What is an employment contract?
Put simply, an employment contract (also known as a contract of employment or an employment agreement) is an agreement between an employer and employee that sets out the terms and conditions of employment.
The contract of employment is usually one of the key instruments which govern the employment relationship and which sets out contractual rights and obligations of both the employer and the employee. However, an employment relationship will not always be defined exclusively by a contract between the parties.
Does an employment contract have to be signed and in writing?
Most, if not all, employees are engaged under a contract of employment. It is a common misconception that, simply because an employee has not signed a written contract of employment, they must not have a contract of employment with their employer.
A contract of employment may be written, verbal or partly written and partly verbal. Verbal acceptance of an unsigned contract may also be sufficient in some cases for there to be a binding contract between the parties. A contract may also be able to be inferred in particular circumstances.
What is usually contained in an employment contact?
A contract of employment may include both express and implied terms. These terms set out the contractual rights and obligations of the parties and are ordinarily contractually binding upon, and enforceable against, the parties.
Express terms are those particular terms expressly agreed to by the parties (whether verbally or in writing). Written express terms may not all need to be set out in one document and written terms contained in another document may be incorporated in the employment contract by reference in the contract to the other document (which is known as incorporation by reference). Sometimes, a separate collateral contract may exist setting out other contractually-binding obligations and responsibilities of the parties.
Contractual terms can be implied in a number of ways, including by law, established custom or usage within an industry or fact. Common terms which may be implied by law into contracts of employment include implied duties of cooperation and good faith.
Contracts of employment typically set out express terms dealing with:
- Position, duties and reporting line
- Pay and remuneration (including allowances, bonuses and commissions)
- Type of employment (full time, part time or casual)
- Working hours and location
- Superannuation contribution requirements
- Employee benefits (such as in relation to motor vehicles, laptops, phones or professional memberships)
- Probationary periods
- Termination rights and obligations, including notice of termination requirements
- Leave entitlements
- Obligations in relation to confidential information
- Company policies and procedures
- Ownership of intellectual property
- Gardening leave
- Restraints of trade and post-employment obligations
- Dispute resolution
Where an employee is to be engaged as a casual employee, it is usually important for the employer to ensure that the contract does not make any firm advance commitment to continuing and indefinite work according to an agreed pattern of work for the employee.
Contracts of employment can generally be characterised as ongoing (i.e. a contract that continues until it is terminated by one of the parties), fixed term (i.e. a set duration) or maximum term (i.e. fixed term but with provision for potential earlier termination). As a result of recent legislative change, there are impending restrictions on the use of fixed term contracts in some circumstances.
What happens if a party breaches a contract of employment?
Enforceable contracts impose binding contractual obligations on parties. A breach of (a term of) an employment contract by a person may render the person liable in damages to the innocent party. An innocent party may also be able to seek other remedies, such as injunction in response to an actual or threatened breach of contract, depending on the circumstances.
Contractual disputes can be resolved through legal proceedings in various courts and tribunals, with the best jurisdiction potentially depending on the nature of any particular dispute.
What happens if the parties want to vary an employment contract?
Usually, an employer and employee will both need to agree to vary a contract of employment and often a variation is effected by way of a variation letter signed by both parties. Even where a formal variation is not agreed (either verbally or in writing), a party may conduct itself in a manner which gives rise to an estoppel or waiver.
Why have a clear, well-drafted, understandable and current contract of employment?
Contracts are important in so far as they set out binding contractual rights and obligations of the parties.
All too often, we see employment contracts not being given enough attention by both parties during the “onboarding” stage and this may cause problems down the track if rights and obligations are not clearly defined or otherwise not expressly addressed. It is also important to review, and considering revising, employment contracts where a material change to the employment is intended (such as in relation to the employee’s position).
It is also important to remember that many statutory rights and obligations exist on top of, and cannot be displaced by, contracts of employment. In this sense, an employment relationship, though principally based in contract, may be affected by statutory provisions and by awards made under statutes.
How can we help?
We have expertise in advising both employees and employers on all matters relating to contracts of employment. This includes reviewing, preparing and advising on all manner of employment contracts, including for senior executives.
Please do not hesitate to get in touch if you require any assistance in relation to a contract of employment.
Please note that the information on this page is intended to be of a brief and general nature only and should not be relied or acted upon as legal advice. You should always seek legal advice tailored to your own individual circumstances.
