February 2006

Work Choices: The resurrection of the contract of employment

The Federal Government's Work Choices legislation fundamentally changes workplace relations in Australia. Awards are stripped back, conciliation and arbitration of disputes is (mostly) no longer available and state industrial laws are excluded. Instead, there are a handful of key minimum entitlements and the option of making a workplace agreement, individual or collective.

So what will regulate the terms of the employment relationship? Unless employers already have a detailed industrial instrument, the contract of employment will be the main source of many obligations and rights.

Now is the time to review your business's contracts of employment. Are they flexible enough to meet operational requirements? Do they cover all matters dealing with the employment relationship? Will your business be left with obligations that were not anticipated?

The importance of a well drafted employment contract can not be understated. The recent case of Network Ten Pty Ltd v Jessica Rowe [2006] NSWCA 1 shows the implications of a poorly drafted contract and a failure to keep the contract up to date.

Ms Rowe had worked for Channel Ten for many years and in 2003 she signed a routine contract continuation. The document did not specify the term of her ongoing employment and only specified Ms Rowe's remuneration for the next two years.

At the end of 2005 Ms Rowe announced she was going to work for Channel 9. Channel Ten sought six month's notice of her resignation under the contract but Ms Rowe was successful in arguing her contract had come to an end after the two years; she now appears on Channel 9. A written term specifying the term of the contract and notice would have solved Ten's problem.

The contract of employment

All employers have an individual contract of employment with each employee. The contract comes into existence by virtue of the employment relationship, whether or not there is anything in writing.

A written contract can contain a range of terms relating to the employment relationship and the way the work is to be done.

There are many possible terms of employment and it ought not be assumed they are automatically part of each contract. Essential conditions of employment deal with the duties, wages and termination of employment. Additional terms can deal with leave, bonuses, confidentiality, restraints and so on.

The contract of employment may be oral and in which case the terms of employment may be difficult to ascertain especially when the manager who negotiated the engagement of the employee has left the company.

What terms you want to include in your contract may depend upon the business, the nature of the job and past experiences, but unless you have a well drafted written contract there is no certainty about what those terms are.

Impact of Work Choices on contracts

Work Choices will have an impact on your existing and future contracts with workers because there will be less room for industrial instruments to operate unless they have been specifically negotiated. Also, many existing contracts were written against the previous legislative background which no longer applies.

For example, Work Choices provides that where a contract of employment purports to exclude the Australian Fair Pay and Conditions Standard, then that term of the contract has no effect. Many existing contracts have sick leave provisions of 5 or 8 days sick leave a year, which might not accumulate. Under Work Choices an employee is now entitled to 10 days personal leave cumulative, each year.

Other problems may arise with the commencement of Work Choices. Some contracts specify that annual leave "is in accordance with the NSW Annual Holidays Act 1944" or that employment is governed by a particular named award. Under Work Choices, the Annual Holidays Act no longer operates, and awards become transitional arrangements which may be stripped back and no longer updated.

In these cases there may be argument about what is the actual contractual entitlement. The possibility of a conflict between contractual and statutory entitlements may result in claims being made for breach of contract.

In NSW the unfair contract jurisdiction will no longer operate so it is unlikely that employees will be able to challenge their contracts if they are unhappy with the terms. The words of the contract will have far more force and effect than has been the case in the past.

Remember

The contract of employment, or the letter of offer, will be crucial to determining obligations and rights in the employment relationship under Work Choices. Failure to accept that change will most likely lead to individual disputes about entitlements and the terms of the contract.

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