Cover Story: Do you know your rights? A legal guide for IT professionals

IT professionals are finding their path strewn ever more thickly with legal pitfalls.

Unfair dismissal suits, breach of confidence actions, intellectual property disputes, disagreements over bonus amounts, compensation claims generated by projects that have gone sour . . . the list goes ominously on.

Even though nobody likes to think about being caught in the expense and effort of legal actions, chances are multiplying that sometime in your career you will be.

Especially since the trend for most IT professionals is toward contracts and away from handshakes as a way of sealing an agreement. The twists and turns of employment law make it impossible to produce a straightforward list of do's and don'ts.

But it is possible to gain some working knowledge of where the biggest traps lie and how to find the legal ladders will help you clamber out of them.

One such trap are the "restraint clauses" in employment contracts which merit special attention from contractors as well as permanent IT employees.

Common law views all restraint on trade, such as trying to prevent departing employees from taking up posts with competitors, as illegal unless it is based on reasonable protection of a legitimate interest.

That makes contractual restraint clauses often difficult to enforce. But they are not unknown, particularly in situations involving highly sensitive projects or key personnel.

Restraint clauses merit their own subsections in employment contracts but seem mysteriously invisible to most employees until they decide to jump ship, says Mark Flint, a senior associate with law firm Clayton Utz in Sydney.

That's when the clause suddenly snaps into focus along with a clear path leading to the nearest lawyer's office for advice, he says.

Relations between a contractor and an agency that places him in a client's shop can go sour in a variety of ways. He might discover he's on a lower rate than contractors in the shop courtesy of other agencies. Or he might become disgruntled over the level of support and service he's getting from his agency.

But if he decides to swap agencies, he may face a difficult choice because some restraint provisions allow him to shift to a competing agency at the cost of not returning for anything up to 12 months to his current shop.

From the perspective of IT management, restraint clauses can prove tricky brutes to handle. They often backfire on management by being ruled invalid in court, says Flint.

A good way to guarantee a restraint clause will be tossed out by a judge is to stretch it over too long a period.

In general, anything beyond three months stands a good chance of being struck down by a court as invalid, Flint says.

Another common mistake employers make is to draft restraints which take in too much territory. A restraint clause that seeks to stop somebody taking a position with a competitor in the same city has a better chance of standing up in court than one dealing with an overseas or interstate job.

Disputes in which a contractor dumps one agency for another rarely proceed to litigation, according to Flint. That's because the parties normally sort it out between themselves before the disagreement escalates to the litigation stage. And agencies who can practise an open and transparent management policy that discloses up front what their margins are can often avoid ugly shouting matches altogether.

GOOD FAITH

The IT profession is rife with examples of employees eager to leave their employers and strike out on their own. They have every right to provided they can negotiate legal pitfalls surrounding good faith and confidentiality.

In this area, the concerns of contractors and employees tend to fall into two different baskets, according to Flint.

For employees, one temptation is to line up a client base before they actually leave their current employer. That is a monumental misstep because it is a breach of good faith that can boomerang badly, warns Flint.

"If you want to compete, you must terminate your relationship. You can't use your employment as a springboard before you jump."

Contractors placed with clients through agencies are in a three-sided relationship capable of more permutations than the bi-polar nature of the permanent employee-to-employer structure.

"Sometimes contractors and clients collude to cut out the agency as middleman," says Flint. "This will be viewed as a breach of contractual obligations and can create all sorts of problems."

INTELLECTUAL PROPERTY

Taking your desk and the light fixtures with you when you change jobs is clearly unreasonable in theory and theft in practice. But what about flimsier items such as that clever piece of code you've cut or a sheet of paper with the names and addresses of clients you've helped bring in?

The rule of thumb is you are entitled to cart off anything you can carry in your head as part of your knowledge and experience. So a diskette full of code is out of bounds but you are within your rights to replicate the code by dint of your own knowledge, experience and work. In some circumstances the information may still be classed as "confidential' and therefore protected.

Contractors should stay alert to contractual threats to their own intellectual property.

"Often they are engaged because of their knowledge base which they modify to suit the client's need," notes Flint. "They shouldn't sign any contract which effectively signs this property over to the client."

The flip side of this question is that clients must guard against straying into forbidden territory when they use a contractor's IP.

"Training manuals are the classic example of how this can happen," says Flint. "A company will bring somebody in to do an initial bout of training. Later they decide to do another course and reproduce the original training materials inhouse."

Such reproductions often constitute a violation of the original trainer's IP.

"The bottom line is that whether you are a client or a contractor, you need to carefully review the IP provisions of the contract."

The task is rendered complex because it is a misnomer to call IP a specific category. It is really a general label for a bundle of separate rights attaching to specific bits of information. The protections afforded by law to confidentiality, copyright, trademarks and employment are all loosely grouped under the heading IP, making the area a legal minefield.

HIRING AND FIRING

Unfair dismissal suits are the final step in a chain of events whose roots often lie in the hiring process. When it comes to hiring and firing IT professionals, Flint's advice to both employees and employers is to consult a workplace relations lawyer and consult him early.

"Your lawyer may know all about IT and IP, but this is a complex area in which doing it yourself turns out to be a false economy. You need an employment lawyer."

It is astonishing how many contracts fail to address even basic items such as notice provisions for termination, Flint says. In the absence of a specific clause, employees are entitled to "reasonable" notice but the definition of reasonable depends on circumstances. Even though termination generally involves four weeks notice, reasonable for a senior employee could translate into anything up to six to 12 months.

Such an employee on $100,000 annually would be entitled to serve a damages claim for $91,000 against any employer who tried to terminate him on four weeks notice unless the four weeks was specifically spelled out in his contract.

Employers looking to terminating workers who are under-performing or displaying what the employer considers inappropriate work attitudes must follow certain rules.

They generally have a duty to institute a review process in which the employee must be told his job is on the line and must also be told what part of his game needs lifting. The rules differ from state to state so it is necessary to consult a lawyer.

In practice, "articulating what it is about an employee's behaviour that reflects a bad attitude is difficult to do for most employers in terms that don't sound petty", says Flint.

But courts normally require employees to be taken through three performance reviews before the axe can be swung. At each review, it must be made clear their job is under threat and the problems must be spelled out along with the corrective measures they need to take.

One mistake nearly all employers make is that they don't get the performance review down on paper, says Flint. So if the case goes to court it often comes down to the employee's word against the employer's.

"A simple remedy is to get independent witnesses in the office to take accurate minutes of the interview," he says.

The written record must be signed by both employer and employee. An alternative is to tape record the meeting, as long as it is done with the consent of both parties.

PROBATION

Another source of contractual grief are probationary periods. Most senior executives regard it as an affront if their employment agreement stipulates a probationary period.

"But many companies are lumbered with lengthy and expensive review procedures to get rid of someone where it would have been an automatic right if they had put a standard three-month probation period in the contract.

"In the commercial world, most people believe the more senior the executive, the less the need for a probationary period. From the perspective of a court, it is just the opposite. The greater the responsibility of that executive, the greater the interest the employer has in knowing if he can do the job."

Contractual probation clauses offset some of the shortcomings of the interview process, including the possibility that applicants may overstate their abilities.

BONUSES

Bonus clauses in contracts are another area of potential conflict for IT professionals. They often confer on employers broad discretion about the amounts to be paid. Even when a sum is specified, the clause must contain a pro rating mechanism to protect employees from losing out if they leave before the bonus date crystallises.

"It is common for employers to dismiss someone just before the bonus date and then withhold the money," says Flint.

That can leave employees in a quandary as they try to decide whether or not it is cost effective to pursue legal redress.

The bonus could be five or ten thousand dollars but it could be more than eaten up by the legal feels involved with winning a favourable court ruling over an ambiguous clause.

Rather than risk going further into the red, employees choose to walk away from the situation and the employer "ends up with a windfall", Flint says.

EMPLOYEE OR CONTRACTOR?

A huge temptation for employers is saving in overhead costs made possible by transforming permanent employees into contractors. The savings involve sick leave, annual leave, workers compensation and superannuation payments.

However the guidelines which help to make the correct distinctions between the two groups can become blurred and difficult to perceive in some circumstances. Making the wrong choice can lead to severe consequences in the form of an Australian Tax Office demand for retroactive PAYE remittances.

One rule of thumb about which side of the line an employee falls on has to do with the degree of day-to-day control exercised over his actions by his employer.

If he is performing daily tasks set and supervised by a superior, he's likely to fall into the employee category. Contractors tend to be engaged on projects where outcomes but not daily activities are directed by an employer.

"I have heard of organisations who seek to terminate employees and then put them on as contractors the next day," says Flint. "This is where they can get into trouble. There is no real change in the relationship and courts take the attitude that if it looks like a duck and quacks like a duck, it is a duck."

It is less risky to classify a worker as a contractor if he is set up as a business and bears the risk of that business himself.

Overall, changing an employer/employee relationship into a contractor/subcontractor association makes economic sense, but the transition can be fraught with hazards. Don't assume it can be done overnight and if in doubt, the wisest course of action is to seek advice from tax or employment lawyers, Flint advises.

FOREIGN HELP

For an increasingly internationalised IT workforce, two growing issues relate to emigration costs and superannuation.

Time and expense is involved in processing the papers of employees hired overseas. In Australia, for example, pulling the appropriate documentation together for a US or European national usually attracts fees on the order of $1500 but can reach $2500 for those from other countries. Similar paperwork costs are generated when Australian professionals go overseas and it is to be clear on who is to bear those costs.

More importantly, the superannuation contributions all employees are required to make under Australian law can't leave Australia when they do. The money will be held in Australia and cannot be accessed by the worker until he retires.

"There is no solution for this at present," says Flint. "All an employee can do is keep track of their super investment fund in Australia from their home country when they go back."

Australians working overseas face the same situation and those on longer term, well-remunerated contracts will end up with substantial sums locked up in their country of employment. The funds must remain there until the benefits mature because no international transfer rights exist.

Simon Blake, a specialist in this area for Clayton Utz, warns Australian citizens in that position must ensure the foreign superannuation authority is kept up to date on their present address or risk losing the money.

"Once the preserved benefits mature, it is up to the individual to claim them," says Blake.

If they fail to do so within a certain time period, in many countries including Australia the money automatically defaults to the government's account.

BLAME

State legislation such as the 1991 Employees Liability Act in NSW protects programmers and other IT staff from being taken to court by employers for things like missed project deadlines or coding errors. As long as the negligence isn't deliberate, it is rare for employees to be targeted with court action for compensation.

Contractors face more legal risks. In contracts signed between clients and agencies, indemnity clauses are often inserted to protect the contractor "Those clauses can be sources of great angst if the terms aren't made clear," says Flint.

Tight deadlines or unrealistic client expectations can undermine even the best-run project. In such circumstances, a contractor's best protection, aside from having formal insurance in place, is to be alive to the pressures and expectations before walking onto the site.

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