflect the true nature of the relationship are necessary to avoid sham contracting claims being made against a Brokerage (i.e where an employee is misrepresented as an independent contractor).
The Fair Work Act 2009 (Cth) strictly prohibits knowingly or recklessly misleading employees about their status. Businesses including Mortgage Brokerages attempting to sidestep their legal obligations through shady contracts risk back paying entitlements and hefty fines including penalties of up to $18,780 for individuals and $93,900 for corporations, per contravention.
Are post-employment restraint clauses actually enforceable?
Post-employment restraint clauses are commonly found in many employment contracts and aim to protect the brokerage’s interests following a broker’s departure. Such clauses can be helpful as if the mortgage broker breaches them, the brokerage may obtain an injunction to prevent the breaching conduct and compensation if monetary loss arises from the breach.
However, many brokerages will be surprised to learn that such clauses are presumed (as a matter of public interest) to be unenforceable. This is unless the brokerage has a legitimate interest to protect in imposing the restraint and the scope of restraint is no wider than reasonably necessary to protect that interest. In Victoria, if the court finds that the restraint clause is unreasonably ambitious in scope, the clause will be deemed invalid and unenforceable unless the court can sever invalid parts and enforce what remains. To be severed, the unreasonable part must be capable of simply being removed without affecting the meaning of the remaining part.
Therefore, it is important to ensure that contracts are correctly drafted so that post-employment restraint clauses are reasonable and enforceable to protect business interests.
Why do commission structures need to be properly drafted?
Well-drafted commission agreements and clauses are essential for mortgage brokerages seeking to motivate brokers through incentive structures as they safeguard the brokerage’s interests and foster a clear understanding between parties. These agreements not only prevent potential disputes but also grant brokerages the ability to clawback previously paid commissions from the broker in certain circumstances (if that is their intention).
Mortgage brokerages are urged to invest in accurate legal documentation to mitigate risks, ensure compliance, and foster productive employment relationships. Please contact our employment law team if you have any queries about having a precise and professionally drafted contract. Bianca Mazzarella, Special Counsel (bmazzarella@aitken.com.au) has many years of experienced and would be pleased to assist.