The employment relationship is governed by a combination of common law (or judge-made) principles, legislation and industrial instruments. Like any contract, an employment contract can be written or verbal. However, given the complicated nature of the employment relationship, we strongly recommend all employees be provided with a written contract so there are no uncertainties over the terms and conditions of employment.
We assist employers with drafting comprehensive and compliant employment contracts and also help employees negotiate and understand the terms of their employment.
What is an employment contract?
An employment contract is an agreement between an employer and employee that determines an employee’s entitlements and obligations. Employment contracts also protect businesses by setting out employee conduct expectations, confidentiality and intellectual property obligations and, where applicable, any post-employment restrictions.
It must also provide an employee with minimum legal entitlements. These can be found in the National Employment Standards (NES) in the Fair Work Act and any relevant industry awards or enterprise agreements. An employer can also provide employees with entitlements that go above and beyond the minimum ones provided under legislation or industrial instruments.
Different types of employment contracts
When it comes to employment contracts, there is no ‘one size fits all’ approach. Before deciding what to include in a contract, you should consider the following:
Is this particular role covered by an award / enterprise agreement?
This will affect the minimum conditions and entitlements, such as employee agreed hours of work, breaks, minimum rate of pay, penalties, overtime and allowances.
An employer can choose to provide more generous terms and conditions of employment than the minimum provided under the applicable award/enterprise agreement and to provide employees with an annual salary which covers award entitlements. In those circumstances, the employment contract should include appropriate set-off provisions to protect against any “double-dipping”.
Is the employee a full, part time or casual worker?
There are important differences between permanent and casual employment and the type of employment will have significant implications for the contract.
In particular, casual employees are not entitled to things such as annual and sick leave, notice of termination and redundancy pay. Instead, they are paid a loading (usually 25%) in lieu of those entitlements. Casual employees are engaged with no firm advance commitment to ongoing work with an agreed pattern of work. They are offered work when the business needs them to work, and they can choose to work or not. Written casual employment agreements also need to be in place to comply with the recent changes concerning casual employees in the Fair Work Act.
Permanent employees have the expectation of ongoing employment, paid leave entitlements, notice of termination and are contracted for a set number of hours per week.
Is the role for a fixed term or specific project?
Whether an employee’s role is ongoing or for a fixed period of time will also affect the terms of the contract.
If the role is for a fixed term or specific project, the employee will not be protected from unfair dismissal as the contract comes to an end by effluxion of time so there is no dismissal. However, if an employer ends a fixed term contract early, the employer will need to pay out the balance of the contract.
A maximum term contract includes a provision which allows the parties to end the contract with notice before the end of the term of the contract. This means if an employer ends the contract early, they will not need to pay out the balance of the contract. However, the employee may be protected from unfair dismissal so a fair dismissal process will need to be followed, including notifying the employee of the reasons for the dismissal and giving them an opportunity to respond. There is also a risk of the employee resigning before their work is complete so an employer will need to consider the type of arrangement (and contract) which best suits the situation.
What should I include in my employment contract?
Employment contracts should outline all the basic terms and conditions of employment, such as:
- employer’s name
- commencement date
- agreed hours of work
- where work is to be performed
- who the employee reports to
- agreed remuneration and notice of termination
- an outline of the employee’s duties and responsibilities and obligations on the employee
- a probation period
Employment contracts should also cover topics such as confidentiality, intellectual property rights and, if applicable to the role, post-employment restraints to protect the employer’s legitimate business interests.
What should not be included in an employment contract?
The contract should never include anything that is illegal, discriminatory, ambiguous, vague, contradictory or confusing and cannot contain terms that are less than the minimum standards as set out in the NES. Attempting to exclude or avoid the minimum entitlements, even by mutual agreement with the employee, is not possible.
The NES guarantee certain minimum entitlements applicable to all national system employees, regardless of whether they have signed a contract. This includes things such as:
- maximum ordinary hours of work
- requests for flexible work
- casual conversion
- paid annual leave
- paid personal/carer’s leave
- compassionate leave
- community service leave
- parental leave
- long service leave, public holidays, minimum notice of termination and redundancy pay
Employees not covered by the Fair Work Act will be covered by similar conditions contained in any applicable State legislation.
Whether hiring at a junior or executive level, an employment contract provides clarity regarding the rights and responsibilities of the employee and organisation. We are experienced workplace lawyers, having assisted numerous employers and employees navigate their employment contracts.