LexisNexis Practical Guidance®

Employment relationships are regulated by the contract of employment, industrial instruments such as awards and statutory agreements, and applicable federal, state and territory legislation. Unregistered collective agreements and employer policies may also impact on the employment relationship.

The sources of terms in an employment contract include those that are:

• • expressly agreed between an employer and an employee, verbally or in writing (or both) (see What importance do express terms have in establishing an employment relationship?). Express terms are commonly reflected in a written employment contract or agreement, which may also incorporate the provisions of employer policy documents (see Employer policies); and
• • implied into the contract in fact, by custom and practice, by (common) law or by statue (see Which terms can be implied into an employment contract?).

While the lawful variation of these terms may just change the terms of the existing employment contract, it is possible that such changes could bring about the termination of the existing employment contract and bring into force a new agreement (with unanticipated new terms being created). See How can the terms of an employment contract be varied?

The following set down minimum terms and conditions of employment, but generally do not form part of the contract of employment (unless they are expressly incorporated):

• • modern awards and enterprise agreements operating under the FW Act (see What effect do awards and enterprise agreements have on the employment relationship?); and
• • statutory minimum employment standards, such as the National Employment Standards operating under the Fair Work Act 2009 (Cth) (FW Act) (see What effect do statutory minimum standards have on the employment relationship?).

As a result, employment contracts must provide for terms and conditions that are the same as, or more favourable to employees than, those set down in relevant provisions of the FW Act, awards or enterprise agreements. Contracts of employment must not derogate from statutory, award or agreement minima.

Employee obligations can derive from their employment contract through either express or implied terms. Theoretically, the obligations that the employment contract can impose upon an employee is limited only by reference to the requirement that the parties to that agreement must not contract in a manner that is contrary to public policy, or that is otherwise contrary to law.

For many employees, the express terms of the contract will only be of minor practical significance. For such employees, key issues such as rates of pay, hours, leave and other entitlements will be regulated by either or both of industrial instruments and statute. The situation for professional and managerial employees will likely be much different, with written contracts making more or less detailed provision in relation to most key aspects of their employment relationship.

Despite the above differences, for all employees, there are a number of matters that are commonly regulated primarily by means of terms implied in the contract by the operation of law. These include duties imposed upon employees in relation to:

• • obedience and cooperation (see Duty to comply with lawful and reasonable directions);
• • care and skill, including indemnity and insurance issues (see Duty of care and skill);
• • fidelity and good faith (see Non-solicitation of customers/poaching of employees);
• • fidelity and good faith: non-disclosure/misuse of confidential information (see Non-disclosure/misuse of confidential information);
• • fidelity and good faith: non-competition & use of employees' spare time (see Non-competition/use of employees’ spare time); and
• • fidelity and good faith: rights re inventions/IP (see Ownership of intellectual property created by employees).

It is, of course, open to the parties to make express provision in relation to any of these matters if they so choose. Any such express term will override an otherwise applicable implied term. However, where the parties do so, they need to be aware that the terms of their agreement will operate subject to the common law principles relating to restraint of trade. These principles proceed from the assumption that all contractual provisions that are in restraint of trade are void on grounds of public policy. However, restraints may be upheld if they can be shown to be reasonable in the public interest and in the interests of the parties. See Introduction to restraint clauses and Drafting post-employment restraint clauses.

Employer obligations under contracts of employment can derive from the express or implied terms of the contract, and from other sources.

Theoretically, the obligations that the contract can impose upon the employer party is limited only by reference to the requirement that the parties must not contract in a manner that is contrary to public policy, or that is otherwise contrary to law.

In most instances, the express terms of the contract will be of only minor practical significance. This is because key issues such as rates of pay, hours, leave and other entitlements are commonly regulated by either or both of industrial instruments (ie modern awards and statutes). The situation in relation to employers of professional and managerial employees may be rather different, with written contracts making more or less detailed provision in relation to most key aspects of the employment relationship.

For all employers, there are a number of obligations that are commonly regulated primarily by means of terms implied in the contract by operation of law. These include duties imposed upon employers in relation to:

• • payment for work performed (see Payment for work performed);
• • providing and maintaining a safe work environment (see Duty of care/safe place of work); and
• • providing references, subject to certain limitations and qualifications (see Employee references).

Traditionally, the common law has proceeded on the assumption that provided it is prepared to pay an employer her or his wages, the employer is not generally obliged to provide work for the employee to perform. This assumption is, however, increasingly coming under question. See Duty to provide work.

It is, of course, open to the parties to make express provision in relation to any of these matters if they so choose. Any such express term will override an otherwise applicable implied term. However, where the parties do so, they need to be aware that the terms of their agreement will operate subject to the common law principles relating to restraint of trade. These principles proceed from the assumption that all contractual provisions that are in restraint of trade are void on grounds of public policy. However, restraints may be upheld if they can be shown to be reasonable in the public interest and in the interests of the parties.

Starting in the late 1970s, courts and tribunals in the United Kingdom began to recognise the existence of an implied term in contracts of employment to the effect that the employer must not act in such a way as to damage or destroy trust and confidence as between the parties to the contract.

A number of Australian courts had proceeded on the assumption that such a term automatically formed part of employment contracts in Australia as well, until the High Court held otherwise in Commonwealth Bank of Australia v Barker.

The High Court in that case clarified that a term of mutual trust and confidence is not implied as a matter of law into contracts of employment in Australia. This does not prevent the parties from explicitly adding a duty of mutual trust and confidence as a term of their employment contracts. There may also be circumstances where the duty is implied by fact (rather than law) into a particular contract.