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The importance of express terms in Contracts of Employment and Enterprise Agreements

A presentation on 16th October 2014 on both Contracts of Employment and Enterprise agreements.

Employment contracts

In Commonwealth Bank of Australia v Barker [2014] HCA 32, the High Court held that the implied term of trust and confidence does not exist.  This decision overruled the two federal court decisions below it, as well as the current English authority, Malik v Bank of Credit and Commerce International SA.   The thrust of the High Court’s reasoning  as that an implication of a term at law requires the term to be ‘necessary’ for the performance of the contract.  It is not enough that it simply be ‘reasonable’.

The significance of this decision is that an employment contract is like any other contract, and is to be interpreted according to the words of the document.   This is significant in the  that  traditionally employees framing actions in contract against their employers have often relied upon implied terms, choosing to leave the express contractual terms to one side.  The decision in Barker suggests that this may now be a mistake.

From the employer’s perspective, this relaxed attitude toward express terms frequently leads to some lax practices.  Express terms concerning things such as KPIs, incentive schemes, and right to renewal have been construed by courts strictly, and they have shown themselves to be unimpressed by evidence of contrary intentions.  Courts are demonstrating no desire to treat contracts of employment differently to other contracts, and relying on the statutory regime behind the contract of employment is a mistake for both employees and employers.

The message is, get your express terms right.  Don’t put anything in your contract that you can’t do, and don’t rely on implied terms to prevail.

Enterprise Agreements

EA’s can be a nightmare to some employers.   But often they can be fantastic in offering flexibility, especially in getting around some of the problems presented by the modern awards, and some cultural benefits to the workforce in bringing people together.

But they can be a significant issue if they are not done correctly.

There have been some developments recently.  Every employer wants to retain the right to change workplace policies if and when they see fit.   But there have been some recent decisions in which an employer, in attempting to alter workplace policies, have been hauled before the Fair Work Commission under dispute resolution clause, and have been held up from changing their policies.  One case involved a policy relating to mobile phone use policy, where the Dispute resolution clause in the Enterprise Agreement gave the FWC the right to concililate and arbitrate on ‘terms and conditions’ of employment: not just on the employment terms governed by the Enterprise agreement, Modern Award or the National Employment Standards.  This is a huge mistake, because effectively it is an invitation to the Fair Work Commission to become involved in operational matters at work.

Another decision related to a No Further Claims clause.  Every Enterprise Agreement has a clause like this, as they perform an important function in preventing ongoing claims from either side – however in one instance the clause was held to prevent the employer from changing their motor vehicle policy – as it was held to have relationship to the remuneration of the employees.

The lessons :  while EA’s can be a great vehicle for flexibility when you are dealing with a good workforce  – it is absolutely essential that the agreements dispute resolution does not allow the FWC to arbitrate, and secondly is based on what is covered by the modern  award or Enterprise Agreement, and does not go more  broadly into terms of employment.  If you do that, you are going to end up with the Union or the Fair Work Commission trying to tell you how to run your business.

Once the agreement is madeThe importance of consultation

No one likes having these difficult conversations, especially in the context of an employee not receiving a benefit or entitlement that they expect – but it is extremely important that consultation takes place.  Not only is the consultation process legally required, but a calm, reflective consultation can actually take the heat out of a situation, and will often reduce your likelihood of having an industrial problem by approximately 90%.   View it not as a difficult conversation to be endured, but rather as an opportunity to connect with them, diffuse the situation and begin the process of resolution.

 

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