Necessary prerequisites before a contract is legally enforceable
What are contracts and agreements?
Contracts and agreements include:
- Individual employment contracts subject to common law, that is they are enforced in the general law courts, not in special industrial tribunals;
- Australian Workplace Agreements (AWAs) and Individual Transitional Employment Agreements (ITEAs), that is, agreements made between an employer and individual employees which establish working conditions for the employee. (Note: no new AWAs or ITEAs can be made from 1 January 2010); and
- Enterprise agreements, (also known as collective agreements) made between an employer, groups of employees and (sometimes) unions.
Guidelines for using contractual documents
It is vital that your business has appropriate contractual documents in place in relation to your employees and contractors.
This website provides you with an interactive format to create customised individual employment contracts. You may also view these documents for comparative purposes, if you already have contractual documents in place.
When you customise any documents on this website you should be aware that you are attempting to compose documents particularly relevant to your business. Contracts have obvious legal consequences so professional legal assistance is advised to confirm your documents are appropriate for their intended use.
When to use written contracts
It is necessary for all employees to have a written contract of employment which at a minimum includes an agreed period of notice to terminate the employment. Generally, the main time to implement contracts of employment is when a new employee joins your business or if there is any noteworthy change in the arrangements between you and an employee during the employment relationship (for example, a promotion, change of location, change of status from full-time to part-time, etc).
Written employment contracts are relevant for all employees, even employees who are covered by awards and enterprise agreements.
Each category of contract on this website commences with some background notes and the question of the suitability of each contract is addressed in these notes.
It is crucial to ensure that contracts are drafted prudently in order to protect business interests.
Written contracts, awards, agreements
If there is no written contract, the law will imply some basic terms into the employment relationship — for example, an employee should provide faithful service in return for payment from the employer, and the parties must provide a reasonable period of notice of termination to terminate the employment.
Other sources of employment conditions
The other conditions impacting on the employment relationship, such as award provisions and legislation (eg relating to leave etc), exist alongside contractual terms. Awards and enterprise agreements also provide many and often most of the employment conditions for certain employees.
Contracts with existing employees
Existing employees already have contracts of employment with their employers. These may be written or oral or partly written and partly oral.
If an employer wishes to express in writing a contract that is different from the one in existence then the other party must agree to the 'new' contract or its variation.
A fair process to implement new contracts with existing employees requires what lawyers term 'consideration' ('something of value in the eyes of the law') and the free agreement of the parties. An example where both conditions would be satisfied is where an employee is promoted to a different position and salary is increased. In this circumstance it is necessary to update the contract to reflect the changes to ensure other relevant provisions of the previous contract (eg notice periods) continue to apply.
When existing contracts change in noteworthy respects
Contracts should be reviewed regularly. If significant change takes place, such as the employee relocates or is promoted, then it is prudent to implement a new contract, which takes account of those changes.
Regular review may not produce great change and matters such as increases in salary can be covered in a letter from the employer to the employee revising the salary level and confirming all other terms and conditions remain the same as the previous contract.
Employment contracts as opposed to contracts with contractors
A crucial distinction to make is the difference between employees and contractors. Both provide labour but they are treated differently in a legal sense. Be confident that you have correctly categorised the person as an employee or contractor and seek legal advice if in any doubt.
Necessary prerequisites before a contract is legally enforceable
For a contract to exist in a legal sense, the following elements should be present:
- Parties who are legally able to contract — for example be old enough to form a legally binding contract (if under 18, the consent of a parent should be obtained).
- The subject of the contract should be lawful.
- The terms of the contract should be understood and agreed by each party with no duress or coercion imposed to secure an agreement.
- There should be consideration, ie payment promised by the employer to the employee in return for the employee's/contractor's labour.
The limitations of sample contracts on HR Advance
Some employment contracts are very complex involving share schemes and other remuneration arrangements. There may also be an overseas resident involved and issues relating to the employee's residency may arise. Such complex contracts and arrangements are not covered on this website. The parties to such contracts should obtain specific legal advice.
Another complex area of law involves restraint clauses — used by employers to prevent employees who leave their employ from competing in the same area or industry etc for a certain time, in a specific location or locations.
Restraint clauses need to be carefully drafted and if a business is contemplating the use of such clauses then legal advice should be sought. Some of the contracts included on the HR Advance website include optional restraint clauses. The clauses are provided in the context of Australia only and should be not be assumed to apply in other contexts or jurisdictions. Due to the complexities associated with restraints, it is always wise to obtain specific legal advice to ensure they are enforceable and appropriate to your business.
Taxation and superannuation
Taxation and superannuation are two large topics that are integral to the employment relationship. They are not the subject of this website as the contractual and policy issues can vary considerably. In addition, the extensive amount of legislation applying to taxation and superannuation goes beyond the scope of this website. Independent advice should be sought with respect to taxation and superannuation issues that arise during the employment relationship.
Fair Work Information Statement
The Fair Work Act requires employers to provide all new employees with a 'Fair Work Information Statement' as soon as practicable, before or after an employee commences employment. The statement contains information about rights and entitlements under the new system, for example the National Employment Standards (effective from 1 January 2010), and how employees can seek advice and assistance.
Impact of the Fair Work Act
Under the Fair Work Act, common law contracts emerge as one of the predominant sources of rights and obligations for some employees, with minimum standards applying as a safety net of entitlements. From 1 January 2010, 10 minimum employment standards, known as the National Employment Standards, apply to most employees of national system employers. These have replaced the Australian Fair Pay and Conditions Standard, which ceased application after 31 December 2009. With the referral of the States’ industrial relations powers to the Commonwealth from 1 January 2010 (with the exception of Western Australia), most Australian employers are now national system employers. If you are unsure whether your business is in the national system, you should seek legal advice.
Priorities of sources of employment conditions (contracts, agreements, awards, legislation)
Federal legislation provides key minimum entitlements of employment, such as annual and personal leave, basic rates of pay etc, for the employees to whom it applies. Generally, legislation prevails over all industrial agreements, contracts of employment and awards that operate in relation to an employee. However, where an employee has a more beneficial entitlement under a contract, industrial agreement or award, that more beneficial entitlement will apply.
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