This chapter and the two chapters ('Protection for your rights at work' and 'Occupational health and safety') should be read together when considering the law covering the rights, entitlements and obligations of employees in Victoria.

Contributor

Beth Stewart

Solicitor, Lander & Rogers

Employment contracts

Last updated

1 July 2020

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.

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’.

There are other arrangements for the performance of work that look like employment contracts, but are actually independent contracting arrangements, or contracts for the provision of services.

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 tests 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 employee’s tools and equipment;
  • the employer deducts PAYG tax instalments from the worker’s earnings;
  • the employee is able to work for other employers;
  • the employee can delegate work to an employee or sub-contractor; and
  • the employee carries a financial risk;
  • the employee 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 facts 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.

Contents of a common law contract of employment

Overview of contract terms

Each common law 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, 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.

Breach of an employment contract

Like any contract, either party may sue for damages if an employment contract is breached. For example, engaging in a strike may constitute a breach of an employment contract by an employee; or 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.

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