Employment contracts
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A worker’s rights and duties depend on whether the individual is an employee or an independent contractor. Awards and workplace agreements – and legislation concerned with working relationships and conditions – mostly apply to employees, rather than to independent contractors. However, recent attention to this issue from Federal Parliament is likely to lead to increased protection of independent contractors under legislation.
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An ‘employee’ is a worker who works for another person in exchange for wages. The contract under which an employee performs work is called a ‘contract of service’. An employee may be engaged on a full-time, part-time or casual basis.
A definition of ‘casual employee’ has been inserted into the FW Act and provides that a person is a casual employee if:
the employment relationship is characterised by an absence of a firm advance commitment to continuing indefinite work; and
the employee would be entitled to a casual loading or a specific rate of pay for casual employees under the terms of a Fair Work instrument if the employee were a casual employee, or the employee is entitled to such a loading or rate of pay under the contract of employment.
Section 15A(2) of the FW Act lists a range of indicia to be used to assess whether the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work.
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In general, independent contractors are not covered by statutory minimum standards, awards or enterprise agreements made under the FW Act (see ‘National Employment Standards’, ‘Awards: The Fair Work Act and modern awards’, and ‘Enterprise agreements’, below).
The contract under which an independent contractor performs work is called a ‘contract for services’. Independent contracting arrangements are widely used in a range of industries, including the transport and building industries.
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A new definition of employment has been added to the FW Act commencing 26 August 2024 to help assess whether a worker is an independent contractor or an employee.
Whether someone is an independent contractor or an employee requires consideration of the real substance, practical reality and true nature of the working relationship. All parts of the working relationship between the parties must be considered, including the contract and practical performance of the contract.
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Each common law employment contract contains terms and conditions that regulate the parties’ relationship. Such terms may be oral and/or written. Often, letters of appointment, job descriptions, policy manuals, awards, collective agreements, workplace practices and legislation are sources of further terms of a contract. Under the FW Act, the terms of an employment contract cannot displace an entitlement under the National Employment Standards (NES) (see ‘National Employment Standards’, below), but they can offer more generous terms.
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The common law implies certain terms into every contract of employment. These terms impose obligations on employees and employers. Further obligations in the relationship between employee and employer arise in tort, equity and from fiduciary duties.
An example of a common law implied contractual term is the common law duty of fidelity and confidentiality, which prevents employees from using or disclosing their employer’s trade secrets.
Also implied into every contract of employment is a general duty to obey the employer’s lawful and reasonable directions. Further, all employees are obliged to exercise reasonable care and skill in the performance of their duties.
Contracts of employment that do not include an express termination provision contain an implied term that the employer will give the employee ‘reasonable notice’ before terminating employment, unless the employer has summarily dismissed the employee. ‘Summary dismissal’ is dismissal without notice. An employer only has a legal right to summarily dismiss an employee without notice for serious misconduct or other conduct that justifies immediate dismissal, such as theft, fraud, sexual harassment, or causing serious and imminent risk to the health and safety of another person.
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Like any contract, either party may sue for damages if an employment contract is breached. For example, when an employee is not given the requisite period of notice specified under their contract, the employee may seek damages for breach of contract.
These common law rights have to some extent been superseded by statutory rights to sue for reinstatement, breach of statutory agreements, compensation and underpayment of wages.
Employment contracts
Chapter: 11.5: Employment contracts, awards and agreements
Contributor: Alexander Lanham, Lawyer, and Samara Jones, Lawyer (Workplace Relationships and Safety), Lander & Rogers
Current as of: 1 September 2024
Law Handbook Page: 953
Next Section: National Employment Standards
