Last updated 5 February 2019
For the reasons set out above, most employment relationships are governed by a modern award or an enterprise agreement. Except in limited cases, it is no longer lawful for an employer to offer or to require an employee to accept an individual statutory agreement (e.g. an Australian Workplace Agreement or an Individual Transitional Employment Agreement). An exception to this is for an Individual Flexibility Arrangement (IFA). An IFA can be made where an employer and employee genuinely agree to vary a term of a modern award. The employer must ensure that any IFA results in the employee being better off overall than if no IFA was entered, and it must be in writing and signed. If the employee is under 18 years old, the employee’s parent or guardian must sign the IFA. An IFA can be terminated in accordance with the process set out in the relevant award.
An employer and an employee may still enter into a private or common law contract that governs the employment relationship. If a job is genuinely award free and there is no other industrial arrangement, then the contract (together with the National Employment Standards) will be the main source of rights and obligations.
Although it is an important document, an employment contract does not have to be in writing. An employment contract can be formed following little more than a conversation and a handshake.
Whatever the circumstances, there will always be a number of basic terms and conditions, and it is wise to have agreed upon them before the start of the employment. It is always going to be easier to agree about the terms of the relationship when the employer and employee are on good terms. If employees wait until a problem has arisen, it may be too late to expect to agree with their employer as to how the issue should be dealt with.
While it is permissible for the parties to amend or vary their agreement, it is not permissible for the employer or employee to make unilateral changes to the agreement.
Standard terms and conditions
Title and nature of the role
It is often helpful for the parties to have agreed to a number of key aspects of a particular role, and for the employer to identify the more important standards or targets that the employee is expected to meet.
A contract should identify the person or the position to whom the employee must report and from whom that employee should take instructions. Similarly, any supervisory responsibilities of the employee should be clearly identified.
Period of employment
Usually, a contract of employment has no set period of time. This arrangement will continue until such time as one of the parties chooses to bring it to an end in accordance with the termination provisions in the contract (see Termination below).
In some cases, a contract is specifically designed to run for a set period of time (fixed-term or fixed-period contract) or is made to fulfill a specific purpose. Where such a need arises, particular attention should be given to the termination clauses to make sure that they are compatible with the fixed term or specific purpose. If a contract can still be terminated at any time by giving notice, it is better described as a contract of nominal duration.
Where a contract is entered into for a fixed period of time or for a particular purpose, consideration should be given to whether the parties will renew or refresh their relationship when that initial period or purpose comes to an end. If so, attention should be paid as to whether the renewal will be for one further period or whether the contract is perpetually renewable, and what terms continue to apply to the ongoing contract.
Employers sometimes believe that the establishment of a contract for a fixed period will relieve them from what they perceive to be the difficulty created by unfair dismissal law. While there is an exception to unfair dismissal law that relates to fixed-term contracts, it is a narrow exception.
It is fundamental to a contract that the parties agree upon exactly how much an employee is to be paid. If non-cash benefits such as the provision of a car, mobile phone or accommodation are to be provided, then specific mention should be made of these benefits. It is usual for an employer and an employee to agree on the total value of a package. The value of the total package will be relevant when considering whether or not an employee is entitled to apply for relief in the event of an alleged unfair termination. This will be discussed in Unfair Dismissal.
All employees who earn above a fixed minimum amount per calendar month must, according to federal legislation, have a minimum percentage of their ordinary time earnings paid into a complying superannuation fund by the employer. These contributions are a statutory obligation imposed upon the employer.
While the parties cannot opt out of this minimum standard by agreeing to have a smaller contribution paid, it is open to the parties to agree for additional amounts of the employee’s salary to be paid into superannuation. These salary sacrifice arrangements should be specifically discussed with the employer, who will generally be willing to make such payments provided they are lawful and can be undertaken without any unnecessary administrative difficulty.
While most employers and unions will have complying superannuation funds to which they would like to direct their employees, legislation now requires an employer to allow an individual employee to choose their own complying superannuation fund. Certain industrial awards and agreements may specify the funds from which the employee may choose.
Irrespective of jurisdiction, there are minimum standards relating to leave entitlements that cannot be compromised by the employer.
The National Employment Standards provide compulsory minimum standards applicable to all employees relating to annual leave, personal leave (which includes personal sick leave, carer’s leave and compassionate leave) and parental leave.
It is unlawful to contract out of the National Employment Standards and, to that extent, leave entitlements cannot be compromised.
Generally, the federal and state leave standards are much the same. It is helpful to look at the different types of leave available to employees in a little more detail.
Every full-time permanent employee is entitled to take four weeks (i.e. 20 working days) of annual leave, exclusive of any public holidays that fall within the leave period. Continuous shift workers are entitled to five weeks of annual leave per annum. That leave entitlement accrues month by month during the period of employment. If an employee chooses to resign or is dismissed prior to the completion of one year, the employee is nevertheless entitled to the pro-rata value of that leave calculated by reference to the length of the actual employment.
Similarly, a part-time permanent employee is entitled to four weeks (20 working days) of annual leave, but the entitlement is pro-rated in the same proportion as their part-time work relates to a full-time working week.
Casual employees have no entitlement to annual leave. Under modern awards, casual employees are entitled to a casual loading. That loading is calculated to compensate for the absence of benefits such as annual leave, which are not a feature of the casual employment relationship.
Unless it is otherwise specifically provided by an industrial instrument, unused annual leave accumulates from year to year without limit.
As employers often prefer that employees do not accumulate too much annual leave, contracts of employment will often require an employee to take periods of leave on a regular basis.
The WorkChoices legislation added the notion that in some strict circumstances employees could cash out part of an accrued but unused leave entitlement. The Fair Work Act 2009 (Cth) (Fair Work Act) contains a provision that enables both employers and employees to manage the amount of unused leave that has accrued to a particular employee.
Ideally, leave should be taken at a time that is agreed between employer and employee. If, however, agreement cannot be reached, the employer may direct that leave be taken and further direct that leave be taken at a particular time. In those circumstances, the employer must give appropriate notice to the employee as to when leave is to commence.
The employee is entitled to be paid in advance for any leave to be taken. Payment is made at the rate of ordinary time earnings applicable to the employee at the date upon which leave is taken. However, many modern enterprise agreements and common law contracts awards provide for a loading (usually 17.5%) to be paid in relation to any period of leave. This is known as annual leave loading. Once again, the loading must be paid prior to the employee going on leave.
If upon the termination of the employment there is an amount of annual leave accrued but unused, the employee is entitled to receive the value of that accrued leave together with any applicable annual leave loading.
Personal leave encompasses what was previously referred to as sick leave (i.e. leave available to an employee for reasons of personal injury or illness). It also encompasses carer’s leave, which allows an employee time off to care for:
- a spouse or de facto partner
- a child, parent, grandparent, grandchild or sibling, either of the employee or of the spouse or de facto partner
- a household member.
The annual entitlement for a full-time permanent employee is 10 days and is not divided up between sick leave and carer’s leave.
The employer is entitled to require a medical certificate, and the rules relating to just when a certificate may be required will vary depending upon the terms of the contract. Typically, awards and agreements will require a certificate when an absence is in excess of two days. Sometimes, a certificate will be required for a shorter absence, particularly if an employee has been absent on a regular basis over a long period of time.
Compassionate leave entitles an employee to take up to two days leave as necessary when a member of the employee’s immediate family or household contracts or develops a personal illness, suffers a personal injury that poses a serious threat to their life or dies. An employee is entitled to take up to two days leave per event. Once again, some reasonable evidence of this may be required by the employer.
The positive obligation to provide a medical certificate for absences in excess of two days does not mean that the employer cannot require a certificate for an absence that is shorter than two days. Unless an industrial award or agreement contains a contrary provision, the employer may, in their discretion, always require the employee to justify an absence on sick leave.
Permanent employees who have been employed for at least 12 months and long-term casual employees (i.e. those who have been in employment with the same employer for two years or more) are entitled to take up to 52 weeks unpaid parental leave around the birth of a child. Leave can be taken by either spouse although both spouses cannot take parental leave at the same time. Leave should be taken by the child’s primary caregiver, which may be either parent.
The obligation on the employer, provided the employee gives appropriate notice (and this should be checked with the employee when the need arises), is to allow the employee to return to the position that the employee left in order to go on parental leave.
Most employers have extensive policies relating to the operation of parental leave within their businesses. While the general principles cannot be diluted or changed in any way, there may be particular requirements around the giving of notice of which the employee should be aware before taking leave.
Long service leave
In Queensland, the Industrial Relations Act 2016 (Qld) sets the guidelines for long service leave.
The basic prescription for long service leave is that any employee who has completed 10 years of service with one employer is entitled to 8.6667 weeks long service leave.
It is unlawful for an employer to pay or for an employee to receive payment in lieu of long service leave unless the employment has been terminated or it has been permitted by the Queensland Industrial Relations Commission upon application.
In the event of an employee’s position being terminated after more than seven but less than 10 years of service, the employee may be paid out the value of the accrued but unused long service leave. The calculation is made on a pro-rata basis.
In these circumstances, however, the employee is only entitled to the value of the accrued long service leave if the cessation of the employment occurred due to the following reasons:
- The employer dismissed the employee for a reason other than the employee’s conduct, capacity or performance.
- The employer unfairly dismissed the employee.
- The employee resigned, but only if the reason for the resignation was:
- the illness or incapacity of the employee
- some domestic or other pressing necessity.
If the employee commits a serious breach of the employment agreement, the contract may be brought to an end at once or summarily. An employee who is summarily dismissed is entitled to be paid up to but not beyond the last date of the employment. An employee who is summarily dismissed is entitled to be paid all of their accrued leave entitlements, which may include annual leave and long service leave. It is therefore helpful to have a short list of the types of events that may be so serious as to justify summary dismissal.
Typically, acts of fraud or theft will be regarded as conduct sufficiently serious to justify summary dismissal. Physically or verbally abusing staff or, depending upon the nature of the employment, staff being charged or convicted of a serious criminal offence may also be sufficient to justify summary dismissal.
Aside from summary dismissal, a contract must be brought to an end by the giving of notice. If the parties do not provide for any notice period in their agreement, the law will default to what is known as reasonable notice. Just what is reasonable will depend upon a whole range of factors, including the seniority of the position and length of service.
The rationale for a period of notice is that it should represent either the length of time that the employee might take to find a satisfactory alternative position, or the time an employer might take to find a suitable replacement employee. Obviously, the more senior the position, the older the employee and/or the longer that employee has been with the employer, the longer the period of notice will need to be.
In any event, the National Employment Standards provide for minimum default periods of notice depending on the length of service.
Minimum notice periods
The required minimum notice periods for termination under the Fair Work Act are for service:
- less than one year—one week
- more than one year but less than three years—two weeks
- more than three years but less than five years—three weeks
- more than five years—four weeks.
If the employee being dismissed is over 45 years of age and has completed at least two years of continuous service with the employer, the relevant period is increased by one week.
It happens quite often that, when the employer terminates the services of an employee, the employee is not required to work for the period of notice and the employee is entitled to be paid in lieu of notice. This is quite different from summary dismissal.
Similarly, where an employee resigns and is obliged to give four weeks notice, with the agreement of the employer the employee can either work out that period of notice or be paid the value of that period. The employer cannot require the employee to finish up any earlier than the end of the proper notice period unless the balance of payment for the notice period is paid to the employee.
If the employee fails to give adequate notice, then the employer is entitled to forfeit the requisite amount of wages or salary from any monies that are owed by the employer to the employee upon termination.
Every employee is under a duty of good faith. That means the employee must work diligently and faithfully in the service of the employer and must not, for example, undertake any activity that is in conflict with the interests of the employer.
For example, during the course of employment, an employee must not use information about the employer’s business, its customers or clients to assist the business of a competitor, or store up that information for use in the employee’s own business later, in competition with the employer.
Similarly, if the employee is in possession of a trade secret or other information that is properly regarded as being confidential, then the employee is under a continuing duty to keep that confidentiality even after the termination of employment.
The categories of information properly regarded by the law as confidential are limited. It will not necessarily include names and addresses of clients. If an employer wishes to limit a former employee’s right to contact clients, then other steps must be taken. Generally, a clear distinction will be made between the right of an employer to protect their legitimate commercial interests (e.g. by safeguarding a trade secret) and a desire simply to prevent a former employee from competing against the employer.
Employers often seek to restrain former employees from making contact with clients and customers after termination of employment. The law is mindful of the distinction between a desire on the part of an employer to prevent a legitimate commercial (business) interest and to restrict competition. Such restraints are considered unlawful unless the employer can show that the restraint goes no further than is necessary to protect the employer’s legitimate interests. The scope of the restraint and the length of time for which it runs will be considered.
There is an art to the drawing of restraint clauses in a form that will be accepted as valid and binding, and of course not every situation will require the imposition of a restraint. Legal advice should be sought if an employee is uncertain about a restraint clause in their employment contract.