A well-drafted employment contract protects both your business and your employees. Getting the clauses right from the start prevents costly disputes, ensures Fair Work compliance, and sets clear expectations for the working relationship.
This guide covers the essential clauses every Australian employment contract needs, recommended protective clauses for employers, and common mistakes that lead to legal problems.
Why employment contracts matter
While verbal employment agreements are technically valid in Australia, written contracts provide essential protections for employers. They document agreed terms, reduce misunderstandings, and serve as evidence if disputes arise.
Fair Work requirements
Under the Fair Work Act 2009, employers must provide new employees with a Fair Work Information Statement before or as soon as practicable after they start. While a written contract isn't technically mandatory, employers without one face significant risks in disputes over pay, duties, and termination.
Employment contracts work alongside Modern Awards and the National Employment Standards (NES). Your contract can provide benefits above the Award minimum but cannot reduce entitlements below it. Any clause attempting to do so is void.
A solid digital employment contract system helps you create compliant contracts quickly and store signed copies securely for future reference.
Mandatory clauses for Australian employment contracts
These clauses should appear in every employment contract to meet Fair Work requirements and establish the basic terms of employment.
Position and duties
Clearly state the job title, reporting structure, and primary duties. Include a clause allowing reasonable direction to perform other duties within the employee's skills and capabilities.
Remuneration
Specify the base salary or hourly rate, payment frequency, superannuation arrangements, and any allowances. Reference the applicable Modern Award and confirm pay meets or exceeds Award minimums.
Hours of work
Define ordinary hours, start and finish times (or flexibility arrangements), and how overtime is treated. For part-time employees, specify guaranteed minimum hours.
Employment type
State whether the position is full-time, part-time, or casual. For casuals, include the casual loading percentage and note they receive it in lieu of paid leave entitlements.
Leave entitlements
Reference the National Employment Standards for leave entitlements. At minimum, permanent employees are entitled to:
- Annual leave: 4 weeks per year (5 weeks for shift workers under some Awards)
- Personal/carer's leave: 10 days per year
- Compassionate leave: 2 days per occasion
- Parental leave: 12 months unpaid (plus right to request additional 12 months)
- Long service leave: As per state/territory legislation
Your contract can provide more generous leave but cannot reduce these minimums. Casual employees don't receive paid leave but are entitled to unpaid carer's leave and compassionate leave.
Recommended protective clauses
Beyond the mandatory elements, these clauses help protect your business interests while remaining legally enforceable.
Probationary period
A probation period (typically 3-6 months) allows both parties to assess suitability. State the duration, review process, and notice period during probation. Note that unfair dismissal protections under Fair Work apply after 6 months for larger businesses or 12 months for small businesses.
Tip: Keep probation periods reasonable for the role. A 6-month probation for a junior position may seem excessive.
Confidentiality
Protect trade secrets, client lists, pricing information, and business strategies. Define what constitutes confidential information, the employee's obligations, and that these obligations continue after employment ends.
Tip: Don't make confidentiality clauses so broad they could prevent whistleblowing on illegal conduct—such clauses are void under the Corporations Act.
Intellectual property
Specify that work created during employment belongs to the employer. This is particularly important for creative, technical, and research roles. Include provisions for disclosure of inventions and assignment of rights.
Restraint of trade
Non-compete and non-solicitation clauses restrict employees from working for competitors or poaching clients/staff after leaving. Courts will only enforce restraints that are reasonable in scope, duration, and geographic area.
Tip: Use a cascading structure (e.g., 12 months, or if unenforceable, 6 months, or if unenforceable, 3 months) to maximise enforceability.
Termination and notice
Your termination clause should cover:
- Notice periods: The NES sets minimum notice based on length of service. You can require more notice but not less.
- Payment in lieu: The right to pay out the notice period instead of requiring the employee to work it.
- Summary dismissal: The right to terminate immediately for serious misconduct without notice.
- Return of property: Requirement to return equipment, documents, and access credentials on termination.
Ensure your employee onboarding process covers these terms clearly so employees understand their obligations from day one.
Common employment contract mistakes
These errors frequently appear in Australian employment contracts and can expose employers to legal action or render clauses unenforceable.
Contracting out of Award entitlements
Any clause that reduces pay or conditions below the applicable Modern Award is void. Even if an employee agrees to lesser conditions, they can later claim back-pay for the difference.
Misclassifying employees as casuals
Calling someone "casual" when they work regular, predictable hours creates liability for unpaid leave entitlements. The nature of the engagement—not the label—determines employment type.
Overly broad restraint clauses
A restraint preventing a junior retail worker from working anywhere in Australia for two years won't be enforced. Restraints must be proportionate to the employee's role and the legitimate business interest being protected.
Missing Award reference
Failing to identify the applicable Modern Award creates confusion about minimum entitlements. Always specify which Award applies (or state the employee is Award-free if genuinely above the high-income threshold).
Vague duties clauses
A job description that just says "other duties as required" gives employees grounds to refuse tasks outside their understood role. Be specific about core duties while including a reasonable direction clause.
Keep contracts updated
Modern Awards change regularly, and new legislation can affect employment terms. Review your contract templates annually and whenever Fair Work announces changes. Using digital contract templates makes it easier to update and maintain compliant versions.
Contract clauses by employment type
Different employment types require specific contract provisions. Here's what to include for each.
| Clause | Full-time | Part-time | Casual |
|---|---|---|---|
| Guaranteed hours | |||
| Leave entitlements | (pro-rata) | ||
| Casual loading | (25%) | ||
| Notice period | |||
| Casual conversion clause |
Casual conversion requirements
Under Fair Work amendments, regular casual employees who have worked for 12 months with a regular pattern of hours in the last 6 months can request conversion to permanent employment. Your casual contracts must include information about this right.
Employers with 15+ employees must offer conversion to eligible casuals. Small business employers must respond to conversion requests within 21 days. Include clear provisions in your casual contracts about this process.
Frequently asked questions
What must be included in an employment contract in Australia?
At minimum: job title and duties, pay rate, hours of work, employment type, leave entitlements (for permanent staff), notice periods, and reference to the applicable Modern Award or Enterprise Agreement. These support compliance with Fair Work requirements.
Can an employment contract override an Award?
No. An employment contract cannot provide conditions less favourable than the applicable Modern Award or the National Employment Standards. Contracts can only improve on Award minimums, not reduce them. Any clause attempting to reduce entitlements is void and unenforceable.
Is a verbal employment contract for informational purposes?
Yes, verbal contracts are for informational purposes in Australia. However, written contracts are strongly recommended as they document agreed terms and provide evidence if disputes arise. Employers must still provide a Fair Work Information Statement to all new employees regardless of contract format.
What clauses should employers avoid?
Avoid clauses that contract out of Award entitlements, unreasonable restraint of trade provisions, blanket confidentiality clauses that could prevent whistleblowing, and clauses misclassifying employees as contractors. Such clauses may be void or expose your business to legal action.
How long should a probation period be?
Probation periods typically range from 3-6 months. While there's no legal maximum, keep them proportionate to the role. Note that Fair Work unfair dismissal protections apply after 6 months for businesses with 15+ employees, or 12 months for small businesses, regardless of stated probation periods.
Streamline your employment contracts
Creating compliant employment contracts doesn't have to be time-consuming. RosterElf's digital employment contracts feature provides Fair Work-compliant templates for full-time, part-time, and casual employees. Draft contracts in minutes, send for e-signature, and store signed copies securely.
Combined with award interpretation and automated payroll integration, you can ensure your employment contracts and pay rates stay aligned with current Award requirements.
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