Introduction to individual agreements
An individual agreement usually takes the form of a common law contract of employment.
An individual employee negotiating an individual agreement is often at a disadvantage. Typically, employees have less bargaining power than employers. Often, they also have fewer resources, including knowledge of what they may be entitled to under other industrial instruments (e.g. awards or certified agreements) or prevailing conditions with other employers.
The following is a list of possible items for inclusion in negotiations for individual agreements.
1 Award or National Employment Standards conditions
An employee should not agree to a term in an individual agreement that excludes or modifies National Employment Standards (NES) or award conditions without first obtaining legal advice (see ‘National Employment Standards’).
A term contained in a common law employment contract that purports to exclude or remove NES or award conditions is not effective unless expressly authorised by a section of the Fair Work Act 2009 (Cth).
2 Overtime rates
Where overtime may be required to be worked, the rate(s) of pay applicable to the overtime hours should be specified in the agreement.
3 Penalty rates
Some consideration should be given to an additional loading if the hours worked are outside ordinary business hours.
4 Flexi-time or time in lieu
As an alternative to overtime or penalty rates of pay, the parties may agree to some form of compensation for extra time worked beyond the agreed hours based on flexi-time or time in lieu.
5 Salary review
Another aspect that should not be overlooked is some form of salary or wage review, unless it is agreed that the salary should be fixed for the term of the agreement.
A scale of pay based on, for example, years of service, experience or acquired qualifications could be inserted in an agreement or award to avoid the need for variation.
The risk in linking pay increases to improving economic conditions, such as a change in the consumer price index, is that the economic condition specified may not improve at a desirable rate.
6 Accident make-up pay
Changes to the workers compensation system (WorkCover) have substantially reduced the benefits payable to the majority of injured workers.
Therefore, consideration should be given to make-up pay in the event that the employee is injured and placed on WorkCover.
‘Make-up pay’ is an amount making up all or some of the difference between the WorkCover payment and an employee’s normal earnings.
It is not uncommon for an employee to incur expenses in the course of their employment.
Under the old award system, these expenses were compensated for by way of an allowance. So, for example:
- a meal allowance may have been payable where an employee worked extensive overtime;
- a tool allowance may have been payable where an employee used their own equipment on the job – this allowance compensated the employee for the cost of maintaining and replacing their equipment;
- a uniform or protective clothing allowance may have been payable where an employee was required to purchase and/or maintain these items;
- a travel allowance may have been payable to compensate an employee for costs incurred when they were required to travel while carrying out duties on behalf of their employer; and
- a vehicle allowance may have been payable to compensate for vehicle wear and tear where an employee used their own vehicle while carrying out duties on behalf of their employer.
An employee who is likely to incur similar expenses in the course of their employment should not take it for granted that their employer will reimburse these expenses, but should negotiate for specific payment to be included in the agreement.
Allowances can be dealt with in two ways:
- as a fixed amount per day, week or event; or
- by agreement to reimburse for expenses incurred.
8 Non-standard terms
There is scope to include terms in contracts that are non-standard.
For example, an employer may encourage its employees to ride bicycles to work, in which case a term of the agreement may be that the employer provides showers.
Provided there is a connection between the content of the term and the employment relationship (and it is not otherwise prohibited content), the term may be included.
Any form of leave an employee thinks is desirable must be bargained for with the employer. This is the case unless the leave is a form of leave provided for under the NES or a form of leave that is included in an applicable award.
There are many forms of leave, the significance and relevance of which vary according to the nature of the employment and the circumstances of the employee. For example, an employee may be a member of the CFA and live in a fire-prone area, in which case some form of fire-fighting leave may be necessary. Many employees may undertake work-related or other types of study, in which case study leave may be necessary.
Some examples of different types of leave are:
- blood-donor leave;
- fire-fighting leave;
- leave for Australian Defence Force reservists;
- unpaid leave;
- leave to participate in union elections;
- leave while serving as an elected union official;
- additional annual leave;
- jury service leave;
- additional personal or compassionate leave, including the extension of the circumstances in which such leave may be taken; and
- additional parental leave, including any part of parental leave that is to be paid.
Jury service leave
Unless specifically exempted, a person called for jury duty must attend, even though the trial may run for many weeks or even months. An employer cannot lawfully dismiss an employee called for jury duty.
For more information, see ‘Juries’ in Chapter 1.2: An introduction to the courts.
10 Ordinary hours
The NES in the FW Act contains a maximum hours of work standard.
However, the maximum under the standard can be manipulated. Accordingly, employees are advised to reach agreement on the number of hours to be worked each week and identify when the hours are to be worked.
With some industries moving to round-the-clock production, employees should not make assumptions about the hours in which they will be called upon to work.
Hours could be included in the agreement by reference to a roster or some other arrangement.
Note the comments about penalty rates (see ‘3 Penalty rates’, above).
11 Meal breaks and rest breaks
Meal breaks and rest breaks are not part of the NES or FW Act but may be contained in modern awards. Such provisions can be incorporated into enterprise agreements to have certain application. Note that the parties may agree to a longer interval without a break.
While occupational health and safety legislation or regulations may apply to some classifications of work to provide for breaks from repetitive work, consideration should be given to the inclusion of rest breaks in an employment agreement.
12 Termination of the agreement
Issues of termination and redundancy are the most frequent sources of dispute and should be carefully considered.
For more information, see ‘Termination of employment’ in Chapter 11.6: Protection for your rights at work.
13 Required termination period
The period of notice each party is required to give to the other to end the agreement or contract should be specified in the agreement.
In the absence of any specified period, the common law requires ‘reasonable notice’, but this can be difficult to interpret in any given case.
To avoid expensive legal battles, the parties should specify the period of notice required.
The agreement should further confirm that normal wages are payable in lieu of notice.
In negotiating a period of notice, issues such as the employee’s seniority and remuneration, the relocation or other personal commitments required by an employee to the new position (among other things) may indicate that a longer period of notice should be sought by the employee.
Minimum notice periods
The minimum notice periods in the NES (see ‘National Employment Standards’) now have wide application to employees in the national system.
As the period of notice specified in the NES is a minimum period, the parties are able to agree to include a contractual term for a greater period of notice.
14 Grounds for instant dismissal
Many employers include in the contract a catalogue of events that are ‘serious misconduct’ warranting instant dismissal. This approach is generally not beneficial to either the employer – who may fail to comprehensively list all events constituting misconduct – or to the employee, who may be intimidated or resentful.
At common law, an employer may dismiss an employee without notice or wages in lieu of notice where the conduct of the employee is serious and justifies instant dismissal.
Examples of conduct justifying instant dismissal are serious misconduct, gross incompetence, neglect of duty, and wilful refusal to obey the employer’s lawful and reasonable commands.
Misconduct is active conduct of a serious nature that indicates that an employee rejects the contract of employment. For example, by repeated drunkenness, persistent absenteeism or dishonesty. The breaches must usually be substantial or persistent.
In Rankin v Marine Power International Pty Ltd  VSC 150 (21 May 2001), Justice Gillard in the Supreme Court of Victoria held that there was no rule that defined the degree of misconduct that would justify dismissal without notice; such an assessment was a question of fact. The courts and the Fair Work Commission have determined that even fighting in the workplace must be looked at in its context before it can be said to justify summary dismissal.
A redundancy arises where the duties performed by the employee are no longer required to be performed or the employer becomes insolvent or bankrupt.
The NES in the FW Act (see ‘National Employment Standards’) provides for an employer to make a redundancy severance payment when an employee in the national system is terminated due to redundancy.
Consideration should be given to whether a specific redundancy clause should be included in an agreement that provides an employee with a more beneficial entitlement than under the NES.
Before the commencement of the NES (on 1 January 2010), there was no general legal requirement that an employer pay a redundancy payment. An employer was only required to make such a payment if a specific obligation existed, usually in an award, collective agreement, policy or contract. If an employee did not have a right to a redundancy severance payment before 1 January 2010, only their service after 1 January 2010 is taken into account.
Small businesses (being those that employ fewer than 15 people) do not have to pay redundancy pay (see ss 121, 123 FW Act). In determining how many employees a business has, the employees of all associated entities (as defined in section 50AAA of the Corporations Act 2001 (Cth)) of the business are taken into account.
16 Trade secrets and restraint of trade
Sometimes, employers include clauses in an agreement to protect trade secrets and confidential information, and to limit the use by an employee of skills and knowledge acquired during the period of employment. The enforceability of such clauses depends on the terms and the circumstances of employment.
An employee has a duty of fidelity (i.e. loyalty) and good faith to their employer. An employee would likely breach this duty if they provided vital trade secrets to a competitor, or carried on a business that competed with their employer.
Clauses that limit where a person may work, or that impose a time limit during which an ex-employee may not carry on a similar business, or that limit the use to which certain information can be put (restraint of trade clauses) are considered to be void unless they go no further than is reasonably necessary to protect the employer’s legitimate commercial interests.
17 Employer policy
An increasingly common term in individual agreements is one that expresses a term of the agreement as subject to the employer’s policies.
For example, ‘Employees must take annual leave when [the employer’s] business shuts down annually, usually during the Christmas and New Year period’.
Under the Superannuation Guarantee (Administration) Act 1992 (Cth) and other related legislation, an employer is required to contribute a percentage of an employee’s earnings into a complying superannuation fund.
If an employer fails to contribute to a superannuation fund, the ‘shortfall’ is assessed and the employer must pay a charge or tax. This charge is more than what the compulsory contribution would have been.
There are certain exemptions from the superannuation scheme. These include employees who are paid to do work of a domestic nature for not more than 30 hours per week, and part-time employees under 18 years of age who work 30 hours or less per week. From 1 July 2022, there is no exemption for employees who earn less than $450 in a month.
Legislation has come into effect that increases the superannuation guarantee percentage progressively from 2013 until it reaches 12 per cent in 2025. The first increase to 9.25 per cent occurred on 1 July 2013 and the second increase to 9.5 per cent occurred on 1 July 2014. As of 1 July 2021, the superannuation guarantee increased to 10 per cent and will increase by 0.5 per cent on 1 July each year until 2025.