Employment contracts
Overview
A worker’s rights and duties depend on whether the individual is an employee or an independent contractor. Awards and workplace agreements – and legislation concerned with working relationships and conditions – mostly apply to employees, rather than to independent contractors. However, recent attention to this issue from federal parliament is likely to lead to increased protection of independent contractors under legislation. Employees An ‘employee’ is a worker who works for another person in exchange for wages. The contract under which an employee performs work is called a ‘contract of service’. An employee may be engaged on a full-time, part-time or casual basis.
A definition of ‘casual employee’ has been inserted into the FW Act and provides that a person is a casual employee if:
- they are offered a job;
- the offer does not include a firm advance commitment that the work will continue indefinitely according to an agreed pattern of work; and
- they accept the offer knowing that there is no firm advance commitment and become an employee.
Independent contractors
In general, independent contractors are not covered by statutory minimum standards, awards or enterprise agreements made under the FW Act (see ‘National Employment Standards’, ‘Awards’ and ‘Enterprise agreements’, below). The contract under which an independent contractor performs work is called a ‘contract for services’. Independent contracting arrangements are widely used in a range of industries, including the transport and building industries.Employee or independent contractor?
The courts have developed a multifactorial test to distinguish between employees and independent contractors. The touchstone is the nature and degree of detailed control that the employer exercises over an individual’s work. Other factors are also considered, including whether: - the employer supplies the worker’s tools and equipment;
- the employer deducts PAYG tax instalments from the worker’s earnings;
- the worker is able to work for other employers;
- the worker can delegate or sub-contract work;
- the worker carries a financial risk; and
- the worker has an opportunity to participate in the profits of the employer’s business. In the case of Hollis v Vabu Pty Ltd [2001] HCA 44, the High Court decided that the relationship between a courier company (‘Vabu’) and its couriers was that of employer and employee. The court considered relevant the fact that the couriers were not providing skilled labour, had little control over the manner of performing their work whereas Vabu had considerable scope to exercise control, wore Vabu uniforms, and were provided with pay summaries. The High Court further clarified the distinction between employee and independent contractor in the recent case of ZG Operations Australia Pty Ltd v Jamsek (2022) 398 ALR 603. In this case, the appeal was heard in conjunction with the appeal in the case of Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd (2022) 398 ALR 404. In these cases, the High Court emphasised that the character of the relationship between the parties is to be determined by having regard to the rights and duties created by the written agreement between the parties. The case of ZG Operations Australia concerned two truck drivers who had each entered into a contract with ZG Operations Australia for the provision of delivery services through a partnership. The truck drivers were held not to be employees of the company. Proposed amendments to the FW Act, if passed, will return the assessment to the multifactorial approach, in which the contract terms are just one relevant factor in determining the relationship between the parties.
Contents of a common law contract of employment
Overview of contract terms Each common law employment contract contains terms and conditions that regulate the parties’ relationship. Such terms may be oral and/or written. Often, letters of appointment, job descriptions, policy manuals, awards, collective agreements, workplace practices and legislation are sources of further terms of a contract. Under the FW Act, the terms of an employment contract cannot displace an entitlement under the National Employment Standards (see ‘National Employment Standards’, below), but they can offer more generous terms. Implied contract terms The common law implies certain terms into every contract of employment. These terms impose obligations on employees and employers. Further obligations in the relationship between employee and employer arise in tort, equity and from fiduciary duties.
An example of a common law implied contractual term is the common law duty of fidelity and confidentiality, which prevents employees from using or disclosing their employer’s trade secrets.
Also implied into every contract of employment is a general duty to obey the employer’s lawful and reasonable directions. Further, all employees are obliged to exercise reasonable care and skill in the performance of their duties.
Contracts of employment that do not include an express termination provision contain an implied term that the employer will give the employee ‘reasonable notice’ before terminating employment, unless the employer has summarily dismissed the employee. ‘Summary dismissal’ is dismissal without notice. An employer only has a legal right to summarily dismiss an employee without notice for serious misconduct or other conduct that justifies immediate dismissal, such as theft, fraud, sexual harassment, or causing serious and imminent risk to the health and safety of another person.
Breach of an employment contract
Like any contract, either party may sue for damages if an employment contract is breached. For example, when an employee is not given the requisite period of notice specified under their contract, the employee may seek damages for breach of contract.
These common law rights have to some extent been superseded by statutory rights to sue for reinstatement, breach of statutory agreements, compensation and underpayment of wages.