Employment Contract Implications


I own a small business and one of my staff has not been performing adequately for some time now. I had a chat to him about my concerns when I saw him in the elevator about 1 year ago. He knows that I am unhappy with his performance. I am going to terminate his employment today. Is this ok???


When terminating a contract of employment on account of poor performance, certain steps must first be taken by the employer, otherwise an employee may be able to lodge a claim for unfair dismissal with the Industrial Relations Commission.

It is not sufficient that you think the employee “knows your unhappy”. Nor is it appropriate for a warning to be given in an informal setting such as in the elevator when you meet with the employee by chance. This is because an employee may not be aware that your comments in an informal setting actually amount to a warning. Further, warnings do not have an unlimited life span. Accordingly, depending on the type of conduct complained of by the employer, a waring given one year ago may not be relied upon when a termination occurs.

The most important aspect of an employer’s disciplinary procedure relates to the way in which warnings are given. Where an employee has been under performing to such an extent that the employee’s continuing relationship with the business is questioned, the employer has a responsibility to inform the employee where their performance has been deficient and that the continuing poor performance may result in termination. This must be communicated in a clear and unambiguous fashion. The employee must know that termination will ensue if an improvement does not follow.

The employer’s obligations do not end there. In most cases after a warning is given, an employer must also help the employee improve their deficient performance. This may involve further in-house training or sending the employee on a course to assist. If positive steps are not taken, an employee may still be able to allege unfair dismissal and hire an unfair dismissal lawyer in some circumstances.

The employer can protect its position when terminating on account of poor performance by ensuring that there are proper disciplinary procedures in place and that these are followed. These procedures should be accessible to all employees. The procedures should set out the number of warnings and counselling sessions given by an Employer before termination will occur. Your solicitor can help you with the drafting of such employment contract procedures.


I am aware that before I engage any person to perform services for my business that I should reach agreement as to the terms of the employment contract. I often only do this verbally as I am too busy to worry about putting it in writing. A verbal contract will stand up in Court won’t it?


While verbal contracts can be legally enforceable it is not ideal to rely on them in Court. This is because the other party to the contact may not have understood the terms or considered the terms to be different altogether. Without agreement as to the terms of a contract reflected in writing, the Court may have to consider two completely different versions of the contract. This places the innocent party in a weakened position.

A contract is a legally enforceable agreement between two parties. It involves the exchange of promises. Normally one party will promise to perform some service and the other party will promise to make payment or provide some form of “consideration” for that service. In a contract for services, there are a number of matters which should be addressed, these may include the parties’ duties and obligations, when the services are due to commence, when and upon what basis the contract may come to an end, the sum of money to be paid or other consideration to be received when the services are provided and the frequency or basis of payment. Without addressing such matters in writing, there can be no certainty that the parties to the contract have understood their obligations. A failure to understand obligations often leads to a dispute as to the contract terms.

Where a breach of contract has occurred, the innocent party can pursue a number of remedies including suing for damages as a result of the breach. Problems arise where the terms of the contact are not clearly defined.

Many matters litigated in Courts relate to contractual matters. Where only a verbal contract is relied upon, the Court has the difficult task of determining which party’s understanding of the terms is correct. For that reason relying on verbal contracts is not ideal.

If entering into a contract with a party, whether it is a contract for services by an individual working with your business or a contract with a tradesman contracted to perform specific tasks, the terms of the contract should be in writing. This will take out all the ‘guess work’ so that the Courts can properly determine the issues.

Employment Law has its own special circumstances, procedures and complexities that warrant the inclusion of an experienced Employment Lawyer from the earliest opportunity should an issue arise. We highly recommend a preliminary chat with one of our lawyers in regard to any Employment Contracts that you may be involved with.


I am the owner of a business that employs five people in our office and factory. We also engage subcontractors on a regular basis to carry out fitting and construction work on our behalf. I have been informed that the Workers Compensation Act is to be changed so that I could become liable for the employees of the subcontractor’s if they are injured. Is that correct?


Yes. Changes come into effect in the Workers Compensation Act from 1 July 2003 which, if you do nothing, could lead to your company being liable under the Act to compensate an injured employee of your contractor if it is uninsured. There are now significant responsibilities imposed upon businesses that act as principals and engage contractors who employ other people.

Where your company engages contractors it is now going to be obligatory that a principal organisation obtain from a contractor a written statement provided by the contractor. Such a written statement will require a statement to the effect that all workers’ compensation premiums to be paid by the contractor have been paid and the statement should annex a copy of the certificate of currency of that insurance. In addition the statement should also contain a statement as to whether the contractor has further sub-contractors working for him and, if so, a statement that he has obtained written statements from those sub-contractors.

A failure to obtain a written statement will leave your company open to a fine and the possibility of having to cover an employee of the contractor for workers compensation. I have advised clients that they should prepare their own written statement to be signed by all contractors. It is possible that a document will be prepared by Workcover but I am not aware that this has been done to date. It is most important that the procedure of obtaining a written statement from each contractor become a normal part of the engagement process for any contractor. The written statements should be kept in files kept with respect to each contractor with whom you have a contractual relationship. They must be kept for seven years

For more information, speak to one of the workers’ compensation lawyers at Sydney’s Owen Hodge.

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