Employment law is an amalgam of overlapping statutory and common law rights and requirements. Perhaps the most important obligation exists under workplace health and safety legislation. Employers have a duty to ensure the health and safety (including the psychological safety) of their workers while at work, so far as is reasonably practicable. Without being exhaustive, employers also have statutory obligations under employment, discrimination, consumer protection and privacy legislation. Actions towards employees may also have professional conduct implications.
There is a hierarchy of basic employment law instruments. The foundations are the National Employment Standards under the Fair Work Act 2009 (Cth) which apply to all employees. The Fair Work Act also contains a host of other obligations such as the requirement to keep particular employment records and provisions about unfair dismissal, workplace bullying, breaches of general protections and sham contracting. Public servants will also be subject to their own regimes under public service legislation.
It is then necessary to consider whether there is an applicable industrial award that applies to an employee. Industrial awards are given force by legislation and contain more detailed provisions relating to particular industries or occupations. It is not generally possible to simply opt in or out of an industrial award. For instance, in the area of private legal services, the Legal Services Award 2020 applies to most support staff and graduates. The award does not apply to professional staff. It is possible to enter into a legislatively recognised enterprise agreement with a group of employees (but not an individual) which takes the place of an industrial award. However, this is subject to approval by the Fair Work Commission and subject to employees being better off overall than under the applicable award. The reality is that there is little to be gained at the moment for most employers and employees through the enterprise bargaining process.
Despite the increasing number and detail of legislative and award based obligations on both employers and employees, there is a large area of the employment relationship that is not covered. This is where the common law has a continuing role to play.
The common law exists in parallel with, but subject to, overriding statutory minimum requirements. At its most basic level, an employment relationship between an employer and an employee is a civil contract where the employee agrees to perform work for the employer in exchange for monetary or other payment. In this sense, the employment contract is no different from any other civil contract such as a contract to build a house. This means that the employer and employee are free to agree on whatever terms of employment they like, subject to legislative minimum rights and modern award or enterprise agreement requirements.
If there is no written contract of employment, the common law will operate to imply certain terms into the employment agreement. The scope of implied terms is not fixed in nature although some basic terms are accepted. For an employer, this includes the obligation to provide a safe working environment and to give reasonable notice of employment termination. An ability to suspend an employee on pay and to place an employee on “gardening leave” to serve out a notice period of termination may also be implied in certain circumstances.
For an employee, implied terms include a duty to obey the employer’s lawful and reasonable directions and exercise due skill and care in performing their duties. It is likely that a duty to honestly and faithfully serve an employer also exists.
Terms of fact may also be implied into the employment agreement in accordance with established principles. The difficulty with implied terms however is that their precise extent and application will vary from case to case and may be far from certain without judicial pronouncement. For instance, the extent of implied duties of confidentiality, particularly once employment ends, is far from certain. The upshot is that employers and employees should ensure that a written common law contract of employment is agreed before employment starts.
Lastly, employer policies are an important tool for formalising employer directions about operational matters. Policies may or may not form part of the employment agreement depending on their content and contractual status.
Keeping in mind that the contract of employment can only be changed by agreement between the parties, employment agreements are best treated as framework documents which set out the basic foundation stones of the employment relationship, leaving more dynamic operational matters to policies and procedures. There is also little point to duplication legislative and award requirements in a common law contract, which can result in those provisions having not only statutory, but also common law force.
For instance, an employer may wish to include minimum terms providing:
On the other hand, an employee may look for terms including:
It is trite to say that there is no “one size fits all” employment contract. Employers and employees should consider their particular contractual needs on a case by case basis or at least a class by class basis (eg junior clerical staff, paralegals, professionals) because one size will not generally fit all in practice and may result in overkill or the omission of important provisions. It is, however, unwise to rely simply on loose verbal agreements and implied common law terms to supplement statutory minimum conditions of employment.
Employment agreements should also be reviewed on a regular basis to ensure they are up to date with changes in the law and contain appropriate protections. Of course, changes to contracts with existing employees need to occur by agreement.
All contracts (whether in the form of a letter of offer or a more formal agreement style document) should address the following provisions as a minimum. This is not an exhaustive list of clauses that may be desirable in particular situations (for instance, post employment restraints are not addressed in this list).
Every contract should of course spell out who are the parties to the agreement. It is also useful to include a set of definitions for terms used in the agreement which saves on repetition and space and to set out the way various grammatical references in the agreement should be interpreted. These clauses help to give contractual certainty in interpreting the agreement.
The contract should specify when the employment relationship will commence.
For the sake of clarity, it is advisable that the agreement is stated to be subject to minimum legislative conditions and, if applicable, award conditions. It should also be stated that these minimum legislative and award conditions are not part of the contractually agreed conditions.
The contract should specify the employee’s position and it is desirable for the employer to have a written position description in place for the job in question.
It is also common practice to set out the general common law obligations of an employee to the employer, for example to use their best endeavours to further the employer’s interests, act honestly and not to engage in any other work which may conflict with the employer’s interests, unless agreed by the employer.
The provision can also provide the employer with some scope to change the employee’s duties so long as the nature of the position is not substantially changed (other than by agreement) and the duties are within the employee’s capacity.
The provision can also provide that the agreement will continue to operate even where there are changes in the employee’s role and operational issues.
It is important to confirm the employer’s basis of engagement, ie on a full time, part time or casual or other basis.
A clause of this nature can enable an employer to direct an employee to work at alternative places, subject to a reasonability requirement.
For full time employees, the employee’s standard hours of work will normally be 38 hours per week, which can by agreement be averaged over a period allowed by the applicable industrial award. For award free employees, hours can be averaged over a period of up to 26 weeks.
At least for award free employees, the agreement can provide that the employee may be required to work additional hours that are not unreasonable to fulfil their responsibilities and that their level of remuneration reflects this requirement. This arrangement reflects the legislative scheme of a standard full time 38 hour week which can be averaged over a period of up to 26 weeks by agreement, plus additional hours that are not unreasonable. This provision would not be included for employees being paid as per award (unless an annualised wage or common law salary is being paid in accordance with award and general law obligations).
The normal office hours of the employee should also be set out as a baseline for the attendance of the employee.
For part time employees, award requirements generally mean that the schedule MUST specify the:
a. commencing and finishing times of work;
b. the days of the week on which the employee will work; and
c. the number of hours to be worked each day.
Most awards contain a minimum period of engagement for part time and casual employees. It is not generally necessary to specify hours of work for a casual employee because their hours of work should be inherently uncertain. It is particularly important to consider the working hours provisions of any applicable award/enterprise agreement when formulating contractual obligations.
For employers, it is common to set out the status of employer policies as directions by the employer and not contractual terms forming part of the employment agreement which are mutually binding and enforceable. There have been a number of cases where employers have been held to policy statements that they will act in a certain way, such as investigating any complaints that are made.
In a practical sense, policies should be flexible and may need to be changed from time to time according to circumstances. They are not matters that should be the subject of agreement between the parties. It is accordingly important to consider the matters that should be included in the contract of employment as opposed to operational policy.
It is common to specify the regularity of payment of remuneration in the agreement, although award requirements should be checked if applicable.
The employee’s weekly or annual wage/salary (or hourly rate for casuals) should be included in the agreement or schedule.
It is important that any award or enterprise agreement requirements be taken into account when considering contractual remuneration provisions. The starting point is that all award covered employees must be paid at least the minimum award rates for standard hours, penalty rates and overtime as well as allowances and other award required payments. For award employees, an employer can pay above award rates as an “all up” figure but it is important that properly documented arrangements are put in place to formalise such arrangements and provide the employer with a level of protection. There are sometimes two choices open to employers covered by industrial award. The first is to utilise an annualised wage arrangement which may be contained in an award.
There are different versions of annualised wage arrangement depending on the relevant award. Generally, an annualised wage arrangement under an award enables an employer to pay a full-time employee an annualised wage in satisfaction of any or all of the award provisions relating to minimum rates, allowances, overtime, shift penalty rates and annual leave loading. An annualised wage must be no less than the amount the employee would have received under the award for their work. It is necessary to specify in writing (depending on the particular award):
a. the annualised wage payable;
b. which applicable award provisions are satisfied by payment of the annualised wage;
c. the method of calculation of the annualised wage, including specification of each separate component of the annualised wage and any overtime or penalty assumptions used in the calculation; and
d. the outer limit number of ordinary hours which would normally attract a penalty rate payment and the outer limit number of overtime hours which the employee may be required to work in a pay period without any extra payment.
If an employee works more than the hours provided under the annualised wage arrangement in any pay period, then the employee will be entitled to separate payment in addition to the annualised wage. The clause also requires an annual comparison review with the award and that detailed records of hours of work and breaks are kept and signed off by the employee each pay cycle.
An alternative is to rely on a common law “offset” clause in the contract of employment in order to pay an annual salary rate to an award covered employee. The Fair Work Commission has said that employers may make contract arrangements to pay employees in accordance with a salary arrangement that compensates or “buys out” identified award entitlements without engaging with the annualised wage arrangements provision in the applicable award. However, care needs to be taken to ensure:
a. the contractual offset clause is precise about the award entitlements being covered by the above award wage;
b. records of hours worked will still need to be kept and regularly reviewed to ensure that the employee is in fact receiving as much or more than they would be entitled to receive under the award; and
c. the payment of an above award salary amount does not result in the employee being paid less than the award requires for any particular pay period.
The provision can give the employer discretion to review an employee’s salary in accordance with any policies and its discretion. The provision can also set out requirements for payslips and superannuation contributions. Employers should note that awards now set out a limited range of default superannuation funds which employers must use if an employee does not make a choice.
It is useful to clarify the status of non core salary payments and benefits. These should be specified to be discretionary and capable of being removed by the employer unless the employee is advised in writing that the benefit or bonus forms part of their remuneration, in which case, it should be spelt out or referred to in the salary provision in the schedule to the agreement.
This is particularly important where employers have commission or other incentive arrangements in place. Issues can arise when an employee has come to expect a certain level of benefit and an employer unilaterally changes the goalposts so that the level of payment is reduced. The issue also commonly arises on termination in the context of whether an employee is entitled to a proportional payment of commission or to payment up to the date of their termination.
Provisions should be included protecting the employer’s interests in relation to the use of confidential information by an employee and an employer’s intellectual property rights. More detailed provisions should be considered on a case by case basis.
Essentially, an employee can only use information gained through the employment, which can be characterised as confidential, for the employer’s purposes. This obligation also applies for a reasonable time after the end of employment so long as the information remains confidential. However, what is regarded as confidential is generally regarded narrowly by the courts in the absence of a more detailed contractual provision.
If, during the employment, the employee creates anything capable of being the subject of intellectual property rights and which is only able to be created because of their employment, then those intellectual property rights will generally belong to the employer. This reflects the legal position that an employee should not gain an unfair or unreasonable advantage because of their employment. In an appropriate case, this position should be confirmed or expanded upon in the contract.
Most termination clauses reflect minimum National Employment Standards (NES) termination requirements and include a contractually reciprocal obligation on the employee to give notice as well as the employer which is generally accepted as a reasonable requirement. There is no statutory minimum obligation on employees to give notice of their resignation.
A provision can also be included enabling an employer to change employment arrangements during a notice period. For instance, an employee may be put on “gardening” leave and not required to attend work or may be redeployed to another area of the business during a notice period. There may be times when this is preferable to paying an employee in lieu of notice.
A provision should be included setting out the circumstances in which employment may be able to be summarily terminated without notice. These are matters which are so serious that it is recognised that notice of termination should not be necessary. This can include a failure to disclose prior conduct which is so serious that, if it occurred during this employment, would justify the immediate termination of the employment, such as prior fraud or criminal conviction.
A redundancy provision can be included to cover the situation where an employee’s position is made redundant and is no longer required. It is common practice to simply refer to the NES requirements. It is also suggested that clauses be included to put in place obligations for the return of employer property, transitional hand overs and conduct during the notice period and post termination.
Employers sometimes wish to include a provision in the contract allowing them to deduct the amount of any debts said to be owing by the employee from amounts otherwise due to them. As a general rule, this type of provision is undesirable and unenforceable. The Fair Work Act 2009 (Cth) (s.324) provides that an amount can only be deducted by amounts payable to an employee in relation to the performance of work if:
a. the deduction is authorised in writing by the employee and is principally for the employee’s benefit; or
b. the deduction is authorised by the employee is accordance with an enterprise agreement; or
c. the deduction is authorised by or under a modern award or an order of the Fair Work Commission; or
d. the deduction is authorised by or under a law of the Commonwealth, state or territory or a court order.
Further, the authorisation must specify the amount of the deduction and may be withdrawn in writing by the employee at any time. As an example, an employee may resign and not provide the notice required by their contract of employment. There is no legislative requirement under the Fair Work Act for an employee to give notice of termination and an employer should not deduct any amount from wages or leave payments due to the employee unless there is some authority that falls within the above description. Many awards, for instance, provide for employees to give notice of termination and allow a deduction to be made by an employer if the appropriate notice is not given.
Finally, it is important to remember that an employment contract is a framework of basic provisions agreed between the parties and is not intended to be an exhaustive statement of the duties and obligations of the parties. More detailed provisions may be considered for more senior employees and professionals.