Every employment relationship carries duties on both sides. Some of those duties are written into the employment contract, but many exist regardless of what the paperwork says. The Fair Work Act 2009 (Cth) imposes a floor of minimum standards, and the common law implies further duties into every contract of employment.
For a small or medium business, the practical risk is that the obligations you did not write down are the ones that catch you out. An employee can pursue underpayment claims, unfair dismissal applications and workers compensation claims, and the regulator can issue penalties, even where your contract was silent. This article sets out who these obligations apply to, the express and implied duties in play, and what happens when they are breached.
Who these obligations apply to
The starting point is whether your workers are employees at all. The obligations discussed here attach to employees, not to independent contractors engaged under a services agreement, so it is worth confirming the classification of everyone who works for you.
The National Employment Standards (NES) apply to all employees of national system employers, which covers the overwhelming majority of private sector businesses in Australia. There is no turnover or headcount threshold: a business with a single part-time employee must comply. Modern awards apply by industry and occupation, and by the classification of each employee. Express duties apply wherever a written contract exists, and the implied duties discussed below arise in every employment relationship whether or not it is documented.
If you are unsure whether your business is in the national system, or whether a worker is an employee or a contractor, this is one of the first things to check with Fair Work or an employment lawyer, because getting it wrong affects every obligation below.
Express duties in the employment contract
The express duties are the terms the parties actually agreed. A well-drafted contract usually sets out the employer's obligations to pay wages and entitlements, make superannuation contributions, and give notice when employment ends. On the employee's side, contracts commonly address devoting working time to the role, acting diligently, complying with reasonable and lawful directions, following workplace health and safety requirements, using business property only for work, avoiding conflicts of interest, and taking part in performance reviews.
A written contract can also incorporate your workplace policies by reference. That incorporation can make those policies contractually binding, so a policy manual that promises a particular entitlement can create a legal obligation, as the Federal Court recognised in Riverwood International Australia Pty Ltd v McCormick [2000] FCA 889. If your policies are out of date or promise more than you intend to give, review them before your contract points to them.
What a contract cannot do is contract out of the statutory floor. Express terms that undercut the NES or an applicable modern award are ineffective to that extent.
The National Employment Standards
The NES is the statutory minimum that applies to every national system employee, whether or not they have a written contract. Under s 61 of the Fair Work Act 2009 (Cth), the NES is a set of minimum standards that cannot be displaced, even by an enterprise agreement. The matters covered are:
- Maximum weekly hours: 38 hours, plus reasonable additional hours
- Flexible work arrangements: the right to request changes such as part-time hours
- Casual employment: rules on casual conversion and loading
- Parental leave: unpaid leave and related entitlements for new parents
- Annual leave: four weeks paid leave per year of service
- Personal and carer's leave, compassionate leave and family and domestic violence leave: paid and unpaid entitlements
- Community service leave: including jury duty and emergency service activities
- Long service leave: the state or territory scheme that applies to your business
- Public holidays: the right to be absent, subject to reasonable requests to work
- Superannuation contributions: a new NES obligation to pay superannuation for employees
- Notice of termination and redundancy pay: minimum notice and redundancy entitlements
- Fair Work Information Statement: a statement you must give every new employee
The notice obligation is a common source of mistakes. Under s 117, the minimum notice period is one week for up to one year of service, two weeks for one to three years, three weeks for three to five years, and four weeks for more than five years, with an extra week for employees over 45 who have completed at least two years of service. Payment in lieu of notice is permitted.
Modern awards
Modern awards are legal instruments made by the Fair Work Commission that set minimum terms for employees in particular industries and occupations. They are not optional: if an award covers an employee, its terms apply unless a more beneficial enterprise agreement does. Under s 139 of the Fair Work Act 2009 (Cth), a modern award may include terms about minimum wages, classifications, hours of work and rostering, rest breaks, overtime rates, penalty rates, allowances and annualised wage arrangements.
The interaction to understand is that the NES is the floor and the award sits on top of it. An award cannot provide less than the NES, and where both apply the employee gets the benefit of the more generous term. Award coverage depends on the employer's industry and each employee's duties and classification, which is why misclassifying a role, for example calling an award-covered employee a "manager", is one of the most common ways businesses end up underpaying staff.
Duties implied into the contract
Even where the contract is silent, courts will imply duties into an employment relationship. They do so in three ways: by law, by fact, and by custom. An implied term cannot contradict an express term of the contract, so the written agreement shapes what can be implied.
Duties implied by law
Some duties are so fundamental that the law implies them into every employment contract. For employers these include providing a safe system of work, paying wages for work performed, and reimbursing reasonable and necessary expenses an employee incurs with authority on the business's behalf.
For employees the settled implied duties are:
- Obedience: complying with lawful and reasonable directions
- Care and skill: performing work with reasonable care and competence
- Fidelity and good faith: not competing with the employer, not misusing confidential information, and acting honestly, a duty the High Court confirmed in Concut Pty Ltd v Worrell [2000] HCA 64
One boundary is worth knowing about. Some jurisdictions imply a broad mutual duty of trust and confidence into employment contracts, but Australian courts have approached that question more cautiously, and it was examined in the employment context in Commonwealth Bank of Australia v Barker [2013] FCAFC 83, which went on to the High Court. The precise scope of the implied duties in your circumstances is a legal question, so if a dispute turns on what the law implies, take advice on the current authorities rather than assuming a particular duty exists.
Duties implied by fact
A term can also be implied into a particular contract where it is necessary to make the contract work. The classic test comes from BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, as applied to employment contracts in cases such as H & H Security Pty Ltd v Toliopoulos [1997] FCA 838: the term must be necessary for the reasonable or effective operation of the relationship, obvious, capable of clear expression, and consistent with the express terms. Implication in fact is rare in practice, because the more complete the written contract, the less room there is for a court to find a term is needed.
Duties implied by custom
Finally, a duty can be implied where a practice is so well known and consistently followed in an industry that both parties are taken to have agreed to it. A custom needs to be certain, reasonable and consistent with the contract, and it is difficult to establish against a clear written term.
What happens when duties are breached
The consequences differ depending on which duty is breached and by whom.
For an employer, a breach of the NES is a contravention of a civil remedy provision under the Fair Work Act 2009 (Cth). The maximum penalty is 60 penalty units per contravention, which at the current value of a penalty unit under s 4AA of the Crimes Act 1914 (Cth) is $19,800 for an individual and $99,000 for a body corporate, since bodies corporate face five times the penalty unit figure. For a serious contravention, where the breach was knowing, the maximum is ten times that amount. These figures apply per contravention, and a single pattern of underpayment can involve many contraventions.
Beyond penalties, a breach of the NES or an award can expose the business to:
- Underpayment claims: the Fair Work Ombudsman can investigate and recover unpaid wages and entitlements on behalf of employees, and employees can sue directly
- Unfair dismissal applications: a dismissal that is harsh, unjust or unreasonable can be challenged in the Fair Work Commission, with reinstatement or compensation available
- Workers compensation claims: a failure to provide a safe system of work can lead to claims under the state or territory scheme that applies to your business
- Contract claims: breach of an express or implied contractual duty can found a damages claim
For an employee, failing to meet their duties can lead to performance management, suspension or dismissal. A serious breach of the implied duty of fidelity, for example working for a competitor while still employed, can justify summary termination, as the High Court recognised in Concut Pty Ltd v Worrell.
A practical compliance checklist
To keep these obligations manageable, work through this list:
- Confirm classifications: check that every worker is correctly classified as an employee or contractor, and that award-covered employees are in the right classification
- Identify the applicable award: use the Fair Work Ombudsman's tools to confirm which modern award, if any, covers each role
- Audit the NES basics: check leave accruals, maximum hours, notice periods and that every new employee receives the Fair Work Information Statement
- Review contracts: make sure written contracts reflect the actual terms, do not promise more than your policies deliver, and are updated when the law changes
- Check your policies: since incorporated policies can become contractual, keep them current and consistent with your contracts
- Keep records: time and wage records, and pay slips, are required by law and are your first line of defence in a dispute
- Get advice on the grey areas: implied duties, award coverage and termination are the areas where businesses most often get caught
When a lawyer can help
An employment lawyer's main value is in the areas the statute does not answer. A lawyer can draft or review employment contracts so the express terms are clear and the room for implication is reduced, confirm award coverage and classification for your particular roles, run a compliant termination process, and respond to underpayment claims, unfair dismissal applications and regulator investigations. The cost of advice at the drafting stage is usually far smaller than the cost of defending a claim later.
The duties that exist even without a written contract
The single most important point for a business owner is that most of these obligations apply whether or not you have a written contract. The NES floor, the award, the duty to provide a safe workplace and the duty to pay for work performed all exist independently of the paperwork. The contract mainly lets you define the relationship clearly, not avoid the law.
So start with the two checks that catch most businesses: confirm which modern award covers each employee and their classification, and have your employment contracts reviewed so the express terms match what you actually promise. Those two steps close off the most common sources of underpayment claims, unfair dismissal applications and disputes about what the law implies.