Employment Law
Employment Contracts: What Australian Employers Must Include
A solid employment contract is the foundation of every employment relationship. It sets expectations, protects both parties, and can be the difference between a smooth termination and an unfair dismissal claim. This guide covers what must be included and the most common errors employers make.
What the Law Says
The Fair Work Act 2009 does not mandate a written employment contract, but it is strongly recommended. Key legal requirements:
- Section 125 — An enterprise agreement or modern award cannot be undermined by a contract. Contracts can only provide terms above the minimum.
- NES compliance — Contract terms that are less favourable than the NES are void to the extent of the inconsistency.
- Fair Work Information Statement — Must be provided to every new employee before or as soon as practicable after starting.
What Employers Must Do
Include all essential terms
Job title, duties, hours of work, pay rate, applicable award/agreement, leave entitlements, notice period, and probation period.
Specify the employment type
Clearly state whether the employment is full-time, part-time, or casual. For casuals, include the casual loading percentage and a reference to the casual conversion pathway.
Include restraint clauses carefully
Non-compete and non-solicitation clauses must be reasonable in scope, duration, and geography. Overly broad restraints are unenforceable.
Reference the applicable award
Identify the modern award that covers the employee and confirm that the contract provides at least the award minimums.
Address confidentiality and IP
Include clauses covering confidential information, intellectual property ownership, and return of company property on termination.
Review contracts regularly
Update contracts when awards change, legislation is amended, or the employee role changes significantly.
Common Mistakes and How to Avoid Them
Mistake: Not having a written contract at all
Fix: Without a written contract, you rely solely on the NES and applicable award. A contract allows you to include important protections like restraint clauses, IP ownership, and specific termination processes.
Mistake: Including terms below the NES or award
Fix: Any contract term that provides less than the NES or applicable award is void. Always check your contract against current minimums.
Mistake: Using a generic template without customisation
Fix: Every contract should be tailored to the specific role, award coverage, and business needs. Generic contracts often miss critical provisions.
Mistake: Not updating contracts when laws change
Fix: New legislation like the right to disconnect, casual conversion changes, and positive duty obligations may require contract updates.
Penalties and Consequences
While there is no penalty for not having a written contract, poor contracts create significant risks:
- Underpayment claims — if the contract does not correctly reference the award, leading to incorrect pay rates.
- Unfair dismissal findings — if termination provisions are unclear or not followed.
- Unenforceable restraints — poorly drafted non-competes offer no protection when you need them most.
- Sham contracting penalties — up to $93,900 per contravention if a contractor is actually an employee.
When to Get Professional Help
Consider engaging an HR consultant when you need to draft new employment contracts, review existing contracts for compliance, update contracts for legislative changes, or deal with a contract dispute.
Jordan Firme Business Consultants drafts legally compliant employment contracts tailored to your business and industry.
Frequently Asked Questions
No, but it is strongly recommended. Without a written contract, the employment relationship is governed solely by the NES, applicable award, and any implied terms. A written contract provides clarity and protection for both parties.
Generally, no. Unilateral changes to a contract are a breach unless the contract contains a specific variation clause. Significant changes should be discussed and agreed in writing. Imposing changes without agreement can constitute constructive dismissal.
A modern award is an industry-wide instrument set by the Fair Work Commission that provides minimum pay and conditions. An employment contract is an individual agreement between employer and employee that can provide above-award terms but cannot go below.
A probation period is not a legal concept under the Fair Work Act but can be included in a contract. It typically aligns with the minimum employment period (6 months, or 12 months for small businesses) during which unfair dismissal protections do not apply.
Yes. Different roles may be covered by different awards, have different hours, require different restraint clauses, and involve different IP considerations. While you can have a standard template, each contract should be customised to the specific role.
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