Employment contracts

An independent contractor is not an employee. Contracts of employment may be oral, written, or a combination, but some terms are implied in every contract, and other obligations arise in tort, equity and from fiduciary duties. Either party can sue for breach of an employment contract.

Contract of employment or independent contractor

A threshold question in determining the rights and duties of a worker is whether the individual is an employee or an independent contractor. Mostly it is only employees that are covered by awards, certified agreements, collective agreements and individual agreements. Other legislation concerned with working relationships and conditions is usually applicable only to employees.

An “employee” is a worker who works for another in exchange for wages. There are other arrangements for the performance of work that look like employment contracts, but are treated as independent contracting arrangements, or contracts for the provision of services.

The contract under which an employee performs work is called a “contract of service”. The contract under which an independent contractor performs work is called a “contract for services”.

Independent contractors generally are not covered by statutory minimum standards, awards or workplace agreements made under the WRA or the FW Act (seeNational Employment Standards”, “Awards” and “Workplace agreements”). Independent contracting arrangements are widely used in the transport and building industries.

The courts have developed a series of tests for distinguishing 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, such as whether the worker or the employer:

supplies tools and equipment;

pays the worker’s income tax; and

whether the worker:

is able to work for other employers;

is able to delegate work to an employee or sub-contractor; and

carries a financial risk or 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 (9 August 2001) the High Court determined that the relationship between a courier company (Vabu Pty Ltd) and its couriers was that of employer and employee. The court considered relevant the fact that the couriers were not providing skilled labour, had little control over the manner of performing their work where Vabu had considerable scope to exercise control, wore the uniforms of Vabu Pty Ltd, and were provided with pay summaries.

Contents of the contract of employment

Each 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 will be sources of further terms of the contract.

The common law implies certain terms into every contract of employment, imposing 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. 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 will contain an implied term that the employer will give the employee “reasonable notice” before terminating employment, unless the employer has summarily dismissed the employee for “serious misconduct”. The common law also implies a term that the employer and employee will not, without reasonable cause, conduct themselves in a manner likely to destroy the relationship of trust and confidence existing between them.

Under the FW Act, a contract of employment cannot displace an entitlement under the National Employment Standards discussed below (seeNational Employment Standards”).

Breach of employment contract

Just like any other contract, either party may sue in most circumstances for damages for breach of the employment contract. For example, engaging in a strike may constitute a breach of the 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 and underpayment of wages.