Many people will probably be aware of the basic requirements that make up an employment contract such as: offer; acceptance; consideration; and capacity to enter into legal relations. However, all of the aforementioned requirements don’t address the content of an employment contract and even the most comprehensive contracts won’t have every single term to be agreed upon hammered out – especially if the contract has only been partly written, or entirely oral. So the question is: What should the contents of an employment contract contain? One of the advantages of a contract of employment is that the adaptability of the document to conform to changing circumstances. Although with that being said, the fundamental aspects of a contract of employment are: the employee agrees to provide service in return for wages and to obey an employer’s reasonable orders – but beyond that? Well, this article will hopefully shed some further light on the content of the contract of employment, including express and implied terms.
What are the sources of the terms and conditions of a contract of employment?
The terms and conditions within an employment contract can be derived from a number of sources which may include:
- the terms within a written or oral, express agreement;
- terms implied by law relating to the relationship between the employer and employee;
- the duties of fidelity and good faith;
- terms implied from the custom or practice of the business or the particular industry.
Express terms of the contract of employment
Contracts of employment for the most part will have the following elements:
- the general rights and obligations of the parties;
- pay and conditions;
- any flexible working arrangements;
- procedure for any grievances that may arise;
- severance pay;
- confidentiality and ‘fidelity’ clauses (such as non-poaching of employees);
- payment in lieu of notice;
- any relevant industrial instrument, modern awards, national employment standards or statutory obligations;
One of the things that readers should have an awareness of is, that anything said in the interview or included within documentation provided prior to the person starting a job, will not necessarily mean that it will become an express term within the contract of employment.
In attempting to determine the meaning of the contract, the courts will look to the surrounding circumstances, as was the case in Hollis v Vabu (2001) 207 CLR 21, where the High Court said that, “the relationship between the parties… is to be found not merely from these contractual terms. The system which was operated there under and the work practices imposed… go to establishing the ‘totality of the relationship’ between the parties it is this which is to be considered.”
When are contractual obligations imposed?
Not every code of practice of the employer which is referenced within the contract may have any force, but rather, can be used as a guideline. Therefore, when considering whether or not a specific document imposes contractual obligations, the test to be applied in determining intention, is whether a reasonable person would come to the conclusion that the person making the promise, had the intention of being bound by the statement, as noted in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165:
“[I]t is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe… That, normally requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.”
Implied terms of the contract of employment
A distinction should be made between implications of law, which arise from the relationship between the employer and employee, and factual implications, which arise from the particular facts and circumstances surrounding the parties.
- Implications of law: the inherent nature of the employer/employee relationship may give rise to an implied term. For example, an implication of law can refer to the appropriate period of notice of termination and under such a circumstance, the law will make a determination of what is reasonable between the employer and employee. Other duties implied by law can also include occupational health and safety, and the duty of mutual trust and confidence.
- Implications from fact: we can turn to BP Refinery Pty Ltd v Hastings Shire Council in which the Privy Council said the following in regards to terms implied from fact:
“[F]or… a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
However, we should note that the test in BP specifically is in reference to complete contracts, so if a contract is partly written and partly oral, the judgment of McHugh and Gummow JJ in Byrne v Australian Airlines, may provide some clarity:
“[T]he first task is to consider the evidence and find the relevant express terms. Some terms may be inferred from the evidence of a course of dealing between the parties. It may be apparent that the parties have not spelled out all the terms of their contract, but have left some or most of them to be inferred or implied. Some terms may be implied by established custom or usage… Other terms may satisfy the criterion of being so obvious that they go without saying in the sense that if the subject had been raised the parties to the contract would of replied “of course”… If the contract has not been reduced to complete written form, the question is whether the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case; only where this can be seen to be true will the term be implied…”
- Industry or business custom and practice.