employment

What is redundancy?

If an employer no longer needs a role to be performed or doesn’t need the same number of employees to perform certain tasks, then an employee’s position can be made “redundant”.

Reasons for redundancy can include:

  • the job the employee is doing is being replaced by new technology/machinery
  • outsourcing tasks to contractors
  • an slow down affecting the business
  • a restructure or reorganization of the business or a merger or takeover taking place
  • the business stopping trading

Redundancy may or may not however, result in an obligation on the employer to pay the affected employee ‘redundancy pay’ (sometimes called ‘severance pay’). This, and the amount, depends on:

  • the length of employment
  • the employer’s size
  • whether the employee can be redeployed
  • the terms of the:
    • employee’s employment contract
    • any applicable Award or Enterprise Agreement; and
    • the Fair Work Act / National Employment Standards (NES).

An employee must have been employed for 12 months or more for redundancy pay to even be considered.

If the employer employs less than 15 (full time or full time equivalent, not casual) employees at the time of dismissal, then there is no entitlement for redundancy pay, unless your Award, Contract or Enterprise Agreement provides for it.

If there is no other position the employee could be redeployed into or if an offer to do so is not accepted, the amount of redundancy pay can be reduced, or even removed.

Redundancy pay is based on ordinary rates of pay (so it doesn’t include bonuses, commission, overtime, loadings, allowances etc).

If redundancy pay is payable, then the table in the NES applies.

Often there is a requirement for employee consultation regarding major workplace changes that could result in dismissal.

If a redundancy is not “genuine”, then issues of potential unfair dismissal can arise. If an employee is made redundant but, for example, someone else is hired at the time or soon thereafter to perform their duties, then the redundancy is not genuine.

Even if no redundancy pay is payable, notice (or payment in lieu thereof) is still required as the employment is being terminated (in addition to payment for all accrued employee entitlements).

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Asset Protection / Business / Commercial Law / Dispute Resolution / Employment  by 01 Apr 2023 0 comments

Are your employment contracts up to scratch?

All employers ought to have in place robust Employment Contracts for all employees, whether they are casual, part time, full time, interns, seasonal or fixed term and provide the appropriate information statement/s.

For those employers that have a template/base contract or for those that intend to update their contracts, say for example after a promotion, role change or pay increase, then this information is relevant for you.

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 among other things imposed:

  • a prohibition on pay secrecy clauses;
  • limits on the ability to use fixed-term contracts; and
  • changes to flexible working arrangement request processing.

Pay secrecy

Sensibly, most standard form employment contracts contain confidentiality provisions including clauses that prohibit employees from disclosing their remuneration to other employees or anyone other than professional advisors such as lawyers, financial advisors and accountants.

Those clauses are no longer allowed and are not binding and employees now have a workplace right to share information about their remuneration or employment terms as they see fit.

Employers need to remove such clauses from new contracts entered into after 06 December 2022. Penalties can apply for breaches.

Fixed term contracts

From 06 December 2023, all employees on fixed-term contract (or consecutive shorter fixed term contracts) exceeding 2 years duration (or where there is more than one renewal even if less than 2 years duration) will be treated as continuing contracts, unless they fall within one of the limited exceptions in the Act or in a Modern Award.

Such employees will be entitled to unfair dismissal rules as part time and full time employees are. Penalties can apply for breaches.

Flexible work arrangements

The Fair Work Act (FW Act) contains a right for certain employees (eg, over 55s, those with disabilities, carers of young children or dependents or those involved with family violence) to request flexible working arrangements. Employers are obliged to consider those requests, but may refuse requests on reasonable business grounds.

From 06 June 2023, if an employer refuses a request or ignores it for greater than 21 days, then the fair Work Commission can intervene, direct arbitration and even make orders.

Employment contracts or workplace policies should be updated to include as much information as possible about the nature of the role, essential requirements etc, so employees understand what areas of flexibility may be feasible and what requests will reasonably be refused.

Workplace policies

In addition to having up to date and relevant Employment Contracts, employers also should have in place appropriate Workplace Policies. These can apply to employees as well as contractors to a business.

These can cover other issues such as the extension of areas of discrimination and harassment in the FW Act so employers can reasonably argue that all reasonable steps have been taken by them to prevent the discrimination or harassment.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Dispute Resolution / Employment / General / Risk management  by 01 Jan 2023 0 comments

Termination of employment

There are 4 main reasons for an termination of employment:

  1. Misconduct (breaching the terms of the employment such as not following a reasonable and lawful direction or policy)
  2. Performance  (lack of skill, care, diligence etc)
  3. Capacity (not fulfilling the inherent requirements of their role)
  4. Redundancy (the employee genuinely no longer needs the employee’s role to be done by anyone, or the employer becomes insolvent/bankrupt)

The first thing to look at in any employment-related issue is the Employment Contract itself (as well as any relevant Award or industrial agreement) and depending on the issue, any relevant Workplace Policies or directions/notes on the employee’s file.

If the employee:

  • is a casual;
  • has not been employed for more the prescribed period (6-12 months);
  • was employed for an agreed fixed term or to perform a specific task; or
  • is on probation,

then termination of the employee is usually simple however, where these don’t apply, then the employee may potentially bring or threaten an:

  • unlawful dismissal claim; or
  • unfair dismissal claim.

Casuals

Given the nature of an ad hoc arrangement, casual employees usually don’t have to give any (or much) notice, and the same goes for the employer.

Generally, there is nothing a casual employee can do if they are terminated unless they have been employed for at least 6 months (or 12 months for a small business – see below), except if it was for an unlawful reason. Then the “general protections” in the Fair Work Act can come into play.

Fixed term agreement

If the employment was for a defined or fixed term and that time has ended, then they will not have been “dismissed”.

Probation

Often, the Employment Contract will have a probationary period in which the employee or the employer can terminate without providing any reason on short notice.

Probationary periods are usually 3-6 months, but can be extended.

GENERAL PROTECTIONS DISMISSAL (UNLAWFUL TERMINATTION) 

The Fair Work Act sets out several “general protections” to prevent employees being dismissed for things (each known as an “adverse action“) such as:

  • discriminatory reasons such as race, colour, sex, sexual orientation, age, religious beliefs, mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin etc (unless an inherent requirement of the job)
  • being absent from work because of illness, injury or parental leave
  • performing emergency volunteer work
  • union membership
  • making a complaint or commencing legal action against the employer or exercising a workplace right

Fines can apply for such dismissals in addition to reinstatement and payment of lost wages or salary.

Unlawful dismissal/adverse action claims must be brought within 21 days of the dismissal.

UNFAIR DISMISSAL

Where:

  • an employee has in excess of 6 months of service (or 12 months where the employer is a small business);
  • the employee’s income is below the high income threshold (compensation cap); and
  • the employee’s employment is covered by a modern Award or enterprise agreement, then

unfair dismissal can come into play if the employee’s dismissal was “harsh, unjust or unreasonable” (in the circumstances, considering the reason/s and the process followed) or if the employee felt they had no choice but to resign following such conduct (called “constructive dismissal“).

A termination is not unfair (and it is a complete defence to an unfair dismissal claim) where:

  • a small business follows the Small Business Fair Dismissal Code; or
  • in the case of a genuine redundancy.

Unfair dismissal claims must be brought within 21 days of the dismissal.

Small business exception

Where a business is classified as a “small business” (ie, it has 15 of fewer full time equivalent (including several part time staff but excluding contractors) employees, liability for unfair dismissal is removed where the small business employer has complied with the Small Business Fair Dismissal Code.

The Small Business Fair Dismissal Code Checklist sets out a simple and fair process to follow at termination.

Redundancy

A redundancy is “genuine” where the employer:

  • no longer requires the employee’s job to be performed by anyone because of changes in the operational requirements of the employer’s business;
  • has complied with any obligation in a modern Award or enterprise agreement that requires consultation about the redundancy; an
  • has considered if it would have been reasonable in all the circumstance for the employee to be redeployed within the employer’s business or any associated enterprise.

Additional payment called redundancy pay is payable in addition to notice and unpaid entitlements, such as annual leave etc.

NOTICE

When terminating employment (including for redundancy), the correct period of notice must be given, or payment in lieu if allowed as per the National Employment Standards and the Employment Contract.

An exception to this is “summary dismissal” (on the spot termination, without notice) when the employer believes on reasonable grounds that the employee’s conduct is sufficiently serious to justify immediate dismissal – usually for serious misconduct (theft, fraud, assault, sexual harassment, serious breaches of workplace health and safety rules and procedures or refusing to carry out a lawful and reasonable instruction that is part of the role.

MANAGING TERMINATION RISKS

Where termination is being considered, the employer must have a good reason for the termination and follow procedural fairness in the process.

Where poor performance is the issue, the employee ought to:

  • be informed of the issue, told what is expected and advised of the likely consequence of not improving -eg, termination) and be given a reasonable time to improve; and
  • have a reasonable opportunity to consider and respond to such allegations (and improve).

Where misconduct is involved (other than serious misconduct):

  • the employer ought to be able to point to specific terms of the employment or clear policies as to the conduct required (except where such poor conduct goes without saying); and
  • a proper investigation ought to take place, with the employee having a proper opportunity for the employee to respond to such matters.

Capacity being in issue is often self-evident, such as not being able to do a job – for example a professional licence or vocational qualification lapsing.

Consider how other employees had been dealt in the past with for similar conduct and the position, past conduct and length of service of the employee also.

Keep detailed records of warnings, meetings and counselling (3 warnings are not always required)

The employee should have opportunity to have a support person at interviews and the employer may want a second person (a witness) present.

Maintain a level of professionalism and give notice of termination in writing.

FURTHER INFORMATION

For further information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au 

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Commercial Law / Dispute Resolution / Employment / General  by 01 Jul 2022 0 comments

New laws for casual employees

The Fair Work Act 2009 (Cth) (Act) has been amended with effect from 27 March 2021 in relation to casual employees.

Here are the 4 practical steps that most employers should take to help ensure compliance with the Act and prevent disputes from arising with their casual employees:

1.            Casual Employment Information Statement

The Fair Work Ombudsman has now made available a new Casual Employment Information Statement (CEIS). Both new and existing casual employees must be given a CEIS.

From 27 March 2021, all employers must give every new casual employee a CEIS before, or as soon as possible after, they commence their employment.

Small business employers (those with less than 15 employees) must give their existing casual employees (those employed before 27 March 2021) a copy of the CEIS as soon as possible after 27 March 2021.   All other employers must give their existing casual employees a copy of the CEIS as soon as possible after 27 September 2021.

Note that the CEIS does not replace the Fair Work Information Statement (FWIS). The FWIS is still required to be provided to every new employee (casual employees should receive both the FWIS and the new CEIS).

2.            Update casual employment contracts

The Act now includes a definition of ‘casual’ employee. Under the new definition, a person is a casual employee if they accept a job offer from an employer knowing that there is no firm advance commitment to ongoing work with an agreed pattern of work.

With retrospective effect, the question of whether an employee is a casual is now assessed based on what was agreed when the employment was offered and accepted, not on the pattern of hours later worked or some other subsequent conduct occurring during the course of their employment.

Employment contracts for casuals, if they don’t already, should:

  • state that the employment is casual;
  • specify that the employer can elect to offer work and that the employee can elect to accept or reject it; and
  • confirm that there is no guarantee of ongoing or regular work and that the employee will only work as required.

3.            Specify the casual loading in employment contracts and payroll documentation

The changes to the Act also remove the ability (which arose from several recent cases such as Workpac v Rossato) for employees to “double-dip” and receive entitlements as permanent staff as well as retaining the casual loading already paid to them (in lieu of such other entitlements).

The amounts actually paid to the employee as casual loading operate as a reduction to, or are set off against, of any amount that may later be determined to be payable by the employer for permanent employee entitlements.

Casual employment contracts thus should:

  • clarify that the employee is paid a casual loading (usually 25%) and that the loading is paid on the basis that the employee is not entitled to relevant permanent employment entitlements such as annual leave, paid personal leave, redundancy pay and the like; and
  • identify the dollar amount of the loading from the base hourly rate where possible.

Further, payroll documentation (including payslips) should separately identify the dollar value of the casual loading paid in each pay period.

4.            Identify eligibility for casual conversions

Once employed as a casual, an employee will continue to be a casual until they either:

a)       become a permanent employee through:

(i)            casual conversion, or

(ii)           are offered (and accept the offer of) full-time or part-time employment, or

b)      stop being employed by the employer.

Although many employers had pre-existing casual conversion obligations in relevant Modern Awards or enterprise agreements, these casual conversion provisions are now included in the National Employment Standards (NES), which means that now employers that were not historically subject to such conversion obligations are subject to the casual conversion pathway regime. Small business employers (with fewer than 15 employees) are not subject to these rules.

The new provisions require employers to offer permanent employment to any casual employee who has:

  • been employed for 12 months; and
  • worked a regular pattern of hours on an ongoing basis for at least the last 6 months of that period; and
  • the employee could continue working those hours as a permanent employee without significant change.

An employer need not make an offer of casual conversion if there are “reasonable grounds” not to, based on facts that are known or reasonably foreseeable (such as where the employee’s position will cease to exist within 12 months, the hours of work that employee is required to perform in the following 12 months will be significantly reduced or the employee’s availability cannot accommodate the significant change in the employees’ hours/days required to be worked).

During the 6-month transition period ending 27 September 2021 and from then on, employers should identify any employees that may meet the criteria for conversion and make an offer of casual conversion to an eligible employee within 21 days of the employee attaining 12 months of employment. There is a form and process relating to the offer (and its acceptance).

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any employment related issue or any business/commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Dispute Resolution / Employment / General / Litigation / Risk management  by 01 Apr 2021 0 comments

Is your business using the correct form of Fair Work Information Statement?

On 13 August 2020, the High Court of Australia handed down a decision about the method of accruing and taking paid personal/carer’s leave under the National Employment Standards.

The case was Mondolez Australia Pty Ltd v AMWU, which overturned a decision made by the Full Federal Court in August 2019 that could have resulted in significant claims for backpay and contraventions of the Fair Work Act 2009 (Cth) as its effect included that part-time employees are entitled to 10 days’ paid personal leave per year (the same as a full time employee), regardless of the number of days actually worked.

The High Court found that the entitlement to 10 days of personal/carer’s leave is calculated based on an employee’s hours worked, not days when interpreting s.96(1) of the Act such that a ‘day’ refers to a notional day, consisting of 1/10th of an employee’s ordinary hours of work in a 2 week period. Accordingly, 10 days of personal leave can be calculated as 1/26 of an employee’s ordinary hours of work in a year.

The Fair Work Ombudsman has updated the form of Fair Work Information Statement (FWIS) as a result.

Employees need to ensure they provide the correct form of FWIS to all new employees. Is your business using the correct form of Fair Work Information Statement?

FURTHER INFORMATION

For more information, please contact McKillop Legal on (02) 9521 2455 or email help@mckilloplegal.com.au to discuss your needs.

This information is general only and is not a substitute for proper legal advice.

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in Business / Commercial Law / Dispute Resolution / Employment / General / Risk management  by 20 Aug 2020 0 comments

Are you hiring an Employee or a Contractor?

Are you hiring an employee or a contractor? This is an important question often overlooked by business owners.

What is the difference between an employee and a contractor?

The difference between an employee and an independent contractor is based on many different factors. No single factor determines whether someone is an employee or a contractor. Instead, the Courts will look at each case and make a decision based on the totality of the relationship between the parties when determining the status of an engagement.

There are some common factors that may contribute to determining whether a person is an ‘employee’ or an ‘independent contractor’ (or ‘contractor’ or ‘sub-contractor‘):

Employees

Employees generally:

  • do not operate independently of the business engaging them
  • are directed in how and when to perform their work
  • cannot delegate their work to someone else or pay someone else to do it
  • are paid per hour, project or a commission
  • are provided with all tools and equipment required to perform their work or gets an allowance to provide these things
  • take no commercial risks – the business is responsible for the work performed or fixing any issues with it
  • have an expectation of continuing work (except casuals)
  • are generally not employed by other businesses at the same time (at least for most full time employees)

Contractors

Contractors on the other hand:

  • do operate independently of the business engaging them
  • have freedom as to how and when to perform work, subject to the terms of the arrangement
  • may delegate or further subcontract out their work, subject to the terms of the agreement (Services Agreement or Contractor Agreement etc)
  • are paid for a result or outcome, even if this is on an hourly rate basis, a commission arrangement or per project
  • supply most of their own tools and equipment
  • are liable for the work performed and are liable to remedy or pay the costs of fixing any defects
  • are responsible for their own employees and sub-contractors
  • are usually engaged for a specific task or purpose
  • may accept or seek work from other businesses

Other differences in their rights and the obligations or the employer or principal include:

  • Independent contractors issue invoices (or tax invoices if registered for GST) whereas employees are paid regularly (weekly, fortnightly or monthly).
  • Employees are entitled to the benefit of the rights under the Fair Work Act 2009 (Cth) (FW Act) and any relevant Award or industrial agreement (including for things such as leave, overtime etc) as well as having the compulsory superannuation contribution paid to their superannuation fund.
  • Employees have tax withheld and paid on their behalf to the Australian Taxation Office where as an independent contractor will pay their own tax to the ATO (and GST if registered for GST).

What if you get it wrong?

If you pay someone as a contractor when they are really an employee, the employee may miss out on important benefits such as leave entitlements and superannuation. Although you may have paid the agreed rates or price and any applicable GST, the employee may be able to pursue the business that engaged them for those unpaid entitlements and the employer may be prosecuted. Also, if the “contractor” doesn’t pay tax, the employer may be liable for the tax that ought to have been withheld.

Many businesses that deliberately arrange in “sham contracting” (where a person ought to be an employee but they are engaged and remunerated as a contractor) are penalized by the Fair Work Ombudsman under the FW Act.

Another unexpected consequence can be that where those engaged as independent contractors are not actually independent at all (for example where they do not provide services to any other businesses) or are really employees can be the issue of payroll tax payable to Revenue NSW under Payroll Tax Act 2007 (NSW). Contractors can be deemed employees for the purpose of payroll tax if they don’t offer their services to the general public, working only for one business.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any employment related issue or any business/commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Dispute Resolution / Employment / General / Risk management / Superannuation / Tax Planning  by 01 Apr 2019 0 comments

Employment Contracts

Are the Employment Contracts used by your business up to date?

Employees are arguably the most important asset of your business. They are also potentially one of the most risky.

Employees have contact with customers, form relationships with them, suppliers and referrers, have access to all of your other business assets such as databases, intellectual property and trade secrets.

When an employee leaves your organisation, there is potential for them to take more then their personal belongings with them when they go.

Employees are arguably the most important asset of your business. They are also potentially one of the most risky

For these reasons having a robust, yet commercial and flexible, employment agreement is essential.

What should your employment contract include?

At the very least, a contract of employment should include:

  • Position, duties and responsibilities (including whether full time, part time or casual)
  • Hours
  • Probation (for new employees or roles)
  • Remuneration and other benefits (including superannuation)
  • Leave entitlements (as well as obligations such as notice, reporting etc)
  • Confidentiality
  • Intellectual property ownership
  • Consenting to reasonable surveillance in the workplace
  • Obligation to comply with Workplace Policies including those relating to anti-discrimination and bullying, email and internet use and the like
  • Termination (including notice provisions that comply with the National Employment Standards)
  • Obligations on termination (such as returning property) and those that continue after termination (including appropriate and enforceable Restraints of Trade)
  • A copy of the Fair Work Information Statement

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to any employment related issue or any business/commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Dispute Resolution / Employment / General / Risk management  by 01 Dec 2018 0 comments

Minimum wage increase

The Fair Work Commission has, by the National Minimum Wage Order 2018, increased minimum wages by 3.5% from the first pay period starting on or after 1 July 2018.

This minimum wage increase applies to all employees paid the national minimum wage – employees will be entitled to a minimum take-home weekly pay of $719.20, or $18.93/hour.

Employers should review the pay rates of all employees to ensure that they are being paid at or above the appropriate pay rate.

A review should also be undertaken to ensure those employees on “annualized salaries” remain appropriately remunerated.

Employment contracts

If your business has not done so recently, it may be a good time to update any Employment Contracts to ensure that they cover important issues such as Restraints of Trade and consider any amendments to Workplace Policies

Further information

If you would like any more information in relation to employment law, disputes or business issues generally, please contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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in Business / Commercial Law / Employment / General  by 04 Jul 2018 0 comments

Minimizing risk in your business

Running a business is risky and small businesses can be especially so. Minimizing risk in your business is crucial.

Often, SME owners put their own personal assets on the line, whether to borrow funds from a lender to start up or buy stock or equipment or by signing a guarantee in relation to suppliers and others for the debts of the business.

There are several methods of protecting personal assets from creditors, but it is a process that many don’t follow. Some are quite simple and easy to put in place. They include…

Placing assets in a spouses’ name or in a family trust

In most circumstances, creditors will not be able to make a claim upon assets owned by your spouse or held by a discretionary trust, provided that you are not the trustee. If your spouse is the trustee, then he or she is the person who will usually decide how to divide up the income or capital of a trust (or not to).

Of course, stamp duty and capital gains tax issues must also be considered before acquiring or transferring assets as well as the potential operation of claw back provisions. The loss of the principal place of residence CGT exemption or the land tax issues may be a factor weighing against doing this.

In the end, it is weighing up risk vs benefits and making an informed decision regarding any asset protection measures.

Encumbering assets if you cannot transfer them

An asset that is mortgaged to its value is not attractive to a creditor. The mortgagee in such a case is the only entity that will benefit from the subsequent sale of the asset.

A guarantee form a person without assets is effectively valueless. Often businesses don’t check to see what a guarantor actually owns.

If you seek a guarantee from a director of another business, you could make some inquiries about their credit/financial position before creating an account,

Correctly structuring your business

Sometimes it is not feasible to establish an asset-holding entity and a trading entity (as many small business start-ups are strapped for cash) but it can be a great way to protect the business assets from day to day trading risks. Even getting the type of business structure right from the beginning (sole trader, partnership, company, trust or combination etc) can have a massive impact on your business.

It is possible to establish a company with a single director  and/or single shareholder. The company dealing with third parties, supplies, customers and the like is the entity that may be liable to them, not the shareholders.

The shareholders are only liable to the company for the unpaid amounts (if any) on any issued share capital. This liability is usually a nominal amount such as a dollar. Shareholders have no liability to third parties unless they agree to it, such as by giving a guarantee.

Company directors may have some liability but only in limited circumstances can the corporate veil be lifted. Courts may be prepared to lift the veil in limited circumstances, such as in the case of insolvent trading, fraud or misrepresentation, inappropriate transactions or where public policy requires it.

Charging assets (and properly recording the charge)

Before lending money to your business, a charge should be created in the correct form and that form recorded as against assets such as real property (by way of mortgage recorded at Land and Property Information or another State’s land titles registry) or against non-real estate assets (by way of a Specific or General Security Deed and making a registration on the Personal Property Securities Register (PPSR)) to secure repayment of that money in preference to other creditors should the business fail.

Having proper terms of trade

Most businesses, if they have them at all, have terribly inadequate terms and conditions of trade. Often they are just copied and pasted from other documents and not tailored, leaving businesses thinking they are adequately protected when they really are not covered at all.

T&Cs should be built to protect your particular business and should be a work in progress, tweaked to solve or prevent problems that have arisen in your business from occurring again,

Avoiding personal guarantees altogether

A guarantee is a contract by which a guarantor promises that another person or entity will comply with his, her or its obligations to a third party and if they don’t, the guarantor will. The most common example involves bank loans where a guarantor such as a parent promises to repay the loan of their child if the child defaults.

Becoming a guarantor can be extremely risky, particularly when large liabilities are involved. Under most guarantees, the guarantor becomes immediately and primarily liable to repay the debt (and the lender does not have to wait for attempt to recover from the borrower before calling on the guarantee).

As a practical matter, many businesses cannot obtain finance unless a personal guarantee is provided. If this is the case however, whenever the loan is actually repaid or if the business can prove it is financial stable and secure, the guarantee should be discharged so that the guarantor cannot continue to rely on it at a later date concerning subsequent transactions.

Managing staff

One of the biggest risks to your business is that of staff leaving, and worse still, taking valuable information and assets with them.

Having appropriately drafted Employment Contracts with restraints of trade in them is a must.

Superannuation contributions

In many circumstances, superannuation entitlements can be protected from bankruptcy trustees. There may be no protection for example where the payments are made for the primary purpose of defeating creditors.

Making contributions to super is getting harder and harder with the Federal Government’s recent changes to the superannuation laws however, this can be an effective long term tool for wealth creation and asset protection. This will also usually involve the assistance of your financial planner.

Business succession planning

If you are in business with another person, what happens to your business if you or your business partner gets seriously injured or dies?

Do you have an appropriate and valid Will, Enduring Power of Attorney and Appointment of Enduring Guardians in place?

Usually having these estate planning documents is not enough. Presumably your business partner would give all of his or her assets to their spouse on their death through their Will. What if you don’t want to me in business with your business partner’s partner?

You should have in place business succession documents to deal with this such as a Buy/Sell Deed with appropriate insurances, a Shareholders Agreement (for companies), Unitholders Agreement (for unit trusts) or a Partnership Agreement (for businesses operating through a partnership structure).

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to starting a new business, commercial law, business disputes or estate planning/business succession issues generally, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.

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in Business / Commercial Law / Dispute Resolution / Employment / Estate Planning / General / Insolvency & Bankruptcy / Online Issues / Risk management / Superannuation / Tax Planning / Trusts  by 03 Apr 2017 0 comments