Lecture 3(1) PDF

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Employment Law Lecture Summary 3...

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Lecture 3

Contracts of Employment Objectives  

3.1

To appreciate that nature of the contract of employment and the terms implied by the Courts. To know the common law duties owed by employers and employees to each other.

Elements of the employment contract  -

General principles Contracts of employment are subject to the same common law principles as contracts generally. Such contracts may normally take any form ie. they may be verbal, in writing or a mixture of both. Such contracts must contain the three essentials otherwise they will not be enforceable in a court of law.

 Offer and acceptance A contract is an agreement that is enforceable in a court of law. An agreement is formed with an offer by one party and acceptance of that offer by the other party. This essential is regularly present in employment contracts. Note: There is a distinction between an offer and an invitation to treat (A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed. It is a willingness to negotiate). Preliminary job discussions and advertisements of job opportunities are invitations to treat and not job offers.  Intention to create legal relations The Courts have traditionally found this essential by a 3 step process of analysis. Firstly classifying all agreements as business or non business (i.e. social, domestic or family). Secondly applying the relevant presumption (that which holds good in the absence of counter evidence. Business agreements – presumption is that parties intend to be legally bound; non business - presumption is the opposite). Thirdly, look for evidence to rebut the presumption. If there is insufficient evidence to rebut, the presumption holds. Normally a contract of employment would have no problems satisfying this essential. However in certain circumstances the position is otherwise. One of these situations concerns voluntary workers. Voluntary workers operate in a variety of situations. For example: Teen Ranch Pty Ltd v Brown (1995) 87 IR 308 Facts: The company operated a camping facility in New South Wales. Each year several thousand teenagers were catered for by a small number of permanent staff supplemented by a large number of volunteers who received free board and accommodation at the camp – but no wages. Page 1 of 20

Brown, a volunteer, was injured while horse riding with a group of teenagers at the camp. Issue: Was Brown covered by workers compensation? In order to succeed he had to be an employee. To be an employee there had to be a contract of employment. Held: At first instance - Brown was entitled to workers compensation. On appeal (3-0) – it was held that the agreement was similar to a family, social or domestic arrangement because: 1. 2.

Brown was a volunteer. The primary reason for his attending the camp was to try and spread the Christian faith.

Thus the presumption was that there was no intention to create legal relations and as there was no evidence to rebut this presumption there was no contract of employment. Therefore, he was not entitled to workers compensation.

Another situation where an intention to create legal relations may be absent involves church personnel. However in the following case the High Court refused to follow a series of English decisions that had been accepted as being also the law in Australia.

Ermogenous v Greek Orthodox Community of SA (Inc) (2002) 209 CLR 95 Facts: The plaintiff was appointed the Archbishop of the Greek Orthodox Community in SA in 1970. In 1993 he resigned and claimed that he had been an employee and that under his verbal contract of employment he was entitled to accumulated annual and long service leave. Held: The trial Magistrate agreed and awarded him >$34,000. However on appeal to the SA Supreme Court it was held that as it was a contract between a Church and its minister there was a presumption that the agreement was not enforceable in a court of law, and as there was insufficient evidence to rebut this presumption the plaintiff was not entitled to any monies. Held on further appeal to the High Court: 1. There was an intention to create legal relations  there was an enforceable contract between the parties. 2. There is no presumption that the parties to the appointment of ministers of religion do not intend to create legal relations particularly where property and economic entitlements are involved. (The majority also appeared to doubt the usefulness of the whole concept of presumption when considering this essential.) Page 2 of 20

3. The case would be remitted to the Supreme Court for it to determine whether he was an employee or an independent contractor.



Consideration

Usually this is not an issue. A case to the contrary is: Pacesetter Homes v Australian Builders Labourers Federation (1994) 57 IR 449 Facts: Pacesetter Homes agreed to take on two unemployed youths under a State government project for youth employment so that they could gain some work experience and hence increase their employability. Although not required to do so Pacesetter Homes agreed to pay them a wage. Initially the youths merely watched what was being done but over time they were given various tasks and became quite useful. In due course the Builders Labourers Federation became aware of the situation and argued that as employees they were entitled to be paid award wages. Held: There was no contract of employment because no consideration had been given by the youths since the agreement did not require them to do anything. Thus they were not employees and therefore not governed by the award.

A much more difficult issue that the courts have had to address is just what is being promised by both parties when an employee enters into a contract of employment. At a minimum as far as the employee is concerned it could be said that he / she is promising to work in the manner directed. What the employer is promising is more problematic. There are at least three possibilities. The employer is promising to: - pay the agreed wages for services actually rendered - pay wages if the employee is willing and able to work - to provide work and pay wages for same The law re the third proposition is settled. But which of the first and second propositions is correct has still not been resolved by the courts. The lack of case law on this question is undoubtedly due to the fact that employers usually continue to pay wages to employees who are willing and able to work even though no work is available. What is clear however is that if an employee refuses to perform work eg. by going on strike, then he/she is not entitled to be paid. Certainty of Terms Page 3 of 20

The terms must be sufficiently certain and clear so that the very existence of an agreement can be established, or otherwise the contract might be void for uncertainty. The terms become part of a contract by express or implied ways. Express terms - those comprised of words actually spoken or written. Implied terms - those not actually spoken or written but read into contract by courts, or inserted by the effect of particular statutes (eg Fair Work Act)  Express Terms A significant case is that of: Goldman Sachs JB Were Services P/L v Nikolich. Goldman Sachs JB Were Services P/L v Nikolich [2007] FC AFC 120 Facts Nikilich (N) was initially appointed an associate investment advisor at the Canberra office in May 2000. At the time he received a written offer he also received a 119 page document titled “Working with us” (WUS). This document covered a range of matters including a section in which the company stated that “JB Were will take every practicable step to provide and maintain a safe and healthy work environment for all people”. In May 2003 one of the 3 investment advisors in the Canberra office gave notice of her intention to resign. Sutherland (S), their supervisor proceeded to allocate her clients to the other supervisors (himself included) in a way which N regarded as grossly unfair to himself. This lead to N and S ceasing to be on speaking terms. On July 28 N made a formal complaint against S in a 4 page letter to a HR manager in Sydney in which he also complained he had been harassed and bullied by S. By this time N was clearly highly stressed and anxious. After enquiring into the matter management initially counselled S and then in late October removed him from his position in Canberra. N however wanted management to acknowledge that S had acted wrongly and inappropriately. In December he was formally advised that there had been no wrongdoing on S’s part. Prior to receiving this letter N went on sick leave, returned in January 2004, went on further sick leave in August 2004 and, with no leave entitlements left and still unfit for work, was dismissed in December 2004. He then commenced proceedings against the defendant claiming inter alia damages for its breach of WUS. Held inter alia by the trial judge 1. Certain parts of WUS were promises and terms of the contract including the statement it “will take every practicable step to provide and maintain a safe and healthy work environment for all people”. 2. The defendant had breached this promise by failing to act with sufficient speed. 3. Damages of $435,896 would be awarded for future loss of income. (Also general damages of $80,000 were awarded.) Held inter alia (2-1) on appeal The statement on safety and health was a promise, had been incorporated into the contract, was breached by the defendant because of its failure to act with sufficient hast, and the damages awarded had flowed from that breach. Page 4 of 20

The dissenting judge held the statement on safety and health was a term of the contract but there had been no undue delay and  no breach by the employer.

Akmeemana v Murray [2009] NSWSC 979 Facts The employer sought not to pay commission to Akmeemana on the basis of a policy it formed three months after Akmeemana started as a recruitment consultant. The policy allowed the employer to withhold commissions on invoices not settled prior to termination of employment. Akmeemana claimed over $50,000 on these unsettled commissions. Issue: Was the policy a term of the contract? Held: The policy was not a term. It was a unilateral variation of his contract and was not effective.



Implied terms

Implied terms can result from both statutes and common law. Legislation, both Federal and State, is an increasingly important source of implied terms. Implied terms are not actually stated or spelt out by the parties. They are inferred or presumed by the Court to be part of the agreement between the parties to the contract, except where terms are implied by Statute (as such terms do not necessarily reflect the intentions of one or more of the parties). Example. Assume a young lad enters into an agreement to do certain work for another person but no reference is made as to what payment he will receive for such work. In such a situation the courts would say that there is an implied term in the contract that he will be paid a reasonable remuneration for the work he does. What would constitute reasonable remuneration would be determined by having regard to any relevant award and what other persons would be paid for doing similar work.

The process of implying terms by the Courts is through the construction or interpretation placed on the particular circumstances. Implied terms (other than those implied by Statute) cannot contradict the express terms of the contract. Terms are implied by the Court to give effect to the intention of the contracting parties or to ensure that the contract stands. Terms implied by statute may override the express terms of the contract, do not necessarily reflect the intention of at least one of the parties, and are often imposed for social policy reasons. Terms implied by the Court include the following: a) Terms implied by trade custom or business usage These are terms that are so well known and agreed to by custom or business usage that everyone in the particular trade/business is presumed to be aware of their inclusion. They must Page 5 of 20

be widely or commonly known, certain and reasonable in the circumstances. However, they will not be implied by the Court if the parties expressly exclude or vary them. b) Terms implied to give business efficacy to the contract The courts can imply a term or terms into a contract where the contracting parties may have left out terms to cover a particular situation which, had they thought about it at the time the contract was entered into, they would have covered - the omission may be due to inadvertence or poor drafting. The objective is to make the contract work - hence the term ‘business efficacy’. The term to be implied must be reasonable, capable of being clearly expressed, and so obvious it goes without saying - that the parties would have included it if they had thought about it at the time they made the contract. c) Terms implied from a previous course of dealing A previous course of dealing may establish a particular pattern in past transactions and negotiations from which a Court may infer a term of contract. Terms implied by Statute will generally be implied even if the parties expressly exclude or vary them and will be implied even though a party might not be aware of them. For example a non excludable guarantee is implied by the Competition and Consumer Act 2010 (Cth) that goods supplied are of merchantable quality. Contracts of employment are an example of a class of contract where the Courts have held that there are a number of terms implied by Statute. Note: Clearly the provisions of an award may be an express term, that is to say, the parties themselves can state that the provisions of the award form part of the contract of employment. If however the contract of employment is silent, what then? In 1987 the Federal Court held that the provisions of any relevant award were an implied term of the contract of employment. However, this matter was revisited by both the Federal Court and the High Court in Byrne and Frew v Australian Airlines. Byrne and Frew v Australian Airlines (1995) 185 CLR 410 Facts: Two airport baggage handlers were dismissed from their employment by Australian Airlines for pilfering. Although they were observed on video going through people’s luggage they maintained that their dismissal was harsh and unjust and therefore in breach of their award. They further claimed that the provisions of the award which applied to all employees in the industry were an implied term of the contract of employment and thus there had been a breach of their contract for which they claimed damages. Held: Trial judge - the dismissal was not unfair, therefore there was no breach of the award. Federal Court – the dismissal was unfair because they were not questioned about the video evidence before being dismissed, but they were not entitled to receive damages for breach of contract as the provisions in the award were not an implied term of the contract of employment. High Court Page 6 of 20

1. On the issue of whether the dismissal was unfair the matter was remitted to the Federal Court for further consideration having regard to certain concerns expressed by the High Court. 2. The provisions of an award were not an implied term by fact of the contract of employment because they failed to satisfy the Business Efficacy test nor were they an implied term by law. As a result the employees were not entitled to claim damages for breach of contract.

Comment: This decision has considerable significance in that normally the penalties for breach of an award are minimal (the employer can only be fined) whereas the amount that can be claimed by way of damages for breach of a contract of employment could be significant depending on the nature of the breach. Example: In one case the Court held that an employee had been unfairly dismissed thereby breaching the award and as this constituted a breach of his contract of employment he was awarded damages of $192,000. The Courts have held that in the absence of an express clause to the contrary in the contract of employment there are a number of terms that will be implied. These will be considered under the duties owed by employers and employees to each other.

3.2

Duties of employer

The following duties have been held to be implied terms of all contracts of employment unless there is an express term to the contrary.  To provide a safe system of work Clearly under the general law of negligence employers owe a duty of care to all their employees and thus are under a duty to take reasonable care of their safety. Additionally the Courts have held that normally it is an implied term of contracts of employment that the employer will take reasonable care. Many cases however have expressed this implied term as a duty to provide a safe system of work to which there are three aspects: 1.

Safe Place of Work.

This includes both the facilities offered by employer and the procedures, which may need to be in place to ensure that the employees are working in a safe environment. eg. ECU -provision at lighting around the campus in the evening. Example: Hamilton v Nuroof (WA) P/L (1956) 96 CLR 18. Facts: Page 7 of 20

Hamilton, a labourer, was employed to help repair the leaking roof of a city building. His job was to pass up, by hand, buckets of molten bitumen (weighing 18 kilos) to a man standing above him. Hamilton accidentally spilt molten bitumen over himself while lifting the bucket above his head, suffering severe injuries. Issue: Had the employer provided a safe system of work? Held: - WA Supreme Court – Yes - High Court 5-0 – No

Koehler v Cerebos [2005] HCA 15 Facts: Koehler (K), after having worked full time for Cerebos (C), was retrenched and then offered a part time position (3 days per week) doing the same work namely assembling displays in supermarkets. She was not aware of the extent of her duties until she started work but was told that if work picked up she would be reemployed on a full time basis. Over the next 5 months she complained on a number of occasions that her workload was too great. Her duties included lifting boxes. Eventually she developed severe aches and pains, saw her GP and ceased work. When the pain persisted she was referred to a specialist who diagnosed her as suffering from a psychiatric illness called “fibromyalgia syndrome”. Issue: K issued a writ claiming breach of an implied term of her contract namely a failure to provide a safe system of work, breach of statutory duty (OSH Act) and breach of care under the law of negligence by the employer. Held: District Court: K’s workload was excessive. C was liable for damages for failing to take all reasonable steps to provide a safe system of work. Supreme Court: No breach of care by C because on the facts the risk of psychiatric injury to K was not foreseeable. C had not complained about her health, nor were there any signs of ill health. Hence C had acted as a reasonable person would have done. High Court: - Agreed with Supreme Court. - Also held – C not liable because K agreed to perform the duties which caused her illness. “Insistence upon performance of a contract cannot be in breach of a duty of care.”

Page 8 of 20

Note: 1. The case focussed on the law of negligence but the Courts held the outcome would have been the same under the alternative claims contained in the writ. 2. The second reason given by the H Crt has enormous implications. The Court seems to be saying that an employee will never be able to successfully pursue a claim for injury caused by work to which the employee had expressly agreed to undertake.

2.

Safe Plant and Equipment.

This is almost self-evident. eg. an employer`s motor vehicle pool. The employer would be under a duty to maintain and service the vehicles on a regular basis. If they failed to do so and as a result an employee was injured while in the vehicle then they would obviously be ...