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Dirty Truth of Handshake Agreements (Part 2 )

Dodgy Business Owners

The realities of disgruntled employees (and former employees), dodgy business owners, or the enforcement of Australian employment laws and regulations, render a ‘handshake agreement’ as a potentially dangerous liability. Unfortunately, just a ‘handshake agreement’ does not protect you, your business or your employees.

Getting caught out at Fair Work

Incredibly, despite all the recent media examples of high profile cases including Australian wide franchise organisations, entire industry sectors, and celebrity chefs, being heavily and publicly fined by the Fair Work system, many business owners are still prepared to take a risk, ignore the rules, and hope they don’t get caught out.

It is our experience, and as evidenced in the annual statistics from Fair Work, ‘handshake’, scam, and simply ‘half-baked’ employment agreements and arrangements, are still widespread throughout Australian industries. In fact, we are pleasantly surprised and extremely impressed when a small to medium sized business already has robust workplace compliance in place before we start working with them, as it is simply not the norm.

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Why SME’s have their fingers crossed?

While proper workplace compliance is the exception for most small to medium sized enterprises (SME’s), means that many businesses, business owners and employees are not adequately protected. However, when discussing these issues with business owners, we hear a range of attitudes and responses such as, the ever optimistic ‘she’ll be right’, the stressed hopeful ‘fingers crossed we don’t get caught’ to the more malevolent and defensive position of taking umbrage and display of arrogance.

And, in cases when an employer is trying to do the right thing by implementing workplace compliance essentials such as Letters of Appointment and policies, often he or she is confronted with push back and irrational (possibly suspect) indignation from their employees.

Old fashioned puts lives at risk

Recently we assisted a responsible client to issue updated Letters of Appointment and a few pertinent policies (such as Drug and Alcohol) to each of his 20 tradies. These employees were consigned to work on major new commercial construction works, where Workplace Health and Safety is paramount, the owner must comply to extensive site and contract terms and conditions, and the jobs for the whole team were put at risk if there are any compliance issues or breaches.

So, the business owner was understandably upset when at least one of the employees resigned saying he preferred to work the old-fashioned way with just a ‘handshake agreement’.

Resistance at substantial risk

However, despite even the loudest opinions of business owners, managers or employees, if any employer does not have proper workplace compliance in place, they are at immediate and substantial risk of:

  • the surprise visits, audits or scrutiny of the regulators, such as the ATO, Fair Work Ombudsman, ASIC or Worksafe
  • time consuming responses to employee claims, hearings and court appearances
  • the cost of defending your position, regardless of having been otherwise fair in your dealings
  • loss of sales and reputation
  • negative media attention
  • disruption to the company, and turnover of staff
  • hefty fines, penalties and/or jail terms
  • civil law suits
  • non-budgeted lump sum back payments or settlements
  • inability to properly address performance issues with employees

We believe that being haphazard or choosing to ignore Workplace Compliance is not worth the risk to you, your business or your employees. Look for our next article in which we discuss the good news and how workplace compliance is not too hard to achieve for any sized business.

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Posted on

Dirty Truth of Handshake Agreements (Part 1)

Can’t be bothered with the employer paperwork?

A ‘handshake agreement’ between you the employer, and employees is very convenient. A deal is done, a flat rate is agreed, and rigmarole is kept to a minimum. It is no fuss, no cost and you haven’t had to prepare and exchange formal employment contracts, fill out and approve timesheets, or administer and manage inconvenient filing systems.

Payroll isn’t an employment contract

You may even set up a quick and standard payment through the weekly transactions and call it ‘payroll’, pay some tax, and make superannuation contributions. The beauty of a good ‘old fashioned’ ‘handshake agreement’ is that it lets you get on and run your company, whilst the employee gets on and does the job.

“But we had a deal” lamented the caller. ‘We had an agreement” he kept saying over and over. This business owner was clearly distraught, angry and scared.  He was asking me if I could help him somehow reduce the back payment that was being claimed by a former, and very disgruntled, employee. The claim was for approximately $7,000.

Compliance Works

Disgruntled mates have no loyalty

Some handshake agreements are even more convenient, with cash in hand, no tax, no superannuation, no time sheets and no paperwork whatsoever. In the very best examples, handshake agreements represent trust, loyalty, collaboration and true blue Aussie mateship; and, yes, we agree, that sounds like a wonderful and mature way to do business!

The ‘handshake agreement’ between this business owner and his employee was simple, and both were agreeable to it at the time. He would pay a flat hourly rate of $20.00 to the employee who would work at least 38 hours a week driving his commercial vehicles.  For several years, he kept his word, and the employee kept hers.  He was absolutely furious that this now former employee had reneged on their agreement, had ‘dobbed him in’ and had ‘betrayed him’.

The follow-on effect

Basically, while there maybe a few convenient advantages, there are far too many downsides of verbal arrangements and ‘handshake agreements’ between an employer and employee. Such informal agreements may assume an aberration of trust, integrity and fairness between the employer and the employees. They also may rely upon the vagaries of memory, nebulous details, and, two completely different perspectives and circumstances that inevitably change over time.

Although an unbudgeted $7,000 is a lot of money for a small business, the real issue was that at least another 20 employees (including his existing workforce) had the same verbal ‘handshake agreement’ with the owner. And of course, by the graciousness of the former employee, the existing employees had all been made aware of her claim and their potential entitlements.

Most of these 20 employees were due back payments of more than $20,000 each. Also, by this stage, the Fair Work Ombudsman had been notified, so potential fines and other penalties were a real possibility. Unfortunately, summing the back payments and entitlements due, the business owner was facing potential bankruptcy of his business.  

This is not an exceptional call nor story, it is typical of what we hear every week. Look for our next article Part 2 Dodgy Business Owners in which we discuss the true risks of ‘handshake agreements’.

To be a more respected, appreciated and lawful employer,

go to our HR ONLINE STORE or

CONTACT US for expert

HR Help and Products 

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