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 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. 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 enterprise agreements made under the FW Act (seeNational Employment Standards”, “Awards” and “Enterprise agreements”). Independent contracting arrangements are widely used in a range of industries, including the transport and building industries.

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, such as whether the employer supplies tools and equipment and deducts PAYG tax instalments from the worker’s earnings. Other factors are 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, 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 where Vabu had considerable scope to exercise control, wore Vabu uniforms and were provided with pay summaries.

Contents of the common law contract of employment

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 will be sources of further terms of the contract.

In addition, 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.

“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.

Under the FW Act, an employment contract cannot displace an entitlement under the National Employment Standards (seeNational Employment Standards”), but it can offer more generous terms.

Breach of an employment contract

Like any contract, either party may sue 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, compensation and underpayment of wages.