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Becoming Succession Ready: Your Employment Agreements

Updated: Nov 10, 2021

An essential question for your upcoming succession - Do you have employment agreements for all your team?

Perhaps you have long-term employees who originally joined you with a handshake, and the matter has never been revisited? Maybe you have meant to address this matter, but it has continually been deferred? If this is your situation, you should be feeling extremely nervous right now, as your entire business might be at risk, and as well, potentially, your whole succession strategy!

It is not mandatory to have an employment agreement from an employee perspective, as their rights (10 minimum entitlements) are protected by the National Employment Standard (NES), whether they have signed an agreement or not. There are many benefits in having employment agreements in place from an employer's perspective, but one significant advantage is the protection employment agreements provide to your upcoming succession strategy.

An employment agreement will typically contain clauses addressing:

  • Annual Salary / Remuneration Package

  • Leave entitlements

  • Termination notification

  • Restraint and confidentiality to protect your business goodwill; and

  • Dispute resolution processes

From your practice succession perspective, restraints and confidentiality are critical elements that need to be protected.

During your succession journey, it will be their practice goodwill that will be sold for many practitioners, which is very much bound up in the relationships with clients. If you have employees who have strong and vital relationships with clients without appropriate contractual restraints, you are at risk of not protecting your business. A restraint clause is a mechanism to protect the goodwill of your practice. Of course, you cannot stop anyone from earning a living, but employment agreements are a helpful method to provide some level of protection for your business.

Being employed in a professional office, employees are exposed to confidential information daily. An employment agreement provides both your practice and your valued client's protection around personal data.

For your valued employees, if a new owner takes over your practice, it is likely they will have all employees sign new employment agreements. Typically, if specific employment arrangements should be retained, e.g., specific working arrangements, an employment agreement is a great way to lock this in and protect their position.

From your successor’s perspective, mainly if your successor is external to your practice, not having employee agreements will raise some real concerns from their perspective. At the very least, they will see real risks with employees not having signed an employment agreement, and therefore not being subject to any contractual restraint and confidentiality. This may very well hurt your practice price and retention mechanisms.

In short, if you don’t have employment agreements in place with all staff, make this a priority today.



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