Rights & Responsibilities

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Contract of Employment

What is a contract of employment?

When an employee accepts a specific offer of employment (oral or written), a contract of employment has been established. Under this contract, both the employer and employee have certain rights and obligations. Some stem from common law but most are set out in awards or agreements approved by the Commission.

Other employment conditions such as: protection from unfair dismissal, annual leave, long service leave, parental leave, apprenticeships and traineeships, workers' compensation, and occupational health and safety are regulated by legislation and are covered elsewhere on website.

Contracts of employment may contain provisions for probationary or 'trial' periods on commencement of employment and the employee must be paid during any such period.

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What are the rights and obligations of employers and employees?

Employers and employees have certain obligations or duties to each other under common law. These obligations or duties are regarded as legal standards of behaviour in the employment relationship.

Some rights and obligations of employers as interpreted and applied by the courts are to:

·         pay correct wages

·         reimburse employees for work-related expenses

·         ensure a safe working environment suitable for the performance of the

employee's duties

·         not act in a way that may seriously damage an employee's reputation or to cause mental distress or humiliation

·         not act in a way that will damage the trust and confidence necessary for an employment relationship

·         not to provide a false or misleading reference (should one be provided)

·         forward PAYE tax instalments to the Australian Taxation Office

·         make appropriate payment under the Superannuation Guarantee legislation

The employee's main obligations include:

·         to obey the lawful and reasonable instructions of the employer

·         to exercise due care in the performance of the work and to do it competently

·         to account to the employer for all moneys and property received while employed

·         to make available to the employer any process or product invented by the employee in the course of employment

·         to disclose to the employer information received by the employee relevant to the employer's business

·         to be faithful to the employer's interests, for example, by not passing on to a competitor information about the employer's business or denigrating the employer's products and services.

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What about family businesses?

It should be noted that a person employed or engaged by his or her spouse or parent is not considered an employee for the purposes of the NSW Industrial Relations Act 1996. However, they would be considered employees under common law and therefore the employer's and employees' obligations set out above could apply.

What are the minimum conditions to be contained in a contract of employment?

In NSW, the parties to a contract of employment cannot agree on or contract outside wage rates or conditions of employment less favourable to those set out in the applicable award or enterprise agreement.

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Should the contract of employment be in writing?

The contract of employment need not be in writing and in many cases the contract is verbal. The terms of the industrial award or enterprise agreement are usually the main terms in an employee's contract of employment.

It is a good idea to confirm any offer of employment in writing, and for the employee to accept the offer by signing a letter of appointment before starting work. The letter of appointment should cover:

·         details of the job duties

·         whether the job is full-time, part-time, casual or permanent

·         the award or agreement applying to the position

·         any special or additional conditions of employment that apply in your workplace.

For detailed information on letters of appointment, see the Office of Industrial Relations guide, Best Employment Practice.

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How legally binding is a contract of employment?

A contract of employment is legally enforceable through the courts in the same way as any other contract. However, the courts will not usually order specific performance of the employee's contract and will not usually force an employee to work for a particular employer.

What happens to employee entitlements if the business is sold to a new owner?

At law, contracts of employment with the previous employer cease to exist. If the employees continue to work for the new owner, then new contracts of employment are established. However, for the purposes of determining and calculating many entitlements (eg. annual leave) the continuity of employment is taken by law not to have been broken. Please refer to Transmission of business for further information.

Where to get more information

·         Your employer association

·         Your legal adviser.