Employment contracts manage the relationships between an employer and its employees.

The essential features of an employment contract are that:

  • one party has voluntarily taken on a legally enforceable duty to work;
  • another party has voluntarily taken on a legally enforceable obligation to pay wages in return for that work;
  • each party intends to be legally bound by their obligations, which are continuing and mutual, i.e. the employee’s performance of their obligation must depend on the performance of your obligation; and
  • essential terms, such as pay and the type of work to be performed, have been agreed on.

An employment contract need not be in writing. In fact, many employment contracts are informal and readily inferred by one party performing work for another party in exchange for payment or some other benefit.

If one or more of the parties creates a document that describes an apparent employment relationship, it will be relevant to, but not necessarily determinative of, the true character of that relationship.

However, it’s important to note the courts will only recognise an employment contract if the following conditions are met:

  • an offer of employment is accepted by the prospective employee;
  • there is genuine consent;
  • the parties to the contract are legally capable of making the contract (this excludes minors and people who lack the capacity to understand the nature of the employment contract, e.g. because of mental disability or intoxication by alcohol or drugs);
  • valuable consideration, or mutuality of obligation, is provided;
  • each party intends to create a legal relationship;
  • there are no illegalities; and
  • the contract is certain and complete, e.g. essential terms, such as rate of pay, have been agreed on.

Just as an offer of employment does not have to be made in writing, an employee does not need to show their acceptance of an offer in writing. They may instead accept an offer by their conduct, e.g. by turning up for work.

An employee’s acceptance of the employment must be valid.

An employee might argue that their acceptance was given under duress or otherwise rendered invalid by your unconscionable conduct. This is usually only arguable if you know the employee is not acting voluntarily or is incapable of ascertaining what is in their best interests. There is an extremely high standard for acceptance to be declared invalid on these grounds.

The employee must know of the offer before they can accept it. For example, you cannot transfer the employment to another employer unless you inform the employee of your wish to do so and they agree to the transfer. This agreement may be written, verbal or demonstrated by their conduct, i.e. because they continue working without objection following the transfer.

There are four different types of employment contracts: permanent, fixed-term, casual, seasonal, and secondment.

A permanent employee has an expectation of ongoing employment, and may be employed either full-time, i.e. at least 38 ordinary hours per week; or part-time, i.e. less than 38 ordinary hours per week.

Fixed-term employment means that you agree with a fixed-term employee that employment will end on a particular date.

A casual employee is engaged for one or more discrete engagements without continuity of service between each engagement, and can work irregular and informal hours.

Seasonal employees are paid a piece rate, i.e. a rate set by reference to a quantifiable output or task (e.g. shearing sheep or picking fruit), not for a period of time worked.

A secondment is where an existing employee (i.e. a secondee) is loaned or on-hired by an employer (i.e. the original employer) to another employer (i.e. the host employer) for a specified period.

The type of employment contract you offer is dependent on the needs and nature of your business.

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