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Employment contracts

Information about agreements made between an employee and an employer about their obligations and rights.

What is an employment contract?

The terms on which an employee works are called the 'Contract of employment' or sometimes 'Contract of service'. This is binding on both the employer and employee. The document governs the relationship between the parties as it sets out both rights and responsibilities of each party. The contract may refer to other documents and workplace policy documents, legislation, award agreements and job descriptions that provide further contract terms.

Terms in the contract

Most employment contracts will have express and implied terms. Express terms are those, either openly discussed or deliberately written down and agreed to. Implied terms are those that are not expressly written, but can be implied, in fact, in law or by custom and practice.

Terms that are implied in fact

Implied terms in fact are terms that are actually required to make the contract work. The leading case in this area decided what would indicate an implied term in fact and found that they must be:

  • reasonable and equitable
  • necessary to give business efficacy to the contract
  • so obvious the 'it goes without saying'
  • capable of clear expression
  • consistent with the express terms of the contract.

See BP Refinery (Westernport) Pty Ltd v Hastings Shire [1977] UKPCHCA1; (1994) 180 CLR 266 (27 July 1977) (link below)

Terms that are implied in law

Implied terms in law are duties that are present in every contract of employment unless specifically excluded and include, for the employee the duty to:

  • provide work before claiming pay
  • obey lawful and reasonable instructions
  • exercise reasonable care and diligence
  • act in good faith and fidelity.

Implied terms in law for the employer include the duty to:

  • pay for work completed
  • take reasonable care not to expose the employee to unnecessary risk of injury
  • not destroy mutual trust and confidence in the relationship
  • provide work (in some cases).

Implied terms in custom

Implied terms based on custom and practice are those terms that apply in a given industry because they are so well known and accepted it is presumed everyone must have agreed that the term would apply and be followed.

Some parts of an award my not be included in an employment contract

An employment contract is separate from conditions under a modern award. A breach of an award term by an employer will not necessarily mean that an employee could make a damages claim for breach of the employment contract. This would be different if the award terms were expressly incorporated by the parties in the employment contract.

See Byrne v Australian Airlines Ltd (1995) 185 CLR 410 (link below)

Employees to exercise care and skill

Employees have an obligation to exercise reasonable care and skill in performing their duties. Employers are under a common law obligation not to expose employees to unnecessary risk of injury.

Employee loyalty

Employees owe their employer a duty of loyalty, good faith and fidelity. This can include a requirement that an employee will not:

  • compete with the employer
  • use the employer's property in an unauthorised manner
  • use information acquired in the course of their employment, but confidential to the employer. This might include intellectual property but also may extend to knowledge of the way the business operates, its future plans etc.

Employers sometimes seek to restrict the ability of an ex employee from working in direct competition for a period of time. This is called a 'restraint of trade' clause.

See Social media warning in 'looking for work' and Woolworths Ltd v Olson [2004] NSWCA 372 (links below)

Mutual trust

An employer owes the employee a duty not to act in such a way that the confidence and mutual trust, necessary to continue the employment contract, is destroyed. This most often occurs when an employer, unwilling to face the obligations to the employee that might accrue if the employer terminated the contract, chooses instead to harass the employee into resignation.

This circumstance is often referred to as constructive dismissal.

For more about constructive dismissal see 'Unfair dismisal' (link below)

It has been documented and held to be a breach of the employers duty in numerous cases:

See (links below):

  • Mohazab v Dick Smith Electronics Pty Ltd (1995) 62 IR 200
  • Ward v Mobile Innovations Limited [2002] NSWIRComm 287

Employer may have to provide work

Employers can be held to have an obligation to provide work as opposed to simply providing payment. Payment is generally required when an employee is 'ready, willing and available to work' but the question has arisen does this extend to a duty to actually provide work. There are circumstances where this duty has been found to exist:

  • where a performer accepts work for reasons of ongoing publicity as well as wages in Marke v George Edwards (Daly’s Theatre) Ltd [1928] 1 KB 269
  • so that high level skills are maintained in William Hill Organisation Ltd v Tucker [1999] ICR 291 (Note: this UK case has been cited favourably in several 2010 cases in Australia)

Breach of employment contract

Either party can take action in court if the employment contract has been breached.

More information

Reference

The Law Handbook

Fitzroy's Law handbook has basic information about employment contracts and the differences between those of an employee and an independent contractor.

See Further terms and conditions for negotiation in individual agreements(opens in a new window)

Relevant cases

Note Some cases are not available online:

Updated