Contracts of employment

Contributed by CatherineRusso and current to 27 July 2018

Employee or independent contractor?

The threshold question in determining the rights and duties of a worker is whether the individual is an employee or an independent contractor.

  • an ‘employee’ is an individual who provides labour in their employer’s business, under a contract of service;
  • an ‘independent contractor’ is an individual or entity that carries on a trade or business of their own and provides their labour under a contract for services.
When deciding whether a worker is an employee or independent contractor at common law a court or tribunal will assess the ‘totality of the relationship’ between the parties. No single factor is necessarily conclusive.

A court will take into account factors such as:
  • Contract - The terms of the contract between the parties.
  • Intention - The intention of the parties at the time of entering into the arrangement and throughout the course of the arrangement. Do the parties intend the relationship to be that of principal and contractor or employer and employee?
  • Corporate relationship - Whether the contract is with an individual or with a company that employs the individual. A contract with an individual is often seen as a strong indicator of an employment relationship.
  • Control - Who exercises ‘control’ over the worker’s day to day activities?
  • Delegation - Can the contractor delegate the performance of the services to another person, who is appropriately qualified, or is the individual contractor required to perform the service themselves? A situation where no delegation is permitted can indicate an employment relationship.
  • Hours of work - Who determines the worker’s hours, including number of hours and when they are worked? Is the worker required to perform the same hours as other employees? Is there a fixed pattern of hours?
  • Degree of separation - Are the independent contractors a distinct group or are they working alongside and treated the same as employees? (eg do they wear the same uniforms and are they addressed in the same way as other ‘employees’?)
  • Recruitment - Who is responsible for recruitment of contractors?
  • Other work - Does the worker also perform services for other organisations? An arrangement where the worker must perform services exclusively for the principal can indicate an employment relationship.
  • Tools and equipment - Who provides the tools and equipment that the worker is required to use to perform their duties?
  • Payment - How is the worker paid for their services?
  • Taxation and insurance - What arrangements are there for taxation, superannuation and insurance payments made in respect of the contractor?
  • Duration and stability - How long has the contractor been engaged?
Whether an employment relationship exists will ultimately depend on the circumstances of the individual case and may vary from worker to worker, depending on their individual situation. Ultimately, a court may determine that an employment relationship exists even where this is contrary to the express terms of the contract.

Content of employment contracts

Every employee has an employment contract with their employer. It may be written, oral, express or implied.

Employers and employees are free to negotiate the terms of an employment contract, and there is no statutory regulation in Australia as to what terms must appear in an employment contract. However, the terms set out in written employment contracts typically cover:
  • the nature of employment (for example, permanent or fixed term, full-time, part-time or casual);
  • probationary periods;
  • the duties of the position and reporting structure;
  • hours of work;
  • any reference to company policies and procedures;
  • remuneration;
  • leave entitlements;
  • termination of employment requirements;
  • post-employment protection regarding employer intellectual property;
  • confidential information and restrictions on employee conduct; and
  • jurisdiction and governing law of the contract.
While employers and employees are free to negotiate the terms of a contract of employment, those terms cannot provide for less than the minimum entitlements set out in:
  • the NES or Minimum Conditions of Employment Act 1993 (WA), as applicable;
  • an applicable modern award;
  • any enterprise agreement which may apply (subject to certain exceptions which allow employees to enter into individual flexibility agreements with their employer); and
  • any relevant legislation (for example, the LSL Act).

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