Legal Influences: The Employment Contract (HSC SSCE Business Studies): Revision Notes

Legal Influences: The Employment Contract

Introduction

Employment contracts establish legal obligations between employers and employees. All businesses must operate within a legal framework consisting of:

• Common law – law developed through court decisions and precedents
• Statute law – legislation passed by federal and state parliaments

The shift in industrial relations

Australia has moved from a centralised industrial relations system (where disputes were referred to tribunals for resolution) to a more decentralised system where employers and employees negotiate wages and conditions at the workplace level. This shift occurred gradually from the 1980s onwards, with the Fair Work Act 2009 representing the most recent major reform.

The government's role now focuses on:

• Creating the legal framework for negotiations
• Setting National Employment Standards (NES)
• Conducting minimum wage hearings
• Managing the awards system

Government influence on employment contracts

Federal level: Department of Education, Skills and Employment

The federal department has strategic priorities including:

• Ensuring quality early education and care access
• Improving schooling outcomes
• Preparing the workforce through competitive tertiary education and training
• Helping people find, keep and change jobs
• Developing evidence-based policy for varied Australian needs

State level: NSW Industrial Relations

NSW Industrial Relations monitors:

• Wages and employment rights
• Employment conditions for public servants (teachers, police, nurses, essential service workers)
• Participation in the Commonwealth's national workplace relations framework

The employment contract

Definition: An employment contract is a legally binding, formal agreement between an employer and employee.

Why written contracts matter

While contracts can be verbal, written contracts provide better protection because:

• They clarify duties and responsibilities
• They prevent "word against word" disputes
• They document agreed terms
• They are easier to enforce legally

Types of employment contracts

Contracts of indefinite duration (most common):

• Employee remains employed until either party gives notice
• Notice period determined by law or the contract itself
• Ongoing employment relationship

Contracts of fixed term:

• Define a specific end date or completion of a task
• Example: 12-month contract or project-based work
• Employment ends automatically when the term expires

Requirements for a valid contract

Key features of employment contracts

Well-drafted contracts should include:

• Salary/wages – base pay and review arrangements
• Hours – standard working hours and overtime
• Location – place of work
• Duties – job responsibilities
• Supervision – reporting relationships
• Leave – annual, sick, long service entitlements
• Benefits – additional perks
• Bonuses – performance incentives
• Overtime – arrangements for extra hours
• Superannuation – retirement contributions
• Confidential information – protection requirements
• Discipline policy – procedures for misconduct
• Promotion policy – career advancement processes

Independent contractors vs employees

Independent contractors:

• Self-employed with a contract for services (not of service)
• Have control over their work methods
• Responsible for own tax, superannuation and insurance
• May work for multiple businesses
• Do not receive employee entitlements (sick leave, annual leave)
• Typically submit invoices for payment

Common law obligations and rights

Common law is developed by courts and tribunals based on precedent, not created by parliament. Both employers and employees have basic obligations regardless of whether there is a formal written contract.

Employer obligations

Providing work:

• Employers cannot "stand down" employees without work
• Must pay correct wages even if no work available

Payment of income and expenses:

• Must pay wages, commission or fees as stipulated in award, agreement or contract
• Must reimburse legitimate work-related expenses

Meeting industrial relations legislation requirements:

• Provide workplace free from discrimination (as required by sex discrimination, anti-discrimination and equal employment opportunity laws)
• Equity means providing equal opportunities for all employees to access jobs, training and career paths
• Protect workers against unfair dismissal

Employer rights

Employers can expect:

• Employees to work with care and responsibility, especially regarding WHS
• Employees to carry out work according to agreement/award requirements
• Good customer relations and accountability for money/property
• Notification of intention to take leave entitlements according to award/agreement
• Formal advice of resignation according to award/agreement

Employee obligations

All employees must:

• Carry out duties beneficially for the business
• Maintain confidentiality (not use business information detrimentally)
• Account for all money entering the business
• Take reasonable care and act safely in the workplace
• Follow written and verbal procedures and policies
• Be honest, fair and work with integrity towards colleagues and customers
• Obey lawful and reasonable commands (even outside primary responsibilities)
• Complete taxation forms
• Give appropriate notice of termination according to the relevant award

Employee rights

Employees are entitled to:

• Be paid for all time worked, including overtime where applicable
• Receive the minimum set in award or enterprise agreement
• Have all pay recorded (some awards require pay slips)
• Receive extra pay such as casual loading and penalty rates for unusual hours
• Receive allowances for tools and uniforms if applicable
• Access paid and unpaid leave entitlements

National Employment Standards (NES)

The ten National Employment Standards provide minimum conditions that all employers must provide. They create a safety net especially for vulnerable and low-paid employees, forming the basis for modern awards and enterprise agreements.

The 10 standards

1. Maximum weekly hours: $38$ hours per week, plus reasonable additional hours

2. Flexible working arrangements: Parents or carers of children under $18$ can request changes to assist with care

3. Parental leave: Up to $12$ months unpaid leave for every employee, plus right to request additional $12$ months, and other leave forms

4. Annual leave: $4$ weeks paid leave per year, plus additional week for certain shift workers

5. Personal/carer's leave and compassionate leave:

• $10$ days paid personal/carer's leave
• $2$ days unpaid carer's leave as required
• $2$ days compassionate leave (unpaid for casuals) as required

6. Community service leave: Unpaid leave for voluntary emergency activities and jury service, with entitlement to be paid for up to $10$ days for jury service

7. Long service leave: Transitional entitlement for employees with certain LSL entitlements before 1 January 2010, pending uniform national standard development

8. Public holidays: Paid day off on public holidays, except where reasonably requested to work

9. Notice of termination and redundancy pay:

• Up to $4$ weeks notice of termination ($5$ weeks if employee is over $45$ with at least $2$ years continuous service)
• Up to $16$ weeks redundancy pay, both based on length of service

10. Fair Work Information Statement: Employers must provide this statement to all new employees about major employment matters and bodies

Minimum wage rates

The minimum wage is an employee's base rate of pay for ordinary hours worked. It is determined by:

• The modern award covering the employee
• An enterprise agreement, or
• The national minimum wage

Key facts about minimum wages

• Reviewed annually by the Fair Work Commission's Expert Wage Panel
• Takes effect from the first pay period after 1 July each year
• Employees and employers cannot agree on rates less than the minimum wage
• In July 2020: $753.80 per week (before tax) for full-time workers or $19.84 per hour plus 25% loading for casuals
• Employees under $21$ receive a percentage of this hourly minimum depending on their age

Wage theft

High-profile cases: 7-Eleven ($173 million to $4000$ workers), George Calombaris ($7.8 million), Caltex, Pizza Hut, Domino's Pizza

Why it occurs:

• Cultural acceptance in certain sectors
• Low penalties for employers caught
• Weak enforcement
• Workers' resignation to underpayment as unavoidable

Proposed reforms:

• Making wage theft a criminal offence with prison time
• Increased resources for enforcement
• Supply chain certification schemes
• Modern slavery legislation requiring companies to report efforts to keep supply chains exploitation-free

Awards

Definition: An award is a determination explaining the legally enforceable minimum terms and conditions applying to a business or industry.

Modern awards system

• Over $100$ industry or occupation awards cover most Australian workers
• Simplified from approximately $2400$ older awards
• Examples: Air Pilots Award (2020), Real Estate Industry Award (2020)
• Reviewed by Fair Work Commission every four years

What awards cover

Awards specify:

• Base pay rates
• Conditions for different employment types (full-time, part-time, casual)
• Overtime and penalty rates
• Allowances (e.g. travel allowances)
• Leave and leave loading
• Hours of work (rosters, changing working hours)
• Annual wage/salary arrangements
• Superannuation entitlement
• Consultation, representation and dispute procedures
• Outworker conditions
• Redundancy conditions

Individual Flexibility Agreements (IFA)

Awards include a "flexibility term" allowing employers and employees to negotiate changes to some award conditions through an IFA. This addresses individual circumstances while ensuring employees are not worse off (assessed financially) than under the award or enterprise agreement.

IFA can only address:

• Arrangements for when work is performed (working hours)
• Overtime rates
• Penalty rates
• Allowances
• Leave loading

Recent changes: Penalty rates

The Fair Work Commission's four-yearly review in 2017 reduced Sunday and public holiday penalty rates for fast-food, hospitality, retail and pharmacy awards. Changes were phased in gradually to 2019-2020.

Key changes:

• Sunday penalty rates reduced (e.g. hospitality workers from 175% to 150% for full-time/part-time)
• Public holiday rates reduced from 250% to 225% for full-time/part-time workers
• Intended to assist small businesses (including franchisees) for whom existing penalty rates were financially burdensome
• Controversial: unions argued workers would need extra hours to compensate for lost income

Enterprise agreements

Definition: Enterprise agreements are collective agreements made at a workplace (enterprise) level between an employer and a group of employees about terms and conditions of employment.

Types of enterprise agreements

Single-enterprise agreements:

• Made between a single employer and a group of employees
• Can involve multiple employers in limited cases (e.g. joint ventures)

Multi-enterprise agreements:

• Made between two or more employers and groups of their employees
• May occur when businesses share common funding, operate collaboratively, and have common regulatory systems (e.g. group of hospitals)

Greenfields agreements:

• Single or multi-enterprise agreements for genuine new enterprises
• Made before employees are employed
• Made with one or more relevant unions

Key features of enterprise agreements

What they cover:

• Rates of pay, penalty rates and overtime
• Allowances
• Hours of work
• Personal and annual leave
• Matters related to employer-employee relationships
• Representative organisation involvement
• How the agreement operates, including nominal expiry date

The bargaining process

Step 1: Employers, employees and their representatives (e.g. trade unions) engage in bargaining

Step 2: Bargaining representatives act in good faith – attending meetings, participating genuinely, and giving serious consideration to proposals

Step 3: Once complete, employees covered by the draft agreement are advised of details and can vote

Step 4: If accepted by majority of employees, agreement must be lodged with Fair Work Commission within $14$ days

Step 5: If Fair Work Commission approves (satisfied with consent, BOOT test, good faith bargaining), agreement comes into operation $7$ days after approval

Better off overall test (BOOT)

Other employment contracts

Individual common law employment contracts

These individual contracts of service apply to:

• Employees not covered by federal or state agreements
• Particularly higher income earners (currently above $153,600 per year – changes annually)
• More common in private sector, non-union enterprises, foreign-owned firms
• More common for professional and managerial roles

Characteristics:

• Can be written or verbal
• Many are informal with less protection than awards/agreements
• Generally must provide conditions equating to minimum award provisions
• If below minimum standards, they breach the law

Independent contractors

Independent contractors (consultants, freelancers) comprise 9% of the Australian workforce.

Characteristics:

• Self-employed with contract for services (not employees with contract of service)
• Typically work for multiple clients
• Have set term or specific project contracts
• Control their own work methods
• May delegate work to others
• Submit invoices for payment
• Responsible for own tax, superannuation and insurance
• No employee entitlements (sick leave, annual leave)

Demographics:

• 72% male, 55% over age $45$
• Male contractors: technicians/trade workers (36%), professionals (19%)
• Female contractors: professionals (38%), clerical/administrative (18%)

Advantages for employers:

• Shifts employment risks (sickness, leave) to contractor
• Reduces on-costs (additional employment costs above wages, typically adding 25%: sick leave, holiday leave, leave loading, superannuation, retirement/redundancy payments)

Casual employment contracts

Casual workers represent 25% of the Australian workforce ($2.6 million workers, 2019). Women account for 50% of casual employees, 40% aged $15-24$ years.

Characteristics:

• Short-term, irregular or seasonal work
• Variable work periods
• Paid hourly or daily
• Not entitled to paid leave
• Receive 20-25% loading (extra pay) to compensate for lack of entitlements and job security

Leave entitlements:

• $2$ days unpaid carer's leave per occasion
• $2$ days unpaid compassionate leave per occasion
• $5$ days unpaid family and domestic violence leave (per $12$-month period)
• Unpaid community service leave

Disadvantages:

• Miss out on training and promotion opportunities
• Experience fluctuating income
• Difficulty obtaining credit
• More likely to experience workplace accidents
• Less committed to employing organisations

Most popular occupations: Sales assistants, hospitality workers, carers and aides, sales support workers, food preparation assistants

COVID-19 support: Government introduced JobKeeper payment ($1500 per fortnight for employees who lost jobs due to reduced turnover) and JobSeeker payment ($550 per fortnight for short-term casuals who lost jobs and meet eligibility requirements).

Part-time contracts

Part-time employment represents 32% of all Australian employees. 43% of women work part-time compared to 13% of men. Approximately 25% of part-time employees are underemployed (want more work).

Characteristics:

• Continuing employment contract
• Work less than $38$ hours per week
• Access employment entitlements on pro rata basis (proportional to percentage of time worked compared to full-time)

Advantages:

• Suits two-income households
• Enables better work-life balance
• Provides ongoing employment entitlements (unlike casual work)

Trends: Part-time work increased during global financial crisis and COVID-19 pandemic as employers reduced hours in response to economic downturns.

Comparing enterprise agreements and individual contracts

Enterprise agreements (collective bargaining)

Process:

• Negotiated by parties through collective bargaining at enterprise level
• Must be formally approved and registered by Fair Work Commission
• Includes terms about relationships between parties
• Includes wage deductions authorised by employee
• Specifies how agreement operates (nominal expiry date within $4$ years)
• Contains dispute settlement procedures
• References Individual Flexibility Agreements (IFA)
• Contains consultation terms for major changes

Advantages:

• Collective bargaining power
• Fair Work Commission oversight
• Must pass BOOT test
• Clear documented terms
• Dispute resolution procedures built in

Individual contracts (award and agreement free)

Application:

• Apply to employees not covered by awards or enterprise agreements
• Must still meet minimum requirements under Fair Work Act
• Must include NES minimum entitlements
• Must cover: remuneration, hours, breaks, overtime, public holidays, leave, termination
• Cannot leave employees worse off than minimum entitlements

Who uses them:

• Senior managers (like Simon earning $150,000 managing hotel group)
• Professionals (accountants, IT specialists, HR professionals)
• High-income earners (above high-income threshold)

Case studies

Avalon Airport contract dispute

Background: George Haros accepted Business Manager role at Linfox's Avalon Airport, leaving secure long-term job elsewhere.

Court decision: Claims rejected at first instance and on appeal. Full Bench found:

• Haros was qualified lawyer with employment law experience
• Negotiated and signed written contract with probation period and $3$ months termination notice
• Confirmed contract as "entire agreement" superseding previous negotiations, representations or warranties
• Not misled or deceived by Linfox representations
• Linfox used language like "potential" and "opportunity" (not promises of certainty)

Wage theft – George Calombaris

Case: Celebrity chef George Calombaris caught underpaying employees $7.8 million.

Context: Wage theft (underpaying award rates, overtime, superannuation, penalty rates) has become common in Australia:

• Australian Taxation Office estimated $2.5 billion short-changed on superannuation alone (2014-2015)
• Other major cases: 7-Eleven ($173 million to $4000$ workers), Caltex, Pizza Hut, Domino's Pizza
• Particularly affects young, low-skilled and temporary migrant workers
• Most common in food services, franchises, outsourcing, insecure work, gig economy

Why it occurs:

• Cultural acceptance in certain sectors as "fact of life"
• Low penalties (Calombaris penalty limited to $200,000, though must repay $7.8 million)
• Weak enforcement
• Not considered criminal offence (unlike stealing from company)

Penalty rates reduction

Fair Work Commission decision (2017): Reduced Sunday and public holiday penalty rates for fast-food, hospitality, retail and pharmacy awards.

Changes:

• Phased in gradually to 2019-2020
• Retail/pharmacy: Sunday rates reduced from 200% to 150% (full-time/part-time), 225% to 175% (casuals)
• Fast-food: Sunday rates reduced from 150% to 125% (full-time/part-time), 175% to 150% (casuals)
• Hospitality: Sunday rates reduced from 175% to 150%
• Public holiday rates reduced from 250% to 225% (full-time/part-time), 275% to 250% (casuals)

Rationale: Assist small business sector (including franchisees) for whom existing penalty rates were financially burdensome, particularly for weekend and public holiday opening.

Exam guidance

What examiners look for

For evaluation questions:

• Clear criteria for judgement (e.g. effectiveness, fairness, impact)
• Evidence from multiple sources (legislation, case studies, statistics)
• Balanced consideration of different perspectives
• Logical structure: introduction, arguments for/against, conclusion
• Use of business terminology
• Application to real-world context
• Supported judgement

Remember!