Overview of employment contracts
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.
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’.
A definition of ‘casual employee’ has been inserted into the Fair Work Act 2009 (Cth) (‘FW Act’) and provides that a person is a casual employee if:
- they are offered a job;
- the offer does not include a firm advance commitment that the work will continue indefinitely with an agreed pattern of work; and
- they accept the offer knowing that there is no firm advance commitment and become an employee.
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.
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: The Fair Work Act and modern awards‘ and ‘Enterprise agreements’).
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 (pay as you go) 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;
- the employee carries a financial risk; and
- the employee has an opportunity to participate in the profits of the employer’s business.
In the case of Hollis v Vabu Pty Ltd  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.
The courts may provide further clarification on the distinction between employee and independent contractor with the matters of Jamsek v ZG Operations Australia Pty Ltd  FCAFC 119 and CFMMEU and McCourt v Personnel Contracting Pty Ltd  FCAFC 122 the subject of appeal to the High Court.
Both matters consider, among other things, the importance of whether an independent contractor is considered to be running their own business, or whether they work in the business of another. The appeals will be heard together and may have significant implications for the legal test applied to distinguish employees from independent contractors.
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’), 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.