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The provider of this information is Johnston Withers Barristers & Solicitors - Adelaide

EMPLOYMENT CONTRACTS

EXISTENCE OF A "CONTRACT"

A contract of employment is first and foremost, a "contract". So the very first step in determining whether a particular relationship whereby one person performs work for another is "employment" is to determine whether the parties have a contract.

According to our law a "contract" is (generally speaking) a legally binding bargain between parties, where there has been offer and acceptance, and consideration.

There are a number of requirements that have to be satisfied before it can be said that the parties have a contract. The main ones that have to be considered in the case of work arrangements are these.

  1. There must be an intention to enter into legal relations. For example (as one Judge said in a case some 20 years ago) people sometime perform work without any intention that what they do will create legally binding and enforceable arrangements (eg a son mowing the lawn for his father; a priest carrying out duties for his church). So, if the parties did not have such an intention there is no "contract".
  2. There must be offer and acceptance. That is, one party must offer a contract and the other must accept. Generally speaking, neither offer nor acceptance need be in writing, but of course either may be in writing. Acceptance may be by conduct - eg if an employer says "there'll be a salesman's job for you here on Monday" and the other party then presents for work on Monday one can say that the offer by the employer of the job has been accepted by the other party's conduct. Furthermore, if someone makes an offer of a contract to another party the other party must somehow communicate acceptance so that it can subsequently be shown that there was offer and acceptance.
  3. There must be "consideration" - that is there must be a bargain where one party offers something to the other party in exchange for the other party offering something in return. Consideration may be in the form of promises one to the other. For example, in the employment context the traditional "consideration" is "the wages/work bargain" - that is, the employee performs work (or promises to do work) for the employer and the employer pays (or promises to pay) wages in return for the work done.

WHETHER THE CONTRACT IS FOR "EMPLOYMENT"

Assuming that two parties have a "contract" whereby one party agrees to perform work for the other, the question which then sometimes arises is whether the contract is a contract of employment or some other type of work arrangement.

Very often of course, there is or can be no dispute about the matter - the person performing the work is acknowledged to be an employee of the other person. But these days there are quite commonly situations that arise where one or other of the parties to the work contract assert that the person performing the work is a "contractor" not an employee.

Sometimes there can be no doubt that a particular person is a "contractor" (eg a person who mows lawns for a living and who contracts with householders to mow their lawns for a set price each time the lawn is mown would be a contractor in most cases). But there are "grey areas", and with the emphasis these days on "contracting out" work by employers there are increasing difficulties "drawing the line" between employee and contractor.

The Courts have developed over the years a number of criteria for determining whether a particular person performing work for an another is an "employee" or not.

  1. The traditional test utilised by the courts for determining whether a particular contract for the performance of work by one person for another was "employment" or not was whether one party had "control" over the work by the other - that, control as to what work is to be done or how it is to be done, or at least the right to control in these respects.
  2. In more recent times the courts have tended to use what may be described as a "multi factor" approach to determining whether a particular relationship is or is not one of employment. In this approach the right to control remains important as a factor to be considered, but that factor is to be weighed up with all the other factors.
  3. Factors indicative of an employment relationship (apart from the right to control) include:
  • The person performing the work is not allowed to delegate the work to others - that is there must be personal service
  • The work is performed at the premises of the person who requires the work to be done
  • The person performing the work is required to work fixed hours per day or per week
  • The person performing the work is required to work full time for the other person and/or is not allowed to work for other persons
  • The person is paid by reference to hours worked as distinct from payment for a achievement of a particular result
  • Tax is deducted from the payments made to the person who performed the work by the person for whom the work is performed
  • The person who performed the work receives paid time off (eg holidays or sick leave)
  • All or most of the expenses are paid by the person for whom the work is performed
  • The person for whom the work is done supplies the equipment needed by the person who performs the work
  • Workers' compensation premiums or the Commonwealth Government's Superannuation Guarantee Levy are paid in relation to the person performing the work

The presence or absence of any one or more of these factors will not be decisive of any particular case - every case has to be considered on its own.

  1. If the parties enter into a written agreement in which they declare that that their relationship is NOT that of employer or employee but some other relationship (eg agent and principal) then that declaration of intention is a relevant factor to be taken into account, particularly if apart from that declaration of intent, the nature of the relationship is ambiguous (ie there are factors in existence that point in different directions).
  2. However, the parties to a work agreement cannot by written agreement turn a relationship which is clearly employment into something that is not - eg if a particular work relationship bears all the hallmarks of an employment relationship then no matter what the parties say in writing otherwise the courts will still find that the relationship is one of employment.

TERMS OF A CONTRACT

Assuming that the parties to a relationship which involves one performing work for the other are in a relationship that the law regards as a contract of employment, the next and often most important question is: what is the parties' agreement - that is, what are the terms of their contract?

The terms of a contract of employment can be:

  • Oral;
  • Written;
  • Partly oral and partly written

In addition, in most contracts of employment (whether oral or written), there are IMPLIED terms - that is, terms that are not recorded in writing or even spoken about by the parties, but nevertheless the courts say that those terms are BY IMPLICATION (more about this below).

With oral contracts the question of what the parties have agreed depends upon what they agreed in their conversations plus terms they did not speak about but which the courts imply.

With written contracts the terms are set out in the written document. However, unless the parties state in the contract or otherwise make it clear, the written contract will not be regarded as exhaustive of the terms of the contract - there will still be room for the courts to imply terms as well as the written terms.

Often, contracts of employment are a combination of written and oral terms, as well as implied terms. For example, a person may receive on commencement of employment a "letter of appointment" which spells out basic aspects of the contract but many other terms may be oral or implied.

The following are the terms that are most commonly found specifically talked about or written down by the parties to a contract of employment.

  • Title of the position and statement of the duties
  • Wages or salary or remuneration benefits for the position
  • Hours and days of work
  • Leave entitlements
  • To whom the employee reports
  • Where the employee is to work
  • How the contract may be terminated

There could be many other terms of course depending on the circumstances.

But in most contracts (whether written or oral or partly both) there are also IMPLIED terms.

There are, generally speaking, two types of IMPLIED terms

  1. Terms implied by conduct or circumstances;
  2. Terms implied by law (that is, implied by the courts

Generally speaking, terms are only implied where it is necessary to make the contract work.

Here are some simple examples.

  • A term implied by conduct or circumstances: an employee accepts a job as a clerical assistant with an employer but the parties do not speak about hours of work except that the job is "full time". In the first week the employee works in the office the same hours as the other clerical employees, starting at 8.30 am and finishing 5.00pm, with an hour off for lunch. The employer then pays the employee his wage as agreed at the end of the week. It is IMPLIED in these circumstances that the hours are as just mentioned.
  • A term implied by law: an employee accepts a job as a financial controller in charge of all the accounts staff for the employer and on a salary package over $100,000.00. The employee is paid her salary in monthly installments. The parties do not talk about terms for termination and their written contract does not mention the subject. The courts IMPLY the following term: either party may terminate the contract on reasonable notice to the other (and reasonable notice will depend on all the circumstances of the case but in this case could not be less than one month and could be longer).
  • The Courts imply other terms as well: for example, a duty that the employee shall not act contrary to the employee's interest by working in his or her own time for a competitor of the employer (this is called the "duty of fidelity and good faith"); another duty is to keep confidential information the employee obtains in the course of employment that the employee knows or ought to know is confidential.

AWARDS AND CONTRACTS

 Since the early 1900s Australia has had in place through legislation Federal and State systems for the compulsory arbitration and settlement of industrial disputes and matters.

For employees in South Australia the main statutes are the Workplace Relations Act 1996 (Cth) and the Occupational Health Safety & Welfare Act 1986 (SA). These Acts cover various different categories of employees. Indeed it would be fair to say that MOST (certainly more than half) of the persons who work as employees (that is, engaged under a contract of employment) are covered by these Acts.

These Acts empower industrial tribunals to make decisions and orders setting minimum standards for employment contracts, called "awards". Also under these statutes provision exists for the registration or certification of other legal instruments regulating contracts of employment, such as enterprise agreements or Australian Workplace Agreements. Generally speaking these types of agreements are, once registered or certified by the appropriate statutory authority, given the same effect as awards.

For completeness it should also be noted that there are other Acts of Parliament that confer benefits or protections on employees - simple examples are the "paid leave" statutes in South Australia - the Long Service Leave Act 1987(SA).

Sometimes questions arise about an employee's rights when he or she has an employment contract but is also covered in his or her employment by an award. The following are the general rules.

  • Awards (and also other industrial instruments like enterprise agreements) usually operate as a "floor" or minimum level of entitlement. So if an employee's rights under his or her contract are less favourable than the award minimum the award minimum applies, not the contract provision
  • Award entitlements are in effect rights conferred by statute through an industrial tribunal - they are not like contract rights which depend on the agreement of the parties. Any contract that said the parties agree to something that is less then the award minimum would have no legal effect if the employee later wished to rely on the award.
  • Award entitlements generally speaking do not become terms of the contract of employment between the parties (unless they expressly agree that that will be the case or a court decides that it is necessary to imply such an agreement, which will not occur often).

RIGHTS WHEN CONTRACT BREACHED

When a party to a contract of employment believes that the other party has breached the contract in some way, the aggrieved party has rights to seek redress from the courts for that breach - however the bringing of legal action in relation to breaches of employment contracts involve some special considerations (different to the situation with other types of contracts such as contracts for the sale of goods or land etc).

  1. If a party breaches a contract of employment then the other party may be able to take legal action against the party in breach but the action that can be taken will depend on the TYPE of breach.
  2. If (say) the employer fails to pay an employee agreed overtime pay for work done on a weekend but continues to pay the employee his ordinary wages during the week, clearly the employer is in breach of the contract and the employee can sue the employer for the unpaid wages. The breach of contract is however not fundamental to the contract.
  3. If on the other hand an employer simply demotes an employee without his or her consent and pays him or her less than the previously agreed wages then that is a very serious matter. This is called "repudiation" because the employer has shown an intention not to be bound by one of the principal terms of the contract. The employee can elect to accept what the employer has done, or he or she can decide to treat the contract as at an end and bring a claim for damages in a court for in effect wrongful termination of the contract by the employer.
  4. Sometimes there are breaches of a contract (either by an employer or by the employee) where it is simply impractical to do anything about them. They may be trivial, or even when important one party might need to continue with the contract for other reasons.
  5. The ordinary civil courts that deal with claims for breaches of all sorts of contracts are often not suitable to deal with employment disputes. For example, if an employee is wrongly dismissed those courts will generally only award damages (monetary compensation) to the employee - they do not regard it as appropriate to order reinstatement of the employee. It is for that reason that the Parliaments have established industrial tribunals to deal with employment disputes.
  6. This most common types of action by employees for breach of contract are:
  • Action for recovery of unpaid wages or other monetary benefits
  • Action for damages for wrongful dismissal

These types of action can be brought in a variety of courts depending on the circumstances, such the Local Court before a Magistrate, or an industrial court or tribunal. Each court or tribunal has its own rules and requirements. Details can be obtained from the Registry of the relevant court or from a professional advisor.

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