Common Law Employment Agreement: understanding Australian Employment Contracts

A common law employment agreement is a type of contract formed through verbal agreements, implied terms, or conduct between an employer and employee, rather than a formal written document. These agreements are governed by the principles of common law and cover the rights and responsibilities of both parties in an employment relationship.Common law agreements are typically used when a written contract is not available, such as for casual or part-time workers. Even without a formal contract, these agreements are legally binding and establish the basis for employment terms, including duties, entitlements, and termination procedures.In this Business Kitz article, we’ll explore key features, benefits, challenges, and practical steps for formalising a common law agreement. We’ll also address common questions to provide a comprehensive understanding of these contracts.For compliance the easy way, we are offering you over 100+ premium documents and agreement templates. Download 5 today and get free access here. You can also sign up to 7 documents and store them securely with your very own document vault. Never lose your essential business documents again.

Key features of a Common Law Contract

A common law contract is formed by the agreement of the employer and employee, even when the terms are not set out in writing. It includes essential elements such as offer, acceptance, consideration, and intention to create a legal relationship. Below are some key features:

Formation of the Contract

• A common law contract forms through verbal agreements, implied conduct, or mutual understanding.
• Both parties must agree to the key terms, such as duties, pay, and hours, for the contract to be valid.

Implied Terms and Conditions

• Implied terms include expectations like confidentiality, duty of care, and reasonable notice for termination.
• These terms are not stated explicitly but are assumed to be part of the employment relationship.

FeatureDescriptionFlexibilityAdapts to various work arrangements without formal documentation.Implied termsIncludes confidentiality, duty of care, and reasonable notice.Legal enforcementEnforceable under common law principles but can be open to interpretation.CoverageCoexists with statutory entitlements like the National Employment Standards.Common law contracts provide a flexible employment structure. However, it’s crucial for both parties to understand the terms and conditions to prevent disputes.To download your free employment agreement templates you can access them in our library with 100+ documents. Download 5 for free today here.

When to use a Common Law Employment Agreement

A common law employment agreement is suitable in various situations, particularly when there is no formal written contract or when employment terms are discussed verbally. These agreements work well for casual, part-time, or temporary work arrangements where both parties prefer flexibility over detailed documentation.

Appropriate scenarios for a Common Law Agreement

• Verbal or Implied agreements: When employment terms are agreed upon verbally, such as pay and working hours.
• Small businesses and start-ups: Smaller organisations may rely on common law contracts due to limited resources.
• Trial or probationary periods: During a trial period before offering a more formal contract.

Common law agreements offer flexibility but require clear communication to ensure mutual understanding of the terms.

Rights and obligations of the employer and employee under common law

Under a common law employment agreement, both the employer and employee have rights and responsibilities defined by general contract and employment law.

Employer rights and obligations

• Right to direct work: Employers can instruct employees on how to perform their duties.
• Duty to provide a safe workplace: Employers must comply with workplace health and safety standards.
• Fair compensation: Pay must reflect the agreed terms and comply with any entitlements under modern awards or enterprise agreements.

Employee rights and obligations

• Right to fair pay: Employees are entitled to receive pay for the work completed, meeting minimum standards set by the Fair Work Act.
• Duty of loyalty and confidentiality: Employees must act in the employer’s best interest and maintain confidentiality.

Rights and obligationsEmployerEmployeeDirect and control work✓Provide a safe work environment✓✓Pay agreed wages✓Duty of loyalty and confidentiality✓

Key differences between a Common Law Employment Contract and a written agreement

A common law employment contract differs from a formal written agreement in several key ways.

Documentation and formality

• Common Law Employment Contract: Relies on verbal or implied terms without formal documentation.
• Written agreement: A formal document with clearly defined terms and conditions, reducing ambiguity.

Enforceability

• Common Law Contracts: Harder to enforce, as they rely on implied terms and verbal understandings.
• Written agreements: Easier to enforce, as they provide documented terms.

AspectCommon Law Employment ContractWritten agreementDocumentationVerbal, implied, or conduct-basedClearly written and documented termsEnforceabilityHarder to enforce, open to interpretationEasier to enforce, specific terms in writingDispute ResolutionRelies on conduct and implied termsResolved using the written terms as evidence

Terms and Conditions: what to include in a Common Law Contract

Even though a common law contract may not be written, certain terms and conditions should still be defined to avoid misunderstandings.

Essential terms to include

• Job role and duties: Define the position, job title, and duties.
• Pay and working hours: Include pay rate, frequency of payment, and hours worked.
• Leave entitlements: Describe leave entitlements such as annual and sick leave in line with the National Employment Standards.
• Notice period: Specify the notice period for resignation or termination.

Clear communication of these terms helps strengthen the employment relationship and reduces potential conflicts.

Challenges and limitations of Common Law Employment Contracts

While common law contracts offer flexibility, they come with several challenges:

• Lack of clarity: Verbal agreements can lead to misunderstandings.
• Difficulty in proving terms: Proving the terms may be challenging if there is no documentation.
• Limited legal protection: Less protection compared to written agreements.
• Enforcement issues: Enforcing verbal agreements can be problematic.

Understanding these challenges and maintaining clear communication can help avoid disputes.

Benefits of Common Law Contracts for employers and employees

Common law contracts offer benefits for both parties.

Benefits for employers

• Flexibility: Adaptable to different working arrangements.
• Cost-effective: Avoids the time and costs of drafting formal contracts.
• Simple employment structure: Straightforward terms that can be adjusted.

Benefits for employees

• Negotiation leverage: More room to negotiate terms.
• Reduced bureaucracy: Less formalities involved.
• Flexibility for short-term work: Ideal for temporary or irregular work.

PartyKey benefitsEmployerFlexibility, cost-effective, simple termsEmployeeNegotiation opportunities, reduced bureaucracy, flexibility

Practical steps to normalise a Common Law Agreement

To formalise a common law agreement, follow these steps:

1. Outline the key terms: Discuss job duties, pay, and working hours verbally or in writing.
2. Confirm the implied terms: Clarify duty of care and confidentiality.
3. Seek legal advice: Ensure compliance with the Fair Work Act.
4. Document changes: Record any changes to employment terms.
5. Review regularly: Keep the agreement up-to-date.

Formalising the agreement reduces misunderstandings and provides clarity for both parties.

FAQs: Understanding Common Law Employment Contracts

What is a Common Law Employment Contract?

A common law employment contract is based on verbal agreements, implied terms, or conduct rather than a formal written document.

Is a Common Law Contract legally enforceable?

Yes, but proving terms can be challenging without a written document.

Can a Common Law Contract override the Fair Work Act?

No, statutory entitlements always apply.

Why Common Law Employment Contracts matter

Common law employment contracts offer flexibility and adaptability for both employers and employees. They work well in informal settings or when a written contract isn’t practical. While they lack formal documentation, they still create legally enforceable rights and obligations. Understanding these agreements, their limitations, and their benefits helps both parties build a strong employment relationship. By clarifying terms and regularly reviewing agreements, you can avoid misunderstandings and maintain compliance with Australian workplace laws and standards. To download your free employment agreement templates you can access them in our library with 100+ documents. Download 5 for free today here.