Written employment contracts are a key tool for setting clear expectations, reducing misunderstandings and protecting the rights of both employers and employees while ensuring that each fulfils their obligations. 

While a contract can be verbal, best practice is to have it in writing so that both parties are clear on their rights and obligations, creating a reference point if disputes arise later.

A written contract does not replace workplace laws or industrial instruments but it does provide certainty about how they apply in your business.

How do employment contracts fit into the industrial relations system?

In Australia, an employment contract cannot undercut an employee’s minimum entitlements under the Fair Work Act 2009 – including the National Employment Standards (NES) – and any applicable modern award or registered enterprise agreement.

This means a contract can add to or improve entitlements (for example, paying above-award rates or offering extra leave) but it cannot lawfully go below the minimums set by the NES or the relevant award or agreement. 

An employee cannot ‘sign away’ their minimum entitlements, even if they agree at the time.

Importantly, most private sector businesses are covered by the national system. 

Some unincorporated businesses in Western Australia remain under the state system, which has its own rules.

Common features of an employment contract

While contracts will vary between industries and roles, the following issues are typically addressed.

Employment status

The contract should specify whether the employee is full-time, part-time or casual.

This helps avoid confusion about entitlements such as leave, notice and job security. 

In line with applicable legislation, casual contracts should clearly state the nature of the engagement and that employee remuneration includes a defined amount of casual loading, as this will minimise the risk of disputes about permanency.

Hours of work

For permanent employees, the contract should set out the number of ordinary hours per week (or an average over a period) and the spread of hours or days they are usually required to work, where relevant.

Many modern awards also require that part-time employees have their regular pattern of work agreed on in writing (eg, specific days and hours). 

This helps manage expectations and supports compliance with overtime and penalty rate provisions.

Award coverage and classification

If an employee is covered by a modern award, the contract should identify the relevant award and state the employee’s classification level under that award.

This classification determines the minimum rate of pay and some conditions. 

Even if an employer pays above award, it’s important to identify the correct classification as a reference point.

Remuneration

The remuneration clause should clearly state the employee’s rate of pay (hourly or annual salary) and how and when it will be paid (eg, weekly by electronic funds transfer).

Where an employee is paid above the minimum award rate, employers may include a set-off clause stating that the higher rate is intended to compensate for entitlements such as overtime, penalties or allowances, provided the employee remains better off overall than under the award. 

These clauses should be drafted carefully and reviewed regularly to ensure ongoing compliance.

Notice of termination

The contract should set out the amount of notice required from both the employer and the employee. 

At a minimum, notice must comply with the NES and any applicable award or agreement. Employers may choose to require longer notice but this may not be enforceable.

The notice period is usually mirrored for both parties (eg, four weeks’ notice by either the employer or the employee, subject to NES minimums and any provisions about payment in lieu of notice).

Post-employment restrictions

Some contracts include post-employment restraints, such as:
•    non-compete clauses (restricting work for a direct competitor for a limited time and area)
•    non-solicitation clauses (preventing the poaching of clients or staff)
•    confidentiality obligations (protecting sensitive information).

These clauses are not automatically enforceable. 

To rely on them, an employer would usually need to take legal action and show that the restraint is reasonable and no broader than necessary to protect a legitimate business interest. 

Poorly drafted restraints may be unenforceable and give a false sense of security.

What can’t be included in an employment contract? 

An employment contract cannot contain terms that are unlawful or inconsistent with minimum standards. 

For example, pay rates that fall below the applicable award, terms that exclude or reduce NES entitlements (eg, personal leave, annual leave, parental leave) and pay secrecy clauses.

Even if an employee signs a contract containing an unlawful clause, that clause will usually be void and the minimum legal standard will apply instead.

Can employment contracts be changed?

Contract terms can only be changed by mutual agreement. Any amendments should therefore be discussed openly and confirmed in writing. 

Employers cannot unilaterally change key terms such as hours, pay or location and attempting to do so can create legal and industrial risks – including potential adverse action or constructive dismissal claims.

In summary

Employment contracts are a key part of the employment relationship, helping to clarify expectations, support legal and award compliance and reduce the risk of disputes. 

It’s worth ensuring that they are well drafted and up to date. Seeking advice before issuing or changing contracts can help avoid costly problems later on.

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