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 in accordance with 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 (and this is generally furnished by the offer to work in exchange for the offer of remuneration);
- the terms need to be certain and complete;
- there needs to be no vitiating factor such as illegality or duress.
Employee vs independent contractor
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 that exist between the parties. Australian courts have long struggled with the distinction between the two in difficult cases. In 2022, the High Court of Australia determined that where there is a complete, written employment contract, which is not alleged to be a “sham”, the terms of the contract will determine whether the worker is an employee, working under the control of the employer, in the employer’s business, or an independent contractor providing services through a business of their own. (See CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1.).
However, the Parliament of Australia has now specifically overturned these High Court decisions by introducing an amendment to the Fair Work Act 2009 (Cth) (“Fair Work Act”). From 26 August 2024, when determining whether a worker is an employee, the courts will be required to determine the “real substance, practical reality, and true nature of the relationship”, with the following factors to be considered:
- the totality of the relationship;
- the terms of the contract governing the relationship; and
- other factors relating to the totality of the relationship including, but not limited to, how the contract is performed in practice.
Sham contracting
Under section 357 of the Fair Work Act, employers are liable for representing to an individual that they are under a “contract for services” rather than a contract of employment. However, the employer will not be liable if they can prove that they “reasonably believed” that the contract was a contract for services. The relevant criteria for the defence would include the size and nature of the employer’s enterprise and other factors such as legal or professional advice.
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. 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. From 6 December 2023, the Fair Work Act has prohibited the use of fixed term contracts of longer than two years, except in a specified range of circumstances.
Casual employment
Employees who are engaged as casual employees are also not afforded all of the protections provided by the Fair Work Act. Generally, a casual employee is one who is engaged without any commitment to on‑going work and both the employer and the employee have the right to decide the hours of work that the employee performs. About 25% of employees in Australia are engaged as casuals, and many work regular hours each week for many years. Most awards provide for a 25% loading on pay rates for casual employees. From 26 August 2024, a new test for determining whether an employee is truly a casual employee, will come into effect. The new test will be based on whether there is a work relationship characterised by “no firm advance commitment to ongoing and indefinite work” between the employer and the employee.
In determining whether the employment relationship is characterised by an absence of a firm advance commitment to continuing and indefinite work, the new section 15A of the Fair Work Act will set out the following criteria:
- consideration of the “real substance, practical reality and true nature of the employment relationship”;
- consideration that a firm advance commitment may be in the form of a mutually agreed term in a contract of employment or a mutual understanding or expectation between an employer and employee;
- whether there is an inability of the employer to elect to offer work or an inability of the employee to elect to accept or reject work;
- whether it is reasonably likely that continuing work of the kind performed by the employee will be available in future; and
- if the employee engages in a regular pattern of work, noting that a pattern of work will be regular even if it is not absolutely uniform and includes some fluctuations and variations over time.
Employees can either seek to be converted to permanent employees or apply to Fair Work Commission to change their employment status by applying the above criteria. The Fair Work Commission will have additional powers to deal with disputes about casual employment. It will also be a civil remedy offence to misrepresent employment as casual. Notably, the onus will now be on the casual employee to make a request to change their employment status (once certain thresholds are met, including that the employee has been employed for at least 6 months (or 12 months for small business employers)). This is a significant divergence from the current provisions, under which, employers are obligated to make a determination regarding offering permanent employment to an employee within 21 days after the employee completes working for the employer for a 12 month period.
Trial Period
The Fair Work Act does not refer to probation periods. However, an employee must have worked for the employer for at least six months before they are 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 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, employees who have no notice period specified in their written contract of employment may be entitled to “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, those implied in fact, those implied by common law and those implied by statute.
In 2014, in Commonwealth Bank of Australia v Barker [2014] HCA 32, 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 of relying on the representation. This is so even if the representation does not amount to a contractual term.
Pay secrecy terms
As per new amendments to the Fair Work Act, employees now have the express right to share information about their pay and employment terms and conditions that would be needed to work out their pay, such as their hours of work. This applies to contracts before 7 December 2022, if such existing contracts do not have any pay secrecy terms.
Contracts entered into on or after 7 December 2022 or existing contracts varied on or after 7 December 2022, must not contain pay secrecy terms and if they do, they will be unenforceable.
