Employment Contracts and Why They Are Necessary

Writing down the specifics of an employment arrangement is not just a legal recommendation. It also helps in protecting the most important asset of a business: its people. In this article, we define employment contracts and discuss why they are necessary for managing professional relationships.

What is a contract of employment?

An employment contract is a verbal or written agreement that sets out the terms and conditions governing the relationship between an employer and an employee. Covered by the Fair Work Act 2009 (the Act), the contract must provide, among other things, conditions consistent with the minimum entitlements under the National Employment Standards (NES). These include:

Maximum weekly hours
Requests for flexible working arrangements
Paid and unpaid leave
- Parental leave
- Annual leave
- Personal/carer’s leave
- Compassionate leave
- Unpaid family and domestic violence leave
- Community service leave
- Long service leave
Public holidays
Notice of termination and redundancy pay
Fair Work Information Statement

What are the types of employment contracts?

Generally, there are two types of employment contract you can use when hiring for your business. These are:

1. Open-ended contract

This form of contract covers ongoing employment arrangements or those that do not have a specific end date and may apply irrespective of whether the employee is full-time, part-time, or casual. Under this contract, the employment will continue until the employee resigns, is terminated, or is made redundant by the employer.

2. Fixed-term contract

This form of contract may be appropriate when engaging an employee for a specific period of time. The employment arrangement will end depending on certain conditions such as the task’s completion.

the types of employment contract in Australia

The employment status of the employee must also be taken into consideration when drafting the contract. Most commonly, an employee is hired on a salary, full-time, part-time, or casual basis. It is important that both parties understand the capacity in which they are hired, as each capacity comes with its own set of rights and obligations insofar as it relates to matters such as number of hours worked, penalty rates, leave, long service, and other entitlements.

What does an employment contract include?

Regardless of your company size or industry, these are the key provisions to include in the employment contract:

personal details of the employer and employee
start date of employment and probation period (if applicable)
job title and description
requirements for the position e.g. licenses, registration, clearances, etc.
some employer policies and procedure (also often provided separately and may not form part of the terms of the contract)
type of employment–salary, full-time, part-time, or casual
place and hours of work, in compliance with the requisite jurisdictional health and safety requirements
remuneration (e.g. salary, commission, superannuation etc.) and method of payment
leave entitlements
confidentiality agreement for data protection
non-disparagement clause (to prevent parties from saying anything negative about one another)
grievance and disciplinary policies
notice periods for termination of the employment agreement (in accordance with the Act)
termination clauses (including redundancy)

Why is it Important to Have an Employment Contract?

While there is no law in Australia that mandates the creation of a written employment contract, it is important to get one in order. An employment contract provides certainty and security of the employment relationship, as it clarifies the rights, duties, and obligations expected from each party. The contract serves as a strong legal basis for the protection of the employer and employee’s respective interests.

Frequently Asked Questions

For Employers

Is it illegal to employ someone without a contract?

No, but remember that the NES minimum employment entitlements apply to all workers whether or not they signed a contract. As an employer, you are responsible for making sure that the terms and conditions of employment meet the minimum entitlements under the NES.

Can an employer break a contract?

There are a number of reasons an employer may wish to terminate a contract of employment–performance issues, redundancy, selling, or winding up of the business to name a few. Termination of an employee can be a sensitive issue, fraught with legal implications. Legal advice should be sought prior to any termination or breaking of contract occurs.

What is an award in an employment contract?

Awards or modern awards are legal documents that define the minimum pay rates and employment conditions per industry or occupation.

Can an employer sue an employee for a breach of contract?

An employment contract is a legally binding contract, so depending on the breach, either party may be entitled to commence legal action against the offending party.

For Employees

Can an employer change your contract without consent?

Without your consent or prior notice, an employer cannot unilaterally amend employment terms, especially your employment status, working hours, and salary.

Are employment contracts confidential?

Not ordinarily, but they can include a confidentiality clause preventing unauthorised disclosure of certain confidential information such as the employer's intellectual property, marketing plans, client lists, financial statements, and other proprietary information.

Can you have two (2) contracts with the same employer?

Yes, in certain circumstances, as long as the contracts are two separate and distinct contracts, each clearly setting out the duties, pay rates, and other terms for the job.

Do you have to sign an employment contract?

Yes, so it's important that you've read the fine print, finalised any amendments, and understand the enforceable clauses you're agreeing to before you sign on the dotted line.

Do employment contracts need to be witnessed?

Although the law also accepts verbal contracts, having a written contract signed by witnesses can help prevent unnecessary disputes down the track.

Get Independent Advice About Employment Contracts

How sure are you that the template you downloaded is legally compliant and adequate for your unique circumstances? How do you know that the clauses included in the document can promote and protect your interests instead of causing you problems down the line? If you try to enter into an employment arrangement with terms that are not supported by the law, the entire contract could prove to be insufficient or invalid if you eventually end up in a dispute. Connect with TNS Lawyers if you need a second pair of eyes in reviewing a new contract (or other employment documents) or assistance in resolving a contractual breach. Our employment lawyers have extensive experience representing all kinds of businesses–from SMEs to large multinational corporations–in different industries. Get in touch with our employment lawyers by giving us a call on (03) 9052 3214. You can also send in your enquiries via our contact form.

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