Employment contracts in Australia: what must be included and what to avoid

Employment in Australia is governed by a hierarchy of instruments. At the top sit the National Employment Standards (NES) — 11 minimum entitlements that apply to all national system employees regardless of any contract or award provision to the contrary. Below the NES sit modern awards and enterprise agreements, which set minimum pay rates and conditions for specific industries and occupations. Employment contracts operate within this framework — they can provide more than the NES and applicable award, but they cannot provide less.

This means that a contract clause which purports to exclude a minimum entitlement — such as a clause attempting to exclude annual leave, or to set notice periods below the NES minimum — is simply unenforceable to that extent. The NES minimum applies instead. Employers who draft contracts with below-NES provisions risk underpayment claims when those provisions are applied.

Modern award coverage is the most commonly overlooked element of employment contracting. A large proportion of Australian employees are award-covered — meaning the award sets minimum pay rates, penalty rates, and overtime entitlements. Employers frequently issue contracts with a flat salary without checking whether that salary absorbs (with sufficient margin) all award entitlements that might be claimed. This is the origin of the majority of underpayment class actions.

While the Fair Work Act does not prescribe a mandatory form for employment contracts, certain provisions are essential to create a legally clear and enforceable document: the parties' identities, the commencement date and employment type (full-time, part-time, or casual), the role title and primary duties, the remuneration and pay period, superannuation arrangements, leave entitlements (at least confirming NES application), notice periods, and the confidentiality and IP obligations that apply to the role.

A well-drafted employment contract should also address the applicable modern award (if any), and how the salary has been structured relative to award entitlements. For employees earning above the award minimum, a common approach is an 'annualised salary arrangement' under which the flat salary is expressed to compensate for all award entitlements — but this arrangement must comply with the applicable award's annualised salary rules, which include record-keeping and review obligations.

Post-employment restrictions — non-compete and non-solicitation clauses — are technically optional but practically important for roles where the employee has access to clients, confidential information, or business-critical knowledge. Australian courts will enforce these clauses only where they are reasonable in scope and duration. 'Reasonable' is assessed by reference to the legitimate business interest being protected, not by the employer's preference.

Several provisions commonly seen in Australian employment contracts are wholly or partly unenforceable. Non-compete clauses that are too broad in geographic scope, duration, or restricted activity are regularly struck down or reduced by courts. The clause must protect a specific legitimate interest — client relationships, trade secrets — not simply prevent an employee from earning a living.

Broad IP assignment clauses that purport to assign all IP created by the employee — including IP created outside working hours and unrelated to the employment — are subject to challenge. Assignments of employee-created IP are generally valid within the scope of the employment, but extra-curricular IP without a direct nexus to the employment is unlikely to be enforceable.

Deduction clauses that permit the employer to deduct money from wages without specific written authorisation for each deduction type are restricted under the Fair Work Act. Provisions that attempt to allow the employer to deduct from wages for losses, damages, or uniform costs without complying with Fair Work Act authorisation requirements are unenforceable.

The Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 introduced significant restrictions on fixed-term contracts that came into effect in December 2023. Employers are now limited to two consecutive fixed-term contracts for the same employee in the same role, with the total engagement period not exceeding two years (excluding extensions). After this, the employer must offer an ongoing contract, cease engagement, or establish one of the limited exceptions.

The exceptions to these restrictions are narrow — they cover specialised roles requiring specific expertise, positions that are covering for an absent employee, high-income threshold earners (currently above $175,000), and certain government-funded positions. Attempting to structure repeated fixed-term arrangements outside these exceptions creates risk of an 'anti-avoidance' finding under the Act.

Employers who currently use rolling fixed-term arrangements should audit their workforce against these restrictions. Each new fixed-term engagement must be accompanied by a Fixed Term Contract Information Statement provided to the employee.