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Understanding Employment Contracts

Of the many contracts and agreements that are an integral part of the commercial world, a contract for employment is one of the most important. For both employees and employers they represent the partnership of two parties joining together for mutual benefit. These employment contracts will set out a number of duties and obligations that are inherent in the employee/employer relationship.

The terms of an employment contract will be derived from a variety of sources. In Victoria (which does not have its own system of industrial relations), employers will be required to observe the provisions of the Commonwealth Workplace Relations Act 1996, the application of Commonwealth awards, and enterprise agreements for particular industries as well as individual workers. In addition to these state and commonwealth statutory frameworks, employment contracts are also beholden to general common law principles. Employment contracts will be influenced and shaped by these sources of law.

It is important that both employers and employees understand the nature of these contracts, as they will impact upon the ability of an employer to carry on their business in an efficient and profitable manner, and an employee to enjoy a fulfilling and economically stable work life.

This article will introduce the legal issues as they relate to contracts for employment, giving an insight into the nature of these contracts, specifically in Victoria.

Form of the employment contract

What are the elements of an employment contract?

A contract of employment is a contract like many others that bind parties in other aspects of business. Just like these other standard contracts and commercial agreements, the very first step in determining whether a particular relationship is an ‘employment contact’ is to determine whether the parties have a legal contract.

A contract is a binding agreement between parties where there has been an offer and acceptance with consideration. There are a number of requirements that have to be satisfied before the parties have entered a legal contract. The main requirements are intention, offer/acceptance, and consideration:

• Intention to enter into legal relations.
  
  Individuals may sometimes perform work without any intention that what they do will create legally binding and enforceable arrangements.
  

• Offer and acceptance.
  
  The employer will offer a contract and the employee must accept. The agreement need not be in writing, so acceptance may not simple be a signature on a form. An individual reporting for work after being invited to do so will be an acceptance.

• Consideration.
  
  This is the exchange of something of value. In employment this is the exchange of wages for labour.

What is in a standard employee contract?

An employment contract may be verbal, or can be a complex written document. Under common law, there will be various standard responsibilities for both employees and employers.

The general responsibilities of employers will include:

• providing work;
• paying for work;
• providing a safe workplace; and
• not directing an employee to do anything dangerous or illegal.

The general responsibilities of employees will include:

• working with care;
• performing reasonable duties as requested; and
• being truthful and honest at work.

The employment contract will also set out the rate of pay, superannuation, and other matters concerning leave conditions. The contract may detail the award or enterprise agreement that the employee is under.

Many different employment contracts will include a number of unique clauses and conditions. For example, employees in highly competitive industries or professions may agree not to work for rival companies for a certain period after finishing with their employer, or to keep certain information confidential.

The Workplace Relations Act 1996

Minimum conditions

As was mentioned in the introduction, employee contracts in Victoria are governed by the Workplace Relations Act 1996, which is administered in this State by the Department of Employment and Workplace Relations and by the Australian Industrial Relations Commission. The Act sets out various minimum conditions that are required by law to be inherent to every employment contract, including:

• Leave.
  
  This leave will consist of paid ‘annual leave’ and ‘sick leave’. The legislative minimum for both kinds of leave is four weeks for annual leave and one week work for sick leave.
  

• Unpaid maternity and paternity leave.
  
  This is unpaid leave of 52 weeks upon the birth of a child. The Act includes various conditions related to the provision of this leave. Conditions such as the right to return to work after the end of the leave, and transfer into safe work environment for a pregnant woman.

• Termination of employment.
  
  These are minimum standards relating to the period of notice that an employer needs to give an employee before terminating their employment. The period required is proportional to the length of service.
  

Awards and Enterprise Agreements

The Workplace Relations Act 1996 also sets in place a system of wage determination of awards and enterprise agreements. Awards are minimum wage standards that are usually made on an occupational basis. Awards continue to be determined and used in many industries.

However, the Act favours the creation of enterprise agreements. Enterprise agreements can be between a class of workers (represented by a Union) or may be made individually between employees and employers.

This system of ‘enterprise bargaining’ allows individual organisations to create wage and salary rates that suit individual business needs. All agreements are, of course, beholden to the minimum conditions and responsibilities set out by the Act and the common law.

Employment Contracts: The Right Advice

Employees will be an organisation’s most valuable asset. With this in mind, employment issues are not an area that an organisation can afford to get wrong. For employers, keeping the right people for the job is crucial to business success. It is imperative that business understands what the law requires of it in the way it deals with its employees. Similarly for employees, it is important to understand the law in relation to their own contract and to know when they may have been treated in a way that is contrary to the law.

This is why it is crucial to get the right advice from specialist lawyers who understand both employment law and the commercial world. GSM Lawyers offer a range of services in the employment law area and are equipped to deal with not only the commercial world but also the concerns of employees themselves. Contact an employment law specialist at GSM Lawyers for more information.

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