Employment Contracts

An employment contract is a legally binding agreement between an employer and an employee.

An employment contract may be written, oral, or partly written and partly oral.

An employment contract may consist of a detailed written document or a letter of appointment. In some circumstances, a contract of employment may be constituted by an exchange of correspondence.

An employment contract contains the employer's obligations towards the employee and the employees' rights and responsibilities in employment.

Employment contracts are usually classified as being ongoing or fixed-term.

Ongoing contracts continue until one party terminates the agreement.

Fixed-term contracts generally expire on a specified date or at the completion of a specified task/project. However, if an employer continues to engage an employee after the completion of the specified task/project or beyond the specified date, the fixed-term employment contract may be deemed to have been converted into an ongoing employment contract.

The terms of an employment contract may be express or implied.

Express terms

The express terms of a contract of employment are those specifically agreed between the parties, whether orally or in writing.

In a written employment contract, the express terms are generally the agreed terms which are reduced to writing.

Implied terms

In addition to express terms, there are terms that are implied into employment contracts.

Contractual terms may be implied by fact, implied by the common law, implied by custom/practice and or implied by statute.

Terms implied by the common law

Examples of terms that might be implied by the common law into oral and written contracts of employment are:

• the employer and employee's duty of 'mutual trust and confidence'
• the employer's duty to provide a safe work environment
• an employee's duty to obey lawful directions given by the employer
• an employee's duty to exercise reasonable care in carrying out the work
• an employee's duty of fidelity and good faith to the employer
• an employee’s duty of confidentiality

Further, contracts of employment that do not include an express termination provision will contain an implied term that the employer will give the employee ‘reasonable notice’ before terminating employment, unless the employer has summarily dismissed the employee for "serious misconduct".

What is 'reasonable notice' depends on the circumstances of each contract.  However, relevant factors include:

• seniority of position
• length of service
• salary
• age
• anticipated length of employment
• any detriment the employee suffered in order to take-up the position.

Terms implied by custom and practice

The requirements for a term to be implied by custom and practice are that the term be:

• Notorious
• Uniform
• Reasonable
• Certain

Essentially, there must be evidence that the custom/practice in question is so well followed by the parties making the contract that they can reasonably be expected to have imported the disputed term into the contract of employment.

 

Terms implied by fact

The criteria for implying a term by fact include the following:

• It must be reasonable and equitable;
• It must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it;
• It must be so obvious that it “goes without saying”;
• It must be capable of clear expression; and
• It must not contradict any expressed term of the contract.

Workplace policies and procedure documents

Workplace policies and procedure documentation can create contractual rights and obligations that bind employees and employers.

Workplace policies and procedure documentation may be specifically incorporated into the contract of employment.

Workplace policies and procedure documentation can also be incorporated by reference, such as in a letter of appointment setting out a requirement that the employee "abide" by all policies.

Whether a court finds the existence of a contractual term from a workplace policy or procedure document will depend on the circumstances of the particular case. If the policies are expressed in terms which create mutual obligations, are clear and precise, direct and mainly deal with matters one would expect to be in an employment contract, then a court is more likely to incorporate the terms into the contract.

Termination of an employment contract

An employment contract may terminate in a number of ways, including:

• expiry of a fixed term;
• completion of a specified task/project;
• unilateral termination (e.g. dismissal or resignation);
• operation of law
• mutual agreement;
• abandonment by the employee;

 
An employment contract that does not have a fixed expiry date can only be terminated in accordance with its terms.

Notice of termination

A written employment contract will usually include a clause concerning termination and the provision of notice.

These clauses will often allow the employer to make payment in lieu of giving notice. This means that the employer can bring the contract to an immediate end and pay to the employee an amount equal to what that employee would have earned had they worked the applicable notice period.

Breach of an employment contract

An employer or an employee can terminate an employment contract if the other party has committed a fundamental breach of a term of the contract.

If a party breaches the employment contract then the other party may be able to take legal action against the breaching party.

Variation of an employment contract

An employment contract can be varied by mutual agreement between the parties.

If an employer attempts to make unilateral variations to an employment contract in the absence of mutual agreement between the parties and/or without express authority to do so, any such variation might constitute repudiatory conduct entitling the employee to terminate the employment contract and sue the employer.

Common terms in employment contracts

It is common for an employment contract to include the following:

• job title
• position description
• employment status (e.g. full-time, casual, part-time etc.)
• period of employment
• location of employment
• ordinary hours of work
• remuneration
• remuneration review process
• performance expectations
• probationary period
• termination clause
• summary dismissal clause
• requirements for reporting absences/illness
• specific employment conditions and entitlements:
  • annual leave
  • annual leave loading
  • public holidays
  • long service leave
  • superannuation
  • reimbursement of expenses
  • sick leave or carer's leave
  • parental leave
  • other leave.
• confidentiality clause.
• intellectual property clause.
• restraint of trade clause.

 

Confidentiality

The law recognises that an employee may have access to confidential information by virtue of being in an employment relationship with their employer. As a result, the law implies a duty on employee’s not to misuse confidential information.

The duty not to disclose confidential information obtained in the course of employment is also a component of the wider duty of fidelity which is implied by law. However, the duty of fidelity comes to an end when the employment relationship ends.

Employees continue to be bound after the employment relationship ends by a duty of confidentiality if secret information is involved. However, the employee’s duty of confidentiality may be lessened if a company does not take reasonable care to protect its confidential information.

Confidentiality clauses often seek to clarify the confidentiality obligations implied by law by referring to specific confidential and sensitive information, including product designs, customer lists and supplier lists.

Intellectual property

Intellectual property clauses can be used to ensure employees involved in creative production waive any right to intellectual property, and clarify that the employer owns any copyright or other intellectual property right.

It is important that intellectual property clauses are accompanied by a definition of what the employer classes as intellectual property.

 

Restraint of trade

A restraint of trade clause is a contractual term which seeks to restrain the employee from competing with the employer’s business during the period of employment, and from competing with the employer’s business after the employment relationship ceases.

A properly drafted restraint of trade clause may provide a level of protection against an employee who seeks to work in direct competition with their former employer or who attempts to seize its customers, suppliers or staff.

In order to be deemed enforceable, a restraint of trade clause must be no wider than is reasonably necessary to protect a legitimate interest of the employer.

Employment contracts, the National Employment Standards and Awards.

Employment contracts, as a minimum, must meet or exceed each condition contained in an applicable Award or Enterprise Agreement.

The National Employment Standards (“NES”) also override any less favourable terms in an employment contract. The NES apply to all employees covered by the national workplace relations system, however only certain entitlements apply to casual employees.

The NES

The NES are set out in the Fair Work Act 2009 and comprise 10 minimum standards of employment. The NES are summarised below:

• Maximum weekly hours of work – 38 hours per week, plus reasonable additional hours.
• Requests for flexible working arrangements – allows parents or carers of a child under school age or of a child under 18 with a disability, to request a change in working arrangements to assist with the child’s care.
• Parental leave and related entitlements – up to 12 months unpaid leave for every employee, plus a right to request an additional 12 months unpaid leave, plus other forms of maternity, paternity and adoption related leave. 
• Annual leave – 4 weeks paid leave per year, plus an additional week for certain shift workers.
• Personal / carer’s leave and compassionate leave – 10 days paid personal / carer’s leave, two days unpaid carer’s leave as required, and two days compassionate leave (unpaid for casuals) as required.
• Community service leave – unpaid leave for voluntary emergency activities and leave for jury service, with an entitlement to be paid for up to 10 days for jury service.
• Long service leave – a transitional entitlement for certain employees who had certain LSL entitlements before 1/1/10 pending the development of a uniform national long service leave standard.
• Public holidays – a paid day off on a public holiday, except where reasonably requested to work.
• Notice of termination and redundancy pay – up to 4 weeks notice of termination (5 weeks if the employee is over 45 and has at least 2 years of continuous service) and up to 16 weeks redundancy pay, both based on length of service.
• Provision of a Fair Work Information Statement – employers must provide this statement to all new employees. It contains information about the NES, modern awards, agreement-making, the right to freedom of association, termination of employment, individual flexibility arrangements, rights of entry, transfer of business, and the respective roles of Fair Work Australia and the Fair Work Ombudsman.

A contract containing terms and conditions that are lower than the minimum standards are unenforceable in relation to those terms and conditions.

When preparing or reviewing an employment contract, the minimum terms and conditions of employment that arise under statute and those that are implied by law should be considered together with any applicable Award or Enterprise Agreement.