When does an employment contract exist and what are the terms?
An individual contract of employment exists between the employer and each individual employee, whether it is written or not, as soon as an employer and employee agree to enter into an employment relationship.
What Are the Terms of an Employment Contract?
Employment contracts include express terms – which are those that have been expressly agreed between the parties, either verbally or in writing, for example an employee's salary. Written employment contracts usually make the identification of express terms much easier – as the terms are set out in a written document signed by both parties. However, there are circumstances in which terms may have been agreed that are not reflected in the employment contract. This should be avoided and, ideally, written employment contracts should contain a clause to the effect that the written contract reflects the entire agreement between the parties.
Employment contracts also include implied terms – which are terms that the parties have not necessarily agreed, but are implied into the contract by custom and practice, by common law and or by statute. Examples of implied terms include an employee's duty not to misuse an employer's confidential information, and an employer's duty to provide employees with a safe workplace.
Australian Employment Legislation
Individual employment contracts are also governed by legislation (such as the Fair Work Act, or state, territory or federal Acts dealing with long service leave, occupational health and safety, workers compensation, and a range of other matters), which set various minimum terms, remedies and regulatory frameworks for employment conditions and workplace relations.
Individual employment contracts may also adhere to an industrial instrument, which is a creature of statute, such as an award (covering groups of employers and employees across a specific trade or industry) or enterprise agreement (a collective agreement between groups of employees across the workplace). These industrial instruments provide a statutory framework within which each employment contract operates, regardless of what is agreed between each employer and individual employee. They are not enforced in common law, but rather through various statutory jurisdictions.
When does a breach occur?
A breach of an employment contract occurs when an employer or employee fails to honour the terms of the individual employment contract. Where such a breach occurs, the innocent party may be entitled to sue in common law for the damage suffered as a result of the breach – the aim of damages being to restore them to the position they would have been in if the breach had not occurred.
If the breach is serious, it may entitle the innocent party to terminate the contract without notice, and if loss has been caused, sue for that loss.
In many jurisdictions, in addition to suing in common law courts, employees can sue in specialist state or territory commissions for contractual entitlements. For example, in Western Australia, employees who earn less than the statutory high-income threshold can claim in the WA Industrial Relations Commission for Denied Contractual Benefits.
One of the differences between a common law claim and a claim in a specialist statutory jurisdiction is that costs are typically not awarded in claims brought in specialist statutory jurisdictions.
What can you do if you are an employee and your employment contract is breached?
Employees may be able to seek damages in common law courts or compensation in their state or territory industrial relations commission for financial loss caused by a breach of an employment contract or wrongful dismissal.
The nature of these claims, and where to pursue them, depends on:
- the source of their rights (either the individual contract, legislation or an industrial instrument);
- whether the employer is an incorporated trading entity (falling within the Federal system), or an unincorporated sole trader, trust, or state public service (falling within the State system);
- whether the employee meets certain preconditions to making claims in statutory jurisdictions, including completing any qualifying period of service;
- how much the employee earns; and
- how much compensation they are seeking.
Employees who earn less than certain income thresholds may pursue compensation for unfair dismissal, and in some jurisdictions, for denied contractual benefits (like bonuses)
Common law claims for damages in Western Australia for wrongful dismissal or other contractual entitlements, such as bonuses, commissions, shares or other incentives can be made in the Magistrates Court up to $75,000; in the District Court up to $750,000; and above that amount in the Supreme Court.
Breach of an employment contract in the event of dismissal may occur when:
- The employee is dismissed without being provided with, or paid in lieu of, the notice period in the employment contract;
- The employer terminates a fixed term employment contract, without cause, before the end of the contract term (and there is no provision to do so in the contract via a right to give notice of termination);
- The employee is dismissed on the basis of misconduct, poor performance or redundancy, without reasonable basis; or
- The employee is compelled to resign due to bullying, harassment or discrimination in the workplace, or by some conduct by the employer that makes their continued employment untenable.
What can you do if you are an employer and an employee breaches their employment contract?
An employer may seek compensation for financial loss or damages if an employee breaches an employment contract by, for example:
- Divulging or misusing an employer's confidential information;
- Contravening the terms of a valid restraint of trade clause within the employment contract.
In some cases, an employer may seek an injunction (which is a court order) restraining an employee from doing something against the employer that causes further loss or damage.
Restraints of trade are unenforceable unless they protect an employer's legitimate interests in its client relationships or its confidential information, and they go no further than is reasonably necessary to protect these legitimate interests. For this reason, restraint of trade clauses should be carefully drafted and tailored to suit individual employees.
Seek Legal Advice If Your Employment Contract Has Been Breached
Get in touch with MDC Legal if you think your employment contract has been breached. We can help you to identify and understand the terms of your employment contract, and provide advice on available claims arising from any breach.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
