Legal Influences: Employment Contracts

HSC Business Studies | Free Study Notes

Legal influences on employment contracts are an important part of Human Resources in HSC Business Studies. Employment contracts set out the rights and obligations of employers and employees, while minimum employment standards, awards and agreements help ensure workers receive fair pay and conditions.

This topic matters because businesses must manage employees within the legal framework. If a business ignores its legal responsibilities, it may face disputes, penalties, poor workplace relationships and damage to its reputation.

In this lesson

• what employment contracts are

• the role of common law in employment

• rights and obligations of employers and employees

• minimum employment standards and minimum wage rates

• awards, enterprise agreements and other employment contracts

Core notes

What is an employment contract?

An employment contract is a legally binding agreement between an employer and an employee.

It sets out the terms and conditions of employment, such as:

• the employee’s role and duties

• pay and working hours

• leave entitlements

• workplace responsibilities

• notice periods

• confidentiality requirements

• employer and employee obligations

Employment contracts can be written, verbal or partly implied through behaviour. However, written contracts are clearer and easier to prove if there is a disagreement.

This links closely with stakeholders in human resources [Stakeholders in Human Resources], because employment contracts affect employers, employees, unions, government organisations and society.

Common law

What is common law?

Common law refers to law developed through court decisions.

In employment, common law helps shape the rights and obligations of employers and employees. It is especially important where workplace responsibilities are not fully explained in legislation, awards or agreements.

A common law employment contract is usually negotiated between an individual employer and an individual employee.

Common law contracts in business

Common law contracts may include terms about:

• job duties

• pay

• confidentiality

• loyalty to the employer

• notice of termination

• workplace conduct

• protection of business information

Common law contracts must still follow minimum legal requirements. An employer cannot use a common law contract to give an employee less than their minimum entitlements.

Rights and obligations of employers

Employer rights

Employers have the right to expect employees to complete their work properly and follow reasonable instructions.

Employer rights may include the right to:

• direct and control work tasks

• set workplace policies

• expect employees to act honestly

• manage employee performance

• protect confidential business information

• take disciplinary action where appropriate

For example, an employer can require an employee to follow safety procedures or meet reasonable performance targets.

Employer obligations

Employers also have legal responsibilities towards employees.

Employer obligations may include:

• paying employees correctly

• providing minimum entitlements

• ensuring a safe workplace

• preventing discrimination and harassment

• keeping accurate employment records

• following correct termination procedures

• providing required leave entitlements

If employers fail to meet these obligations, the business may face legal action, disputes or reputational damage.

This connects with work health and safety [Work Health and Safety], because employers must provide a workplace that protects employee health and safety.

Rights and obligations of employees

Employee rights

Employees have the right to fair treatment at work.

Employee rights may include:

• receiving correct pay

• receiving minimum leave entitlements

• working in a safe environment

• protection from unlawful discrimination

• access to dispute resolution processes

• receiving agreed working conditions

For example, an employee has the right to be paid at least the legal minimum wage rate that applies to their job.

Employee obligations

Employees also have responsibilities under an employment contract.

Employee obligations may include:

• completing work duties with care

• following lawful and reasonable instructions

• acting honestly

• following workplace policies

• respecting confidentiality

• taking reasonable care for their own safety and the safety of others

• giving required notice if resigning

For example, an employee must follow workplace safety procedures and use equipment correctly.

Minimum employment standards

What are minimum employment standards?

Minimum employment standards are the basic legal entitlements that employees must receive.

These standards act as a safety net for employees. They help make sure workers receive fair minimum conditions, even if their individual contract does not list every entitlement.

Minimum employment standards may include conditions such as:

• maximum weekly hours

• annual leave

• personal or carer’s leave

• parental leave

• public holiday entitlements

• notice of termination

• redundancy pay

• flexible working arrangement requests

A business must make sure employment contracts meet these minimum standards.

This links with legal influences on human resources [Legal Influences on Human Resources], because HR decisions must operate within the wider legal framework.

Minimum wage rates

What are minimum wage rates?

Minimum wage rates are the lowest legal rates of pay that employees can receive.

These rates help protect employees from being underpaid. The correct minimum wage may depend on factors such as:

• the employee’s age

• the industry

• the type of work

• the employee’s classification level

• whether an award or enterprise agreement applies

A business must check that employees are being paid correctly. Underpaying employees can lead to back-pay, penalties and damage to the business’s reputation.

Awards

What are awards?

Awards are legally enforceable documents that set minimum pay and conditions for employees in a particular industry or occupation.

Awards may cover:

• minimum pay rates

• penalty rates

• overtime

• allowances

• breaks

• ordinary working hours

• leave conditions

• classifications of employees

Awards provide more specific rules than the general minimum employment standards.

Why awards matter for HR

Human resource managers need to understand awards because they affect payroll, rostering, working hours and employee entitlements.

For example, a retail business may need to follow an award that sets penalty rates for weekend work.

This links with outsourcing human resource functions [Outsourcing Human Resource Functions], because some businesses outsource payroll to help manage complex award requirements.

Enterprise agreements

What are enterprise agreements?

Enterprise agreements are negotiated agreements between an employer and employees, or their representatives, about pay and conditions in a particular business.

Enterprise agreements may cover:

• wages

• hours of work

• overtime

• leave arrangements

• consultation processes

• dispute resolution procedures

• workplace flexibility

Enterprise agreements are usually designed to suit the needs of a specific workplace.

How enterprise agreements differ from awards

Awards provide a general safety net for an industry or occupation. Enterprise agreements are specific to a particular business or workplace.

However, enterprise agreements must still leave employees better off overall when compared with the relevant award.

For example, a large business may negotiate an enterprise agreement that provides higher base pay in exchange for more flexible rostering arrangements.

Other employment contracts

Types of employment contracts

Other employment contracts may include individual agreements between an employer and employee. These may be used for different types of work arrangements, such as:

• full-time employment

• part-time employment

• casual employment

• fixed-term employment

• contractor arrangements

Each type of contract can affect employee entitlements, job security and business flexibility.

Why contract type matters

The type of employment contract affects both the business and the employee.

For the business, contract type can affect:

• labour costs

• flexibility

• staffing levels

• training needs

• legal obligations

For the employee, contract type can affect:

• pay

• leave entitlements

• hours of work

• job security

• career development

For example, casual employees may give a business flexibility during busy periods, but they may have less job security than permanent employees.

Why employment contracts matter for business performance

Employment contracts help create clear expectations between employers and employees.

Effective employment contracts can:

• reduce confusion

• support fair treatment

• help prevent disputes

• protect the business legally

• improve workplace relationships

• support employee performance

Poorly managed employment contracts can lead to underpayment, legal disputes, low morale and staff turnover.

This connects with workplace disputes [Workplace Disputes], because unclear or unfair employment conditions can become a source of conflict.

Worked example

Exam-style question

Explain why employment contracts are important in human resource management.

Sample answer

Employment contracts are important in human resource management because they set out the rights and obligations of both employers and employees. For example, a contract may state the employee’s duties, pay, working hours and notice requirements. This helps create clear expectations and reduces the chance of workplace disputes.

Employment contracts must also follow minimum employment standards, minimum wage rates, awards and enterprise agreements. If a business fails to meet these legal requirements, it may face penalties, back-pay claims and damage to its reputation. Therefore, employment contracts help businesses manage employees fairly while meeting their legal obligations.

Common mistakes

• Thinking employment contracts can remove minimum employee entitlements.

• Confusing awards with enterprise agreements.

• Forgetting that both employers and employees have rights and obligations.

• Writing about employment contracts without linking them to legal compliance.

• Assuming all employees have the same contract type and conditions.

Quick quiz

1. What is an employment contract?

2. What is common law?

3. Give two obligations of employers.

4. Give two obligations of employees.

5. What is the difference between an award and an enterprise agreement?

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