Every employee in Australia has an employment contract. In many industries, that contract is verbal, or might only consist of a letter of offer. The employment contract is the deal negotiated between the worker and their employer regarding the key terms of the employment relationship.
As well as whatever has been agreed verbally or in writing, Australia has very detailed laws on the rights and obligations of workers and employers. There are also Modern Awards which apply to many workers, and in some workplaces, enterprise agreements apply to staff. These other sources of law also apply to the employment relationship, and where the contract of employment conflicts with these other sources, the other sources usually override the terms of the contract. For example, an employment contract cannot say that the worker is not entitled to annual leave, as the law mandates at least 20 days annual leave per annum for every full time employee in Australia.
Employment contracts can cover issues not covered by the general law or awards, so that everyone has certainty about the rules when issues arise in the workplace. A key topic is what is to be paid to the employee. This is especially important where bonuses or commissions might be involved based on performance or the achievement of targets. It also helps everyone to be clear on what will happen when the employment relationship ends, with agreement about how much notice must be given, whether the employee is free to work with competitors, and what is to happen with accrued entitlements, especially non-statutory payments like bonuses and commissions. A properly worded employment contract provides comfort to both employer and employee as it sets out clear expectations. Where conflict does arise, a properly worded contract will make careful provision for resolving such disputes without having to take the matter to court.
When negotiating the terms of a contract, make sure all of the following issues are covered:
Sometimes there is confusion about whether company policies are part of the employment contract. Most companies have their policies in a separate document, often called “company policies” or “company handbook”, and usually that separate document plainly says that those policies are not part of the employment contract. They usually say this because if the policies are not contractual, then they can be changed by the company whenever it wants without having to negotiate agreement with the workers, and the workers cannot sue the company if the company breaches its own policy. There have been many occasions however where courts have held that company policies do form part of the employment contract – each case will turn on its own facts.
The basic rule is that major changes to the employment contract (eg changing the salary, the hours of work, or the position) can only occur where both parties agree to it. Most changes can be refused by the employee if they want to stay with their existing arrangements. The Fair Work Act has provisions relating to the principle of “Adverse Action”, which protect an employee from being treated adversely for standing up for an employment right such as this.
Employers will often make pay increases conditional on the workers agreeing to changes to the contract. This creates a dilemma for workers – but in most instances if they want the increase, then they will have to agree to the other changes the employer wants to make.
Laws in this area change from time to time. Employers are entitled (and indeed are well advised) to update and modernize their employment contracts to take into account legislative changes.
If there is agreement to change a term of a contract, it is good practice to record that agreement in writing.
Just like any other contract, where an employment contract is breached, and loss is caused by that breach, it may be possible to sue on the contract. Court action in this area can be very expensive when one considers the amount being disputed, so most employment contract disputes are settled by negotiation. One area where there is a lot of litigation involving employment contracts is post-employment restraints (also known as “restraints of trade”). See the separate section on Restraints of Trade.
This is a term, sometimes also known as a “Separation Agreement” used to describe a written agreement setting out what will happen when a person’s position has been terminated due to redundancy. For more information, read our separate section on Redundancy.
Often employers will require their workers to sign a deed of release when they finish their job before their entitlements are paid out. The effect of a deed of release is to prevent the worker from making claims against the company in the future, and to ensure the confidentiality of any payment made to the worker. An employer is not allowed to force an employee to sign a deed where the company is only paying what the employee is legally entitled to. However if the company is making a larger payment than they legally have to, probably due to there being a dispute that they wish to resolve with a financial settlement, the employee will have to sign the deed to receive the extra payment. Deeds can often contain additional terms that go beyond what is necessary, so it pays to get advice before signing these.
Atkinson Vinden has been advising companies and workers on employment law issues for decades. We have a team of experienced lawyers who can help you. If you have a contract law question, or would like assistance with drafting or negotiating an employment contract, please contact a member of our employment team at Atkinson Vinden on (02) 9411 4466.