View our free employment law contract templates for both casual and full time employees at the bottom of this guide.

How to create a legally enforceable employment contract in Australia

An employment contract will only be legally enforceable if you meet certain conditions. Follow these steps to ensure you meet the essential conditions of an employment contract:

Step 1: Establish that the parties can legally enter into a contract

The parties to the contract must be legally capable of making the contract (this excludes minors and people who lack the capacity to understand the nature of the employment contract, e.g. because of mental disability, or intoxication by alcohol or drugs).

Step 2: Ensure the offer of employment is officially accepted and genuinely consented to

An offer of employment must be accepted by the prospective employee.

Important: An employee’s acceptance of the employment must be valid.

For an employment contract to be accepted and valid, an employee must first know of the offer. For example, you cannot transfer the employment to another employer unless you inform the employee of your wish to do so and they agree to the transfer.

This is usually only arguable if you know the employee is not acting voluntarily or is incapable of ascertaining what is in their best interests. There is an extremely high standard for acceptance to be declared invalid on these grounds.

Step 3: Assess whether there is ‘mutuality of obligation’

For an employment contract to be accepted and valid, each party must provide something (i.e. consideration) in return for the obligations undertaken by the other party. This is called ‘mutuality of obligation’.

There will be consideration even if:

• the wages are not received directly by the employee because the employee authorises payment to someone or something else, e.g. a superannuation fund; or
• the employee does not provide services to you directly, but is on-hired to a third party.

Step 4: Establish intention to create a legal relationship

For an employment contract to be accepted and valid, you and the employee must have intended to enter into a legal relationship.

This intention is usually judged by what a reasonable person in your and the employee’s circumstances would think was intended.

The following work arrangements normally do not amount to employment contracts because the parties lack the necessary intention to enter into a binding employment contract:

• family, e.g. an uncle pays his niece to mow his lawn once a fortnight;
• social, e.g. Bill offers his friend $20 if he can sell his U2 tickets;
• domestic, e.g. Jill offers a neighbour $100 to babysit her children on Saturday night; or
• arrangements with bodies of persons who have combined to further some common end or interest that is social, sporting, religious or humanitarian in character, or otherwise stand apart from private gain and material advantage.

Such associations as those listed above are established upon a consensual basis. Unless there is a clear indication that the members intended to create a legal relationship, it would not be treated as amounting to an enforceable contract.

Step 5: Check for illegalities

Employment contracts cannot contain any illegalities.

If you make an employment contract that is prohibited by legislation, the contract is likely to be invalid and therefore unenforceable.

Step 6: Reach an agreement on terms

You must ensure the contract is certain and complete, meaning that essential terms, such as rate of pay, have been agreed on.

A breach of contract will expose you to:

• an award of damages to compensate for the loss the employee suffered as a result of the breach;
• an order that you repay monies owed;
• interest on the damages and debt sums; and
• the employee’s legal costs.

Download our free employment contract templates below: