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02. Employment Contracts
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02. Employment Contracts

Minimum requirements

The most basic source of employment terms and conditions is the contract of employment. It can be in writing, for example, by letter of offer; it can be oral; or it can be evidenced by a course of conduct.

A contractual term may not be enforceable if the terms in the contract are less favourable to an employee than the terms prescribed by legislation, awards, or other industrial instruments.

Employment contracts in Australia are formed using the general principles of contract law:

  • one party’s offer of terms must correspond with the other’s acceptance;
  • the parties must intend to be legally bound by the contract;
  • consideration must be provided for the contract;
  • the terms need to be certain and complete;
  • there needs to be no vitiating factor such as illegality or duress.

The question of whether a person who performs work for another is an employee as opposed to an independent contractor has significant implications for the nature of the obligations which exist between the parties. Australian courts have long struggled with the distinction between the two in difficult cases.

Courts will examine the entire relationship and have particular regard to the following indicia:

  • regular remuneration and the mode of remuneration;
  • the deduction of income tax;
  • the provision of holidays;
  • superannuation;
  • the obligation to work;
  • the provision and maintenance of equipment;
  • the hours of work;
  • the right to delegate work;
  • the exclusive right to the services of the particular worker;
  • the right to suspend or dismiss the person engaged;
  • the right to dictate place of work, hours of work;
  • the right to dictate the manner in which work is performed.


Fixed-term/Open-ended Contracts

Employees employed under a fixed term or fixed task contract are not afforded all of the protections provided by the Fair Work Act 2009 (Cth). Although they are generally entitled to the same wages, penalties and leave as permanent employees, as employees who are employed “for a specified period of time” they are not entitled to notice periods and are generally, but not always, excluded from the unfair dismissal provisions of the Fair Work Act 2009 (Cth). For example, a teacher, who had been engaged under a series of fixed-term contracts for several years, was eligible for protection from unfair dismissal.

Trial Period

The Fair Work Act 2009 (Cth) does not refer to probation periods. However, an employee must have worked for the employer for at least six months before he or she is entitled to make a claim for unfair dismissal, and 12 months if the employer is a small business. An employment contract can include a probation period exceeding this period, provided it is reasonable. However, an extended probation period does not affect the employee’s statutory entitlements to protections from unfair dismissal and the contract should clearly specify the period of probation and how and when performance is to be reviewed.

Notice Period

The Fair Work Act 2009 (Cth) regulates the required minimum period of notice of termination which varies with the employee’s length of service. If an employee’s continuing service has been less than one year, one week of notice is sufficient. If the employee has worked between one and three years, two weeks’ notice is required. Three weeks’ notice is required if the employer has worked between three and five years, and four weeks is required if the employer has worked more than five years. If an employee is over 45 years of age and has completed at least two years’ continuous service with the employer, an additional week of notice must be given.

Contractual notice periods in excess of the legislative requirements are very common in Australia, with four weeks being the most common notice period for ordinary workers.

Despite the minimum notice periods provided in the Fair Work Act 2009 (Cth), employees who have no notice period specified in their contract of employment may be entitled to what is called in Australia ‘a reasonable period of notice’. This ‘reasonable period of notice’ may be well in excess of four weeks for employees with long periods of service and where equivalent jobs are in short supply.

Express and Implied Terms

Express terms of a contract are those terms that have been specifically agreed, either verbally or in writing, between the parties to the contract. The parties will be bound by the express terms of the contract, absent any contrary statutory obligation, industrial instrument or unconscionability.

Whether a term is an express term of the contract is determined by reference to the objective intentions of the parties. As a result, general information, for example, something mentioned in an interview, will not necessarily amount to a contractual promise, which is sufficient to become an express term of the contract.

Implied terms of a contract are those terms that the parties have not specifically agreed to, but which still form part of the contract. The four main sources of implied terms are those implied by custom and practice, implied in fact, implied by common law and implied by statute.

On 10 September 2014, in Commonwealth Bank of Australia v Barker [204] HCA32, the High Court of Australia held that, under common law, employment contracts do not contain an implied term of mutual trust and confidence. It should be noted that representations made to prospective employees which induce them to take up employment may be actionable under the Competition and Consumer Act 2010 (Cth), if the representation is false or misleading and the employee suffers loss as a result. This is so even if the representation does not amount to a contractual term.

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