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What is the role of the common law employment agreement?

Previous articles have addressed the role of minimum legislative entitlements in the form of the Fair Work Act National Employment Standards, as well as the role and contents of the Legal Services Award 2020 (the award) in the private legal workplace.

To recap, employment law is an amalgam of overlapping statutory and common law rights and requirements.

Perhaps the most important obligation exists under workplace health and safety legislation. Employers have a duty to ensure the health and safety of their workers while at work, so far as is reasonably practicable.

Without being exhaustive, employers also have statutory obligations under employment, discrimination, consumer protection and privacy legislation. Actions towards employees may also have professional conduct implications.

There is a hierarchy of basic employment law instruments. The foundations are the National Employment Standards under the Fair Work Act 2009 (Cth), which apply to all employees. The Fair Work Act also contains a host of other obligations such as the requirement to keep particular employment records and provisions about unfair dismissal, workplace bullying, breaches of general protections and sham contracting. Public servants will also be subject to their own regimes under public service legislation.

It is then necessary to consider whether there is an applicable industrial award that applies to an employee. Industrial awards are given force by legislation and contain more detailed provisions relating to particular industries or occupations. It is not generally possible to simply opt in or out of an industrial award.

In the area of private legal services, the Legal Services Award 2020 applies to most support staff and graduates. The award does not apply to professional staff. It is possible to enter into a legislatively recognised enterprise agreement with a group of employees (but not an individual) which takes the place of an industrial award.

However, this is subject to approval by the Fair Work Commission and subject to employees being better off overall than under the applicable award. The reality is that there is little to be gained at the moment for most employers and employees through the enterprise bargaining process.

Despite the increasing number and detail of legislative and award-based obligations on both employers and employees, there is a large area of the employment relationship that is not covered. This is where the common law has a continuing role to play.

The common law exists in parallel with, but subject to, overriding statutory minimum requirements. At its most basic level, an employment relationship between an employer and an employee is a civil contract where the employee agrees to perform work for the employer in exchange for monetary or other payment.

In this sense, the employment contract is no different from any other civil contract, such as a contract to build a house. This means that the employer and employee are free to agree on whatever terms of employment they like, subject to legislative minimum rights and modern award or enterprise agreement requirements.

If there is no written contract of employment, the common law will operate to imply certain terms into the employment agreement. The scope of implied terms is not fixed in nature, although some basic terms are accepted. For an employer, this includes the obligation to provide a safe working environment and to give reasonable notice of employment termination. An ability to suspend an employee on pay and to place an employee on “gardening leave” to serve out a notice period of termination may also be implied in certain circumstances.

For an employee, implied terms include a duty to obey the employer’s lawful and reasonable directions and exercise due skill and care in performing their duties. It is likely that a duty to honestly and faithfully serve an employer also exists.

Terms of fact may also be implied into the employment agreement in accordance with established principles. The difficulty with implied terms, however, is that their precise extent and application will vary from case to case and may be far from certain without judicial pronouncement. For instance, the extent of implied duties of confidentiality, particularly once employment ends, is far from certain. The upshot is that employers and employees should ensure that a written common law contract of employment is agreed before employment starts.

Lastly, employer policies are an important tool for formalising employer directions about operational matters. Policies may or may not form part of the employment agreement, depending on their content and contractual status.

Keeping in mind that the contract of employment can only be changed by agreement between the parties, employment agreements are best treated as framework documents which set out the basic foundation stones of the employment relationship, leaving more dynamic operational matters to policies and procedures.

There is also little point to duplication of legislative and award requirements in a common law contract, which can result in those provisions having not only statutory, but also common law force.

For instance, an employer may wish to include minimum terms providing:

  1. for employment to be terminated on specified notice
  2. that contract remuneration be considered in satisfying legislative and award entitlements to the extent possible
  3. that employer policies do not form part of the contract of employment and are not mutually binding
  4. a suitable post-employment restraint, and
  5. a suitable confidentiality provision.

On the other hand, an employee may look for terms including:

  1. a particular job title
  2. a detailed position description
  3. a detailed and meaningful description of performance criteria and required goals/outcomes
  4. provision for performance reviews at specified intervals according to agreed criteria, and
  5. a dispute resolution clause.

It is trite to say that there is no ‘one size fits all’ employment contract. Employers and employees should consider their particular contractual needs on a case-by-case basis, or at least a class-by-class basis (for example, junior clerical staff, paralegals, professionals) because one size will not generally fit all in practice and may result in overkill or the omission of important provisions. It is, however, unwise to rely simply on loose verbal agreements and implied common law terms to supplement statutory minimum conditions of employment.

Employment agreements should also be reviewed on a regular basis to ensure they are up to date with changes in the law and contain appropriate protections. Of course, changes to contracts with existing employees need to occur by agreement.

Rob Stevenson is the Principal of Australian Workplace Lawyers and a QLS Senior Counsellor. rob.stevenson@workplace-lawyers.com.au

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