An enterprise agreement is a legal document which sets out the conditions of employment for a group of workers and their employer which has gone through a bargaining process and granted approval from the Fair Work Commission.

An employer can make a statutory collective agreement, known as an enterprise agreement, with some or all of its employees. Once made and approved by Fair Work Commission (FWC), an enterprise agreement operates to the exclusion of any modern award for those employees it covers.

The FW Act proscribes certain steps that must be taken in order for an employer to negotiate and make an enterprise agreement with its employees. These are explained in more detail below. The FW Act also provides certain mandatory content for enterprise agreements, including provisions for the following:

• a flexibility term that enables an employee and his or her employer to agree to an arrangement varying the effect of the agreement in relation to the employer and employee in order to meet the genuine needs of the employee or employer (similar to an award flexibility clause);
• a consultation term that requires the employer to consult with the employees about major workplace changes that are likely to have a significant effect on the employees, and also allows for the representation of the employees for the purposes of that consultation; and
• a dispute settling term that provides the procedure that requires or allows the FWA, or another person who is independent of the parties, to settle disputes about any matters arising under the agreement and in relation to the NES, and which allows for the representation for the employees covered by the agreement for the purposes of that procedure.

Every enterprise agreement must have nominal expiry date which cannot be less than 3 years after the agreement takes effect. However, once an enterprise agreement passes its nominal expiry date it continues to operate unless terminated or replaced under the FW act.

Variation of Employment Contracts

If an employer makes a change to the terms of an employment contract with one of its employees and the change is beyond the scope of the employment contract the employee has three options, namely:

• he or she can accept the change, either by indicating this expressly to the employer, or implied by continuing to work without objection;
• the employee can object to the change and insist that the employer not proceed to implement it; or
• the employee can walk away from the employment contract on the ground that the employer has “repudiated the contract”.

Therefore, when an employer seeks to make a change to an employee’s job or role, or other terms or conditions of his or her employment, the employer needs to ascertain whether the change can be implemented without the need to obtain employee consent (ie. It is a change within managerial prerogative). Alternatively, if the change cannot be made as part of managerial prerogative, the employer needs to ascertain the likelihood that the employee will consent to the change.

Examples of such changes include:

• introducing or removing a level of management (which changes authority, status and reporting lines);
• relocating work teams;
• reallocating a job function or responsibilities for certain tasks to another employee or third-party contractor;
• moving or closing down a work location;
• requiring an employee to perform work in a different way; or
• changing remuneration or employment conditions.

If any of these are outside the scope of the contract and are unlikely to be agreed to by the employee, implementing them may result in legal claims of constructive dismissal, discrimination, contravention of the Fair Work Act 2009 general protections provisions and redundancy.

An employer can use this table to build a defence against such claims:

Individual flexibility agreements allow employers and employees to agree to vary the application of certain modern award clauses to suit their individual needs.

Every modern award includes a provision that allows an employer and an individual employee to agree to vary the application of certain terms of the award regarding working hours, overtime rates, penalty rates allowances and leave loading. There are certain requirements for the making of an award flexibility agreement, namely:

• The agreement must result in the employee being better off overall than the employee would have been if no agreement had been made.
• The agreement must be in writing, name the parties to the agreement and be signed by the employer and the individual employee, and if the employee is under 18 years of age, the employee’s parent or guardian.
• The agreement must identify the award terms being varies, detail the variation and explain how the agreement results in the individual being better off overall in relation to the individual employee’s terms and conditions of employment. It must also state the date agreement commences to operate.
• The employer must give the individual employee a copy of the agreement and keep the agreement as a time and wages record.
• The agreement must not require the approval or consent of a person other than the employer and the individual employee.
• An employer seeking to enter into an agreement must provide a written proposal to the employee. Where the employee’s understanding of English is limited, the employer must take measures including translation into an appropriate language to ensure the employee understands the proposal.

Once made, an award flexibility agreement may be terminated by either party by giving 4 week’s written notice.

Employment relationships can take on several different forms and each form will create certain rights and obligations on the parties involved.

Permanent

A permanent employee is employed on either a full-time or part-time basis. A full-time employee is employed to work at least 38 ordinary hours a week. In contrast to this, a part-time employee is employed to work ordinary hours of less than 38 a week.

Permanent employees are entitled to notice of termination, redundancy pay and paid leave entitlements.

Sometimes a permanent employee is used to distinguish the employee from a fixed term, temporary or probationary employee, being types of employees that will not usually have an expectation of ongoing employment. More often, however, the term is used to distinguish the employee from casuals who are not entitled to notice of termination, redundancy pay and paid leave entitlements.

Casual

A casual employee is engaged for one or more discrete engagements without continuity of service between each engagement. Despite a casual employee’s otherwise broken service, Legislation will deem a casual employee’s service as continuous for the purpose of service-based entitlements such as long service leave (for example, s 62A of the Long Service Leave Act 1992 (Vic)), the qualifying periods for parental leave (s 67(2) FW Act) or the minimum employment period for access to unfair dismissal laws (s 384(2) FW Act).

A key feature distinguishing a casual employment relationship from permanent employment relationship is the fact that a casual is not entitled to notice of termination, redundancy pay and paid leave entitlements. However, exceptions apply (for example, some redundancy pay entitlements are granted to casuals under some enterprise agreements and employer policies).

Casuals working regular shifts

It is often said that casual employees may lose their casual status if they work regular shifts over a long period. While regular engagements may lead a casual acquiring rights enjoyed by a permanent employees (for example, if a casual is employed on a regular and systematic basis for at least 12 months he or she will become entitled to parental leave under the NES), this does not result in the casual becoming a permanent employee.

Conversion to other forms of employment

Some modern awards give a casual the right to convert to permanent employment after a period of regular casual service (for example, under clause 14.4 of the Manufacturing and Associated Industries and Occupations Award 2010, a regular casual employee may elect to convert to permanent employment after 6 months’ service).

Casuals and labour-hire arrangements

The term “casual” may be used to refer to an on-hired employee supplied to the workplace by a third party contractor or labour hire agency. In fact, this employee may well be employed by the labour hire agency as a temporary employee, with the employee receiving all the entitlements of a full-time employee during the period of the assignment.

In Robert James Power v Rupe (PR907244, 1 August 2001) the tribunal had to determine whether an employee was a casual. The employer and employee had not expressly agreed on whether the employee was engaged as a casual or permanent. Although the employer paid the employee a casual rate, the Tribunal ruled that the employee was a permanent employee because he was expected to turn up for work each day, work 38 hours per week regularly and to give notice of absence from work. The nature of the employment during this time was not of intermittent employment with separate engagements, but rather a continuing engagement. There was reasonable mutual expectation of continuity of employment.

Fixed Term

Under a true fixed term contract both parties agree that employment will be for a specified period. Each party agree that they will not seek to terminate employment during that period, or that they will only do so on certain specified grounds. Employees employed under these kinds of contracts are regarded as being ‘employed for a specified period of time’ and are therefore exempt from NES entitlements to notice and redundancy pay. However, the legal risk with such arrangements is that if employment is terminated earlier by the employer, it faces a claim for breach of employment contract if that termination was inconsistent with the right of early termination. The dismissal is also not exempt from FW Act unfair dismissal laws.

Maximum term contracts

The term “fixed term contract” is sometimes given to a maximum term contract. A maximum term contract specifies a date upon which both parties agree employment will end. However, the maximum term contract also provides for an unrestricted right of either party to terminate employment earlier by giving a certain period of notice.

Whether the fixed term contract is a maximum term or a true fixed term contract, when the employment ends on the expiration of the agreed term that termination will generally not be at the initiative of the employer. This means that termination of employment at the end of a fixed term will not be open to challenge under the FW Act unfair dismissal provisions. Nor will the termination attract NES entitlements to notice and redundancy pay.

An exception is if the employee has a reasonable expectation that the term of the contract will be extended or renewed (e.g. because it has been renewed on several occasions in the past, or there is no operational rationale for the term such that the employment is, for all practical purposes, ongoing). In that situation the failure by the employer to continue employment after the term expires might be considered termination at the initiative of the employer.

Labour Hire

A labour hire agency supplies or “on-hires” its employees to work at a workplace controlled by a client of the agency in return for a fee from that client. Typically, the on-hired employee will work for the client or “host employer” on an assignment for an agreed period of time. An assignment can range from a single day to a number of years.

If the host employer or the agency terminates the assignment, or the assignment comes to an end on its own terms, the on-hired employees employment by the agency ceases and the on-hired employee waits “on the books” of the agency to be reassigned to another host employer.

Generally, if the labour hire agency is a legitimate business, no legal relationship will arise between the on-hired employee and the host employer. As a result, the on-hired employee cannot claim from the host employer employment entitlements or make an unfair dismissal claim.

However, the host employer will still owe legal obligations to the on-hired employee. In particular:

• Workplace health and safety legislation requires the host employer to maintain the health and safety of all persons working in its workplace, including on-hired workers.
• If an on-hired worker makes a claim under the worker compensation insurance policy of its labour hired agency employer, in most States and Territories the insurer can claim from the host employer the costs of that claim if it arose out of a failure to take reasonable precautions to prevent the injury.
• The host employer may be vicariously liable for any actions taken by its directly employed workers against the on-hired worker which might constitute discrimination or sexual harassment.

Other Types of Employment

Other types of employment include seasonal work and piece work i.e. employees paid a rate set by reference to a quantifiable output or task e.g. shearing sheep or picking fruit. NES rely on modern awards to define a piece worker and set out rules relating to the payment of NES entitlements (based on ordinary hours of work) for a piece worker. Award/agreement free piece workers also have minimum pay entitlements (Part1-2, Division 4 of the Fair Work Regulations).

Secondment

A secondment is where an existing employee (secondee) is loaned or on-hired by an employer (original employer) to another employer (host employer) for a discrete period. The secondee will usually need to agree to the secondment, unless his/her original employment contract permits the secondment.

There are various options for a secondment. These are set out below:

• The original employment contract continues and a set of agreed terms apply to the secondee during the secondment period. The original employer may recover the employment costs associated with the secondment from the host employer under a separate arrangement.
• The secondee is granted unpaid leave of absence from the original employer during which the secondee takes up temporary or fixed term employment with the host employer during the secondment.
• The secondee’s employment with the original employer ends immediately before the secondment commences, on the basis that secondee will have the right to return to the original employer in either his/her original role or a comparable role.

Secondments: issues to consider:

• flights and flight transfers to and from the airport (if to a different location);
• host employer’s expectations regarding the secondee’s areas of competence and work standards;
• original employer’s verification that host employer has in place appropriate risk minimisation
• arrangements in areas including workplace health and safety, sexual harassment, and discrimination;
• appropriate briefings for the secondee prior to the secondment;
• cross-cultural training if appropriate on international secondments;
• taxation advice if international secondment;
• appropriate accommodation if different location;
• family arrangements for long-term assignments (schools, return flights);
• relocation expenses;
• travel insurance with reasonable medical and dental cover;
• living away from home allowance;
• use of work tools taken from original employer, and insurance cover;
• vaccinations, currency and visa on international assignments;
• right of host employer to poach secondee; and
• obligation of original employer to consult with secondee about developments that may affect right to return.

Employment contracts are a type of contract that gives rise to rights and obligations that are recognised at law between a worker and his/her employer.

An employment contract is a type of contract that gives rise to rights and obligations that are enforceable or recognised at law. As with any contract, the law requires certain conditions to be met before it will recognise an employment contract. Those conditions are:

1. there must be an offer of employment which is accepted by the prospective employee;
2. each party must provide consideration in return for the obligations undertaken by the other party (sometimes known as mutuality of obligation – see below for explanation);
3. the parties must have intended to enter into a legal relationship; and
4. the agreement must be certain and complete (for example, it is difficult for the law to recognise an employment contract where an essential term such as the rate of remuneration had not been agreed).

An employment contract need not be in writing. In fact, many employment contracts are informal and readily inferred from the fact that someone performs work for another party, and that other party pays the worker.

Mutuality of Obligation

As stated above, there must be an element of mutuality of obligation.

Example: In Dietrich v Dare ((1980) 30 ALR 407) a person offered a person $2 to paint a house. However, the person was unsure whether he could perform the task. It was agreed that he would give it a go. When the Court had to determine whether this gave rise to an employment contract, it decided it did not. That was because a person was under no obligation to perform the work – the relationship lacked the essential element of mutuality of obligation.

One Party Must be Human

The fact that at least one party to an employment contract must be a human is an important distinguishing feature of an employment contract. The personal nature of an employment contract results in a range of rules and principles that are unique to that kind of contract. For example, the law will ‘imply’ (i.e. in effect write) into an employment contract a term that obliges parties to an employment contract not to unreasonably harm the relationship of trust and confidence between the parties. This is because the law recognises that the personal nature of the relationship between an employee and employer requires that each party repose a degree of trust or confidence in the other – otherwise the employment contract may not operate effectively.

Control

Another important feature of an employment contract is the right of the employer party to control and direct the performance of the work by an employee. This will often distinguish the contract from other types of contract involving the performance of work, which are broadly described as independent contractor relationships. In these relationships the worker has relative freedom as to how, when and where the contracted services are provided.

Employee or Independent Contractor – FWC

It is important to note, that whilst you need to be careful of the Fair Work distinctions between what constitutes an employee from an independent contractor, the ATO also has a method of determining which is different.

Whilst we endeavour to give some indication here, we do emphasise that in this area it is advisable to obtain some professional advice as the cost of getting it wrong can be devastating to an organisation, and the directors of the organisation, as well as any managers can also be held accountable through assessorial liability.

When a person is performing work or personal services under a contract with another person, it is important to determine whether the worker is an employee or an independent contractor. This will determine a range of significant matters, including:

• the manner in which the Fair Work Act 2009 (Cth) applies to the relationship;
• the extent to which a court or tribunal will recognise the implication of certain terms into the employment contract; and
• the extent to which the principal/employer will be ‘vicariously’ liable for the actions of the worker.

The following illustrates the considerations the FWC make when determining between an employee or contractor.

The FW Act also contains provisions regulating certain independent contractor relationships (i.e. s 342 adverse action, ss 357- 358 sham arrangements).

An employment contract may be affected by the statutory safety net, comprising the National Employment Standards, the minimum wage, modern awards and enterprise agreements.

The existence of an employment contract is an important condition for the operation of rights and entitlements under industrial legislation and the industrial instruments operating under that legislation. These statutory rights and entitlements provide a ‘safety net’ for employees. Terms and conditions in an employment contract cannot undercut these statutory conditions.

Under the Fair Work Act 2010 (FW Act), the universal statutory safety net is provided by the 10 National Employment Standards (NES). The NES provides minimum conditions in respect of working hours, requesting flexible working arrangements, paid and unpaid leave, notice of termination, redundancy pay and the provision of a statement to employees about industrial rights and entitlements (the Fair Work Information Statement).

The NES is supplemented by the National Minimum Wages, which stipulate minimum base rates of pay for adult and junior employees, trainees and workers with disability. These only apply to award or agreement free employees.

For over 60% of the employers and employees subject to the FW Act, the safety net is also supplemented by a modern award or an enterprise agreement.

How is the Employment Contract Affected by the Fair Work Act 2010?

The way employers and employees exercise their rights under employment contracts are subject to Fair Work Act provisions such as the NES, unfair dismissal provisions and provisions dealing with deductions.

The FW Act does not impose any requirements on employment contracts. However, the exercise of rights granted by employment contracts is subject to FW Act provisions, such as the National Employment Standards (NES), unfair dismissal provisions and provisions dealing with deductions (s 326). The exercise of some FW Act rights is contingent upon contractual provisions (e.g. s 524(2) governing the right of an employer to stand down its employees without pay during a working stoppage over which the employer has no control).

Similarly, the NES and modern awards do not impose requirements on employment contracts. As already stated, it is not unlawful per se for a term of an employment contract to make a provision that is less favourable than a statutory safety net provision. However, if an employer enforces the less favourable provisions it will contravene civil remedy provisions and become exposed to underpayment claims and prosecution under the FW Act.

An employer must not knowingly or recklessly make a false or misleading representation about the statutory safety net entitlements of an employee (s 345 FW Act). An employer may do if it insists on an employee signing an employment contract containing a provision that undercuts an NES entitlement.

All FW Act employees are entitled to be paid in full for amounts due for the performance of work at least monthly (s323 FW Act), subject to a restricted right of employers to withhold or deduct amounts in certain circumstances (s 324) and the right to stand down employees without pay in certain circumstances (s 524). Contravention of this provision attracts a penalty on application of the employee concerned.

The statutory safety net does not form part of the employment contract, unless a term of the employment contract expressly incorporates the safety net instrument.

An example of such an express term in a contract is as follows:

• “The terms of the Clerks –Private Sector Award form part of this employment contract. In the event of an inconsistency between a provision in the Award and a term of this contract, the contract term will prevail to the extent of any inconsistency.”

Regardless of whether a safety net term is incorporated into the employment contract, it still has independent statutory operation. If contravened, the person contravening it is liable for a civil penalty imposed by a court. The contravening person is also liable to court orders requiring certain remedies for the contravention, including making up the underpayment. These remedies are not based on the employment contract.

However, just to confuse the issue, if a contract does make provision for a safety net entitlement governed by an award or NES, the employee who has that entitlement can access some of the statutory procedures available for enforcement of the safety net entitlements.

Probation and the Minimum Employment Period (MEP)

Probationary periods provide employers and employees the opportunity to assess whether they wish the employment relationship to continue. However, an employer’s rights and liabilities upon termination will be affected by an employee’s status as being inside, or outside the minimum employment period.

Why have a probationary period?

Employment contracts will often contain provisions for a probationary period, being an initial period of service during which time both the employee and employer can decide whether they wish the employment relationship to continue. From an employer’s perspective, it provides an opportunity to assess the employee’s suitability for the role for which they have been recruited. From the perspective of the probationary employee, there is an appreciation that their work performance will be under review and they do not have a guarantee of ongoing employment.

However, there are many myths about probationary employment. Some of the basic facts about probationary employment are listed below.

Probationary employees are not exempt from FW Act unfair dismissal laws. The FW Act’s predecessor, the Workplace Relations Act, exempted from unfair dismissal laws employees serving a reasonable period of probation. That exemption is not provided in the FW Act. Instead, the FW Act requires that for a dismissed employee to access unfair dismissal laws, the employee must have served a minimum employment period (MEP) of 6 months, or 12 months if the employer employs less than 15 employees. That is the case regardless of whether the employment contract includes a probationary or trial period.

If a probationary period matches the MEP, the exclusion of unfair dismissal laws lessens the legal exposure for the employer if they dismiss before the expiration of the MEP without a valid reason or warnings.

Confidentiality and The Employment Contract

Employees and independent contractors alike will be under an implied duty of confidence where they encounter material of a confidential nature in the course of their employment.

If an employer entrusts an employee with confidential information, that employee will be under a duty to keep it confidential. This duty arises as a term implied by law into an employment contract. The implied obligation of confidence is often expanded by express terms in the contract, which spell out what information is confidential and the obligations of the employee in maintaining confidentiality.

Independent Contractors

An independent contractor will not be subject to any implied contractual duty of confidentiality. In some contractor relationships a fiduciary obligation might give rise to confidentiality obligations.

If a director, officer or employee of a corporation obtains information because of their office or employment, they will be subject to statutory duties under the s 183 of the Corporations Act 2001 (Cth) not to improperly use that information to gain an advantage for themselves or someone else, or cause detriment to the corporation.

Dealing with Threats of Use/Actual Use of Confidential Information

An employee or ex-employee may use, or threaten to use, information confidential to his/her employer in a manner unauthorised by the employer to its detriment. In that case, the employer may seek to enforce the employee’s obligation of confidence. This is usually enforced by obtaining an order from the court restraining the person from misusing or disclosing that information and delivering it back to the employer.

To obtain this kind of order, the employer would need to establish to the court that:

1. The information said to be confidential can be identified in specific, not general or global terms.

• Example: “All information relating to our clients” is too global or general. “Information relating to clients stored in the database located in the secure hard drive ‘G’” might be specific enough.

2. The information has the necessary quality of confidence – that is, it is not in the public domain. The fact that some of the information is known outside the employer’s organisation will not necessarily mean that the information does not have a confidential quality. If the employer has undertaken considerable skill and effort to collect the information and the information has significant value and cannot be duplicated by persons outside the organisation without the same effort, then the information will have a confidential quality.

• Example: a list of phone numbers for timber suppliers held by a builder will not be confidential. However, a list of reliable suppliers with contact names which has been built up over many years through regular use and experience might be confidential.

3. The information is provided to the confidant in circumstances importing an obligation of confidence – the employee must realise, or ought to have realised, that he or she has received the information in confidence.

The best way to achieve this is by making express terms in the employment contract or a policy which spell out the fact that the information is confidential and explain the obligations that arise when receiving such information.

The way the information is handled in an organisation must also reflect its confidential nature. An employer cannot ‘badge’ information as confidential, when it is not treated as such.

Employment Contracts are made up of written terms as well as unwritten or implied terms which make the contract work in the context of the parties and the nature of the relationship.

There are two types of “terms” which may be included in a contract of employment: express and implied. An express term of an employment contract is consciously agreed between the parties. An implied term is not expressly agreed but read into the contract nonetheless as an ‘unwritten’ term.

Express Terms

Express terms may be oral or written. A term spelled out in a written employment agreement will be an express term. Other terms might be the product of a discussion between the worker and employer, or a ‘handshake’.

Sometimes express terms can be incorporated into employment contracts by reference, rather than be ‘spelled out’ in the contract. For example, a term in an employment contract requiring an employee to ‘abide by’ all the employer’s policies and practices in place was found by the Court to incorporate into the employment contract the employer’s policy manual a redundancy policy in Riverwood International Australia Pty Ltd v McCormick ((2000) 177 ALR 193).

An express term may be incorporated into an employment contract by the employer giving the employee reasonable notice that a term in a separate document will become a term of the employment contract. Unless the employee raises an objection, the incorporation of that term will take effect upon the expiration of that notice period.

For example, an employer might issue a memorandum to a commissioned salesperson setting out changes to the employee’s commission structure and indicating that the changes will take effect in 5 weeks’ time. If the salesperson does not raise any objection to the changes and continues to work as usual, then express terms of the employment contract will be varied to give effect to the changes upon the expiration of the 5 weeks’ notice period.

Implied Terms

Terms will be implied into employment contracts in the following circumstances:

Implied by law

Terms are implied into an employment contract where the law recognises that a term is necessary for the employment contract to work. A term implied by law may be expressly modified or excluded by the parties to an employment contract.

Examples:

• Reasonable notice of termination

A term will be implied by law into an ongoing employment contract requiring each contractual party to give reasonable notice of termination of the contract.

In Rankin v Marine Power International Pty Ltd the Court determined that 12 months was a reasonable period of notice to terminate the employment of a 49 year old executive director who was second in charge of an insurance business in Australasia, who had 19 years’ service and was paid a substantial remuneration. The Court considered the fact the employee’s capacity to obtain alternative employment was limited.

In the case of most employment contracts the implied term requiring reasonable notice of termination is excluded by an express term stipulating the actual notice period required by employees and employers to terminate the contract.

• Is there an implied right to work?

A term may be implied by law requiring an employer to provide work to an employee. This term might prevent an employer from directing an employee not to attend work and/or not to perform any duties as ordinary required by the contract.

The employee’s implied contractual right to perform work might arise where the employee receives remuneration based on actual work (e.g. commission from sales), or the express terms of the contract provided that the employee is required to perform a specific role. Again, this implied term can be excluded or modified by an express term (e.g. a term entitling an employee to be placed on ‘gardening leave’ while serving a period of notice of termination).

Implied by fact

This implication arises where the court or tribunal presumes that the term would have been included as an express term of the employment contract if the parties had turned their minds to it. For this implication to occur, the term said to be implied must satisfy certain criteria.

Use this checklist to determine whether a term is implied by fact: Criteria for implication of terms by fact into employment contracts

• The term is reasonable and equitable – in other words, it does not unduly favour the interests of one party to the expense of another.
• The term is necessary – that is, the implication is needed to make one or more express terms of the employment contract work.
• The term must be obvious – the parties must have intended that it would be an express term if they had thought about it when drafting the employment contract.
• The term must be clear – it must be possible to express the term; otherwise it would not “go without saying”.
• The term must be consistent with express terms – you cannot imply a term by fact into an employment contract where that term would directly conflict with an express term.

Example:

In Watson v Swatch Group Aust Pty Ltd ([2010] VCC 1067) the Court recognised the implication into the employment contract of a term by fact that the employer would not require or direct the employee to undertake tasks during his employment that were contrary to law (illegal) or that would otherwise expose the employee to civil penalty.

Implied by custom

A term maybe implied into an employment contract based on a custom in a trade, or a practice in a particular industry or profession. Again, this implication requires satisfaction of certain criteria.

Use this checklist to understand that criteria:

Criteria for a custom to be implied as a term of an employment contract:

• The custom must exist – that is, the overwhelming proportion of those in the trade or profession would regard it as a universal standard.
• The custom must be certain and reasonable.
• The custom must be consistent with express terms in the contract and applicable legislation.
• The custom must be “notorious” – the test is whether the custom is so well known and accepted, that every party making an employment contract would presume the custom is a term of the contract.

Example:

On 18 May 2002 Justice Boulton of the Australian Industrial Relations Commission, in the face of the collapse of the HIH insurance group, varied the Insurance Industry Award to insert redundancy pay provisions consistent with an established policy and practice within the HIH group and in line with standards applied in the insurance industry generally.