Employment contracts

Contributed by Clare Ozich and current to 1 September 2005

The threshold question in determining the rights and duties of a worker is whether the individual is an employee or an independent contractor. Only employees are covered by industrial awards, industrial agreements, certified agreements, and individual and collective workplace agreements.

Other legislation concerned with working relationships and conditions is usually applicable only to employees. However, legislation applicable to employees will generally contain its own meaning as to who is to be considered an “employee” for the purposes of that legislation.

CONTRACT OF EMPLOYMENT OR INDEPENDENT CONTRACTOR?

An employee is a worker who works for another in exchange for wages. There are other arrangements for the performance of work which look like employment contracts, but are treated as independent contracting arrangements or contracts for the provision of services. The contract under which an employee performs work is called a contract of service. The contract under which an independent contractor performs work is called a contract for services. Independent contracting arrangements are widely used in the transport and building industries and increasingly in other industries. While independent contractors do not have access to unfair dismissal laws they do have a right under Federal legislation to apply to have varied or set aside contracts whose terms are harsh or unfair.

The courts have developed a series of tests for distinguishing between employees and independent contractors. In short, the courts will consider the nature and degree of detailed control which is exercised over the individual’s work, alongside a number of other factors. It is to be noted that determining whether an individual is an employee or an independent contractor will require careful examination of the circumstances under which the work is performed: See INJURIES.

TYPES OF EMPLOYMENT

There are different forms of employment which affect the rights of employees. The three key types of employment are: permanent, casual and fixed term. All of these forms of employment can be either full-time or part-time employment.

A casual employee is a worker with no expectation of ongoing employment. Under the Minimum Conditions of Employment Act a casual employee is defined as someone who is engaged on the basis that the employment is casual, there is no entitlement to paid leave, and who is informed of those conditions of employment before he or she is engaged.

Fixed term employment is when an employee is employed for a defined and fixed period of time, for example on a two year contract.

An employee’s type of employment affects the employee’s rights in situations of unfair dismissal and in relation to termination entitlements. A casual employee can bring an action for unfair dismissal in the WAIRC; however, because the notice that is required to be given to a casual employee is usually a maximum of 1 day, any compensation for unfair dismissal will generally be limited.

Unfair dismissal laws also apply differently for employees on a fixed term contract. Once the contract ends the employment relationship ends. Unfair dismissal laws cannot be invoked in these circumstances unless the employee can prove an ongoing expectation of employment.

Casual employees are also not entitled to the leave provisions in the Minimum Conditions of Employment Act, except for bereavement leave. Casual employees receive a minimum of a 20% loading to compensate them for the lack of entitlements such as annual leave, sick leave, and parental leave.

Probation

Probation is the period during which an employee is first employed (usually a period of 3 or 6 months) when the employer is in effect training the employee in the job. Under s.23A(2) of the Industrial Relations Act the WAIRC, in unfair dismissal cases, is to have regard to whether the employee had been employed for a period of less than three months. It is difficult to prove unfair dismissal within a probation period of 3 months.

Other forms of employment include those of apprentices and trainees. Conditions of employment for trainees are generally contained with the trainee agreement and the relevant award. Apprentices should look in their relevant award for the particular conditions which apply to them.

CONTENTS OF THE CONTRACT OF EMPLOYMENT

A contract of employment is an agreement between an employer and an employee. It creates rights and duties for both and is legally enforceable.

The general principles of the law of contract apply to contracts of employment. Each contract of employment contains terms and conditions by which the parties regulate their relationship. Such terms may be oral or written, or a combination of the two. Often, letters of appointment, job descriptions, policies, manuals, awards, collective agreements and workplace practices will be sources of further terms of the contract.

Usually a contract of employment contains few express terms and conditions other than basic matters such as pay, hours of work and job description. These are normally agreed between the employer and the employee at the time of the engagement. Generally, the employer and the employee may alter these terms and conditions during the employment, but only if they both agree to the changes. This agreement may be express or may be implied through the conduct of the parties. (The right to alter terms and conditions is also subject to legislation and any award, agreement or other arrangement that may apply to the parties.)

As well as those terms expressly agreed by the parties, there are implied terms which the common law reads into the contract: For example, the employer is obliged to pay the employee when the employee is ready, willing and able to do work; the employer must provide a safe place of work; the employee is obliged to work for the employer personally, faithfully, honestly and with reasonable care and skills; the employee also has a duty of confidentiality which prevents employees from using or disclosing employer’s trade secrets. Implied into every contract of employment is a general duty to obey the employer’s lawful and reasonable directions.

All contracts of employment in Western Australia are subject to Federal and State legislation on specific matters that are relevant to employment (such as minimum conditions of employment, occupational health and safety, workers’ compensation and long service leave).

Many employees are also covered by industrial awards or agreements made by either a State or Federal industrial tribunal. Awards and agreements usually contain detailed conditions of employment. The employment contracts of workers whose employment is covered by a Federal or State individual workplace agreements will be subject to the provisions of the agreement.

BREACH OF THE CONTRACT OF EMPLOYMENT

Just like any other contract, either party to the contract may sue in most circumstances for damages for breach of the employment contract. For example, engaging in a strike which is not protected industrial action under Federal legislation may constitute a breach of the employment contract by an employee; or, when an employee is not given the period of notice of termination specified under their contract, the employee may seek damages for breach of contract.

These common law rights are exercised far less frequently than rights created by legislation to sue for reinstatement, breach of award and underpayment of wages, because it is generally a lot more expensive, resource-intensive and time-consuming to bring actions in common law courts than through industrial tribunals.