Employment Contracts

    Employment ContractsI have previously discussed the National Employment Standard and the rights and obligations of contractors, but I have not discussed the rights and obligations of employers regarding full-time employees employed under the conditions of a contract.

    An employment contract is an agreement between an employer and employee that sets out terms and conditions of employment or a professional relationship. A contract should be specific to the individual needs of the parties entering into the arrangement and can be in writing or verbal, or partly in writing and partly verbal. The Fair Work Ombudsman advises that an employment contract cannot provide for less than the legal minimum set out in either the National Employment Standards (NES), the associated award, enterprise agreements or other registered agreements that may apply to particular workplaces. All employees in Australia are covered by the NES, regardless of whether they have signed a contract, are working under a workplace agreement, or are casual workers. A contract cannot make employees worse off than their minimum legal entitlements (as established by the NES and an industrial award applicable to that industry).

    The contract can include information regarding the duration of the employment, limitations on the employee’s ability to compete with the employer after they leave the company, specific grounds for termination, dispute resolution, terms of confidentiality and rights to anything the employee produces while employed by the company. Employment contracts can also reference and rely on other documents, including policies and job descriptions.

    Contracts offer benefits for both the employee and the employer, which is why they are becoming increasingly popular. For the employer, they offer the advantage of engaging a worker for a specific period of time, at the end of which there is no messy separation issues. For the employee, it guarantees (subject to performance, conduct and competence issues) a set period of employment.

    Awards do not cover such aspects as intellectual property, confidential information, following employer’s policies or reasonable instructions, but these can be written into employment contracts. Contracts should contain clauses that protect confidential information and intellectual property, state that an employee is required to follow employer’s policies and that that an employee is required to follow the reasonable instructions of the employer. Flexibility as to location of work, hours of work, the position title and reporting lines, along with restraint of trade (which protects the employer from an employee trading near to where they used to work) should also be built into the contract.

    The management of contracts of employment in Australia is not without nuances and complexities, about which employers should be aware. On the face of it, it would seem quite a simple task to employ someone on contract and then terminate them when the contract expires. This of course is true; however, employers need to be aware that during the term of the contract and at its end, they have certain obligations. A longstanding obligation was clarified in 2014 when the High Court of Australia determined the case of Commonwealth Bank of Australia v Barker [2014] CA 32 (10 September 2014) and found there was no implied mutual trust and confidence automatically written into employment contracts in Australia. Prior to this decision, it was assumed that employers were not permitted to breach the trust or confidence of employees. It has now been clarified that this is not the case.

    However, there are other areas of law that everyone should be aware of, including:

    • the implied duty of care, which requires that the employer take reasonable care for the health and safety of its employees; for example, it could be a breach of contract for an employer to fail to take reasonable steps to ensure that employees are not exposed to bullying or harassment, or to risk of physical or mental injury
    • the employer’s duty to provide work to certain categories of employers and/or in certain circumstances
    • the employee’s duty of care and competence
    • the employee’s duty to obey the lawful reasonable instructions of the employer
    • the employee’s duty to cooperate with the employer in the operation of the employer’s business
    • the employee’s duty of fidelity or the obligation of the employee to desist from all actions causing commercial detriment to an employer or to have regard to the interests of his employer
    • the duty of good faith – there is no general implied obligation to act in good faith; however, it can be imported into a contract by express or implied provision to that effect

    It is important to understand that the requirements of these implied terms will vary from one situation to another. Employers should seek out independent legal advice if there is any doubt as to their obligations.

    Greg Byrne
    Greg Byrne is CEO and director of Multisec Consultancy Pty Ltd, a multi-faceted consultancy advising CEOs and boards of security organisations in Australia on best approaches to manage business risk, particularly operations, disaster recovery, business continuity and human resources.