Post-employment restraints are commonplace in employment agreements. They are contractual terms which seek to restrict the actions of an employee following the conclusion of their employment and they play an integral role in the protection of an employer’s legitimate interests.
Post-employment restraints are varying and may incorporate limits including:
the use of confidential data;
the poaching of customers or staff;
employment with competitors;
employment within geographical areas; and/or
the establishment of a competing business.
Where post-employment restraints are missing
Whilst restraint clauses are commonly thought to be unenforceable in a legal setting, this is incorrect and their inclusion in employment contracts should not be overlooked. Although courts are mindful of public interest, free trade and an individual’s capacity to earn an income, it has been established that they will protect the valid interests of an employer where it is considered reasonably necessary to do so. It is particularly effective if an employer can demonstrate harm to their business as a consequence of the breach.
The main feature to consider when drafting restraint clauses is how reasonable the restrictions are. Particularly in relation to:
The time-frame of the restraint, the geographical area of restriction and the nature of the activities being constricted. If the period is considered too lengthy and the geographical area too broad, it is less likely to be considered reasonable. Cascading clauses may be applied as a means of lessening risk in this regard. As their name suggests, cascading clauses provide various levels of restraint for varying periods of time and geographical areas.
The protection of the genuine interests of the business, the public and the employee. The clause should seek to provide adequate protection to the employer while at the same time prevent harm to the public.
It is common to find employees called contractors when, in fact, they are not. Here we consider the significance of the distinction between employee and contractor and the tests that a court would consider when determining this question.
The significance of the distinction
There are various differences in the rights of employees over contractors and there are significant differences in their respective classifications. An employer who purposely calls an employee a contractor can risk financial penalties under the Fair Work Act.
The implications of an incorrect ‘classification’ by a business can be significant. Employees are entitled to indemnification from their employer, they are entitled to various protections under the Fair Work Act, and they are entitled to superannuation.
In contrast, the rights of a contractor are limited to protections specified in the contract of engagement and under common law and statute. A contractor is responsible for their own workers’ compensation insurance
The fundamental difference
The fundamental difference between the two forms of engagement is that employees are employed under a contract of service (contract of employment) whereas contractors are engaged under a contract for services. But determining this distinction in practice can be complex.
There is no statutory definition of employees however certain legislation will prescribe individuals to be employees for a specific purpose i.e. for the purposes of work health and safety protections and legislation or superannuation entitlements.
It matters not that an individual has signed a contractors agreement if in fact they are an employee.
The tests to apply
When a court considers whether an individual is an employee or a contractor it will examine the relationship between the parties as a whole and consider whether control is capable of being exercised by the employer/principal. Where significant control is capable of being exercised it is more likely than not that the relationship is one of employment. There are other tests that a court will apply including the “integration test” where a court will focus on whether a person was part of the employer’s business.
There is no definitive list of factors that will determine if a relationship is one of employment. The table below lists a range of factors that have been considered, noting that the court will examine the relationship as a whole.
Factors typical of an employment relationship
Factors typical of a contracting relationship
The employer exercises, or has the right to exercise, control over the manner in which the work is performed, the place of work and/or the hours of work.
The worker exercises control as to how, when and where to perform the work.
The worker works exclusively for the employer.
The worker performs work on a number of different projects for different principals, or genuinely has the right to do so.
Any tools and equipment are provided by the employer.
The worker supplies and maintains his or her own tools and equipment.
The worker cannot delegate, outsource or subcontract work to one or more third parties.
The worker can delegate, outsource or subcontract work to one or more third parties.
The worker appears to be a representative of the employer (eg the worker wears a badge or uniform).
The worker has separate places of work and/or advertises his or her services.
Income tax is deducted from remuneration and superannuation contributions are paid by the employer.
The worker is responsible for business expenses such as income tax and insurance against work-related risks/liabilities.
The employer bears the risk of loss or an opportunity to profit from the business enterprise.
The worker bears the risk of loss or an opportunity to profit from performing the work.
The employer pays the worker a periodic wage or salary.
The worker is paid by reference to completion of tasks.
Note: the FW Act recognises that pieceworkers (who are employees, not contractors) can be paid by reference to completion of tasks rather than a periodic wage or salary.
The worker is entitled to paid leave (ie annual leave, personal/carer’s leave).
The worker has no leave entitlements.
Source: Australian Building and Construction Commission, Sham Arrangements and the use of Labour Hire in the Building and Construction Industry, Discussion Paper, December 2010, page 21.
The Australian Government has published an online tool designed to assist in the determination of employment/ contractor which can be accessed here. We note that the results of the tool are not definitive and should be verified by a lawyer who has experience in this area.
An employer may include or exclude workplace policies, manuals, codes, rules, or handbooks from the contract of employment. Where a policy, for example, is expressly included as part of a contract of employment both the employee and employer may be bound by that policy.
Whether an employer can vary a contract of employment by varying an expressly included policy will depend on the operation of the variation and is often unclear. In seeking to rely on a variation, an employer should not act capriciously or unfairly.
Where an incorporation of workplace policies clause is missing
Where an incorporation clause is not found within a contract of employment, it may be implied by a court in certain circumstances. Consequently, it is preferable for employers to either expressly include or exclude workplace policies.
Where a policy is expressly incorporated into a contract, its provisions will not necessarily operate as terms of the contract. Policies may include a range of material including guidelines, statements of purpose, and administrative processes. Provisions within policies may be contractual in nature where they are of a kind normally found in a contract of employment, where clauses are promissory in nature, or where obligations are expressed in terms of a duty. Also relevant may be an employees action in signing off as having read and understood a particular policy.
Provisions within policies that are intended to be informative or educational are unlikely to be found to be terms of a contract of employment.
Employers should first carefully consider if they wish to include policies into their employment contracts. As noted above, an express inclusion may operate to enliven additional contractual obligations of on the employer as found within policies.
Employers should ensure that their employment contracts either expressly include or exclude workplace policies and do so in a clear and unambiguous manner.
Not happy about your employee’s conduct and considering dismissal? First, take some time to reflect on your obligations and your employee’s history of employment.
As widely reported, on 7 September 2017 the FWC ordered Tassal Group Limited T/A Tassal Operations Pty Ltd to pay compensation to Ms Chapman in the sum of $8229.00.
That Voice Mail Message
Ms Chapman was employed by Tassal as a level 1 processing employee. Her duties included scaling, slicing, weighing and packing fish.
On 25 April 2017, Ms Chapman called a supervisor at Tassal and left the following voice mail message:
“Hi Michelle, its Avril one of your most loved pains in the arse. Um its ANZAC day, my birthday, and I admit I have over indulged so I’m taking into account one of the golden rules be fit for work and I’m not going to be fit for work so I won’t be there. But um love ya, catch ya on the flip side”
Tassal alleged that the conduct amounted to a breach of its Code of Conduct and to an unacceptable risk to Tassal and its employees.
A letter was given to Ms Chapman when she arrived for work on 27 April. The letter contained the allegation of misconduct and advised that she was to be stood down with pay and was required to respond to the allegations by noon on 28 April 2017.
“You had deliberately made a decision to consume alcohol to the extent that you would not be fit for work on 26 April 2017 when you were required to attend and be in a fit state to carry out your duties safely.”
Ms Chapman’s Reply
Ms Chapman responded by email on 27 April at 7:06 am:
“This is my response to the allegation against me.
Firstly, I did not deliberately make the decision to consume alcohol to the point were (sic) I would be unfit to attend work the following day.
It was by BIRTHDAY, and friends dropped by unannounced. I had my official birthday party on the Monday night and wasn’t expecting visitors on Tuesday, however, visitors I got. As the afternoon went on I realised it was going to be a long night and I believe I acted responsibly and respectfully by contacting management to let them know I wouldn’t be fit for work.
Would it have been wiser for mw to call at 6 am on the 26th and plead illness? I think if I had done that then I wouldn’t be writing this letter now, but it wouldn’t have been the honest thing to do in my opinion.
It was not my intention to deliberately take the day off, the events were not planned and not expected, and again, I feel that contacting management on the 25th was the right and responsible thing to do.”
On 27 April 2017 at 3.47 pm. Ms Chapman sent a further email:
“Dear Duane, I have waited all day for a return phone call from Seonna in regards to whether I am required to attend a meeting tomorrow to discuss the allegations directed towards me. The letter stated that I must respond in writing by 12.00 noon Friday 28 April 2017, and I have done that via email to you, however the letter did not state if I was required to be in attendance on the Friday. I rang Seonna and she assured me she would call me back with the relevant information I needed. She hasn’t done that.
I would also like to add that I feel managments (sic) constant quest in turning ‘MOLEHILLS INTO MOUNTAINS’ is detrimental to our company’s integrity and our code of conduct. The “GO IN FOR THE KILL” mentality is rather disturbing and completely against Tassal’s moral code in my opinion. Management is also responsible for their staff’s wellbeing, although it seems staff are ignored in favour of impressing higher management. I did nothing untoward to deserve that letter, and the fact that I drove all the way from Waterloo, only to be handed a letter and told to leave was totally unprofessional and unforgivable on managements (sic) part.
I would be more than pleased to discuss this matter further with Mark Ryan if given the opportunity. I respect you, and I await your personal response.”
Following further correspondence, Tassal made the decision to terminate the employment of Ms Chapman.
FWC Deputy President David Barclay found that there was a valid reason for the termination and that Ms Chapman had chosen to over indulge in alcohol on the day before she was due to work to such an extent as to be unable to fulfil her obligations to attend work the next day.
However, the FWC Deputy President David Barclay also found that the termination was harsh.
Tassal relied on a previous incident- a further alleged breach of the Code of Conduct as satisfying the requirement for a warning about the unsatisfactory performance. FWC Deputy President David Barclay disagreed, the previous warning was not for the same conduct and therefore Ms Chapman should have been given a warning:
In this case we have a misguided approach to the employer to the effect that the Applicant has overindulged (in alcohol) to such an extent as to result in her being incapacitated for work in circumstances (unlike the previous instance) where there was no extenuating circumstance which might constitute a justification for that conduct. That constitutes the valid reason. However because this is the first time the Applicant has conducted herself in that manner in 5 years of working for the Respondent to terminate her employment was harsh. I agree with the Applicant that another sanction such as performance management or a further, perhaps even final, warning was appropriate.
Lesson for Employers
Employers proposing to terminate employment for unsatisfactory conduct need to carefully consider the history of an employee’s conduct and the appropriateness of a warning vs dismissal.
If you have any questions on the above, please contact us.
We are offering an obligation free initial consultation for a period of 45 minutes for anyone who would like to discuss summary dismissal. Simply provide your details below.
A worker may be dismissed with immediate effect if they are in serious breach of their obligations, subject to compliance with the employment agreement and other applicable law. This is known as summary dismissal. You can read a case study of such a dismissal here.
Employers proposing to dismiss an employee need to carefully examine their obligations and the circumstances leading to the proposed dismissal.
Termination of employment is not a pleasant experience for anyone. In some instances, an employer may find themselves with no choice, and where those circumstances are sufficiently serious, a summary dismissal may be in order.
It is important for employers to understand their obligations with respect to summary dismissal. This is a risky area of law. Employees have rights that must be respected and a wrong move could end up costing a business much more than anticipated.
The key question for an employer is if appropriate grounds exist for summary dismissal. This article will examine this question. Advice should be obtained and this article will not give you enough information to make a decision in this area.
Laws that apply to a termination of employment
Termination of employment may occur for many different reasons. An employee may resign, be dismissed, or their position may be made redundant. Both State and Commonwealth legislation may apply to employment, as well as any applicable awards, industrial agreements, and the employment agreement itself. Each applicable obligation will determine the steps to be taken by an employer in relation to a specific dismissal.
Termination of employment is based on the law of contract. At common law, a contract may be terminated in response to a breach of an essential term, a fundamental breach, or repudiation. Repudiation occurs where a party indicates that it is unwilling or unable to perform its obligations in a significant respect. This may be shown where there are a series of minor breaches which taken together show a disregard for the obligations imposed by a contract.
What is a Serious Breach?
For an employer to exercise the power of summary dismissal under common law, there must be a serious breach of a term of employment, and that term may be express or implied.
The following may amount to grounds for summary dismissal under common law:
Serious misconduct ( positive, intentional, or wilful wrongdoing);
Wilful refusal to obey a lawful and reasonable instruction; and
incompetence and neglect.
If an employer proposes to dismiss an employee for a serious breach, it must make an assessment of the conduct said to justify dismissal. Case law provides guidance on which circumstances are sufficiently serious. In Rankin v Marine Power  VSC 150. a manager’s negligent supervision of an overseas operation was held to be a breach of duty but not sufficiently serious to justify summary dismissal. In that case, the employer was ordered to pay the employee the amount of $169,612.35 representing damages for failure to provide proper notice and accrued long service leave entitlements.
Where a breach by an employee has occurred, it is important for an employer to make an assessment and to take appropriate action. A failure by an employer to act on breaches by an employee may be taken to be a waiver of the employer’s right to terminate the employee for those breaches.
There are also statutory definitions and obligations to consider. There are a number of references to serious misconduct in the Fair Work Act 2009 (Cth) and Fair Work Regulations 2009 (Cth). These statutory definitions and obligations are important as they determine the subsequent rights of a dismissed employee.
Relevant statutory obligations were discussed in the case of Sharp v BCS Infrastructure Support Pty Limited  FWCFB 1033:
The relevance of the definition of “serious misconduct” in reg.1.07 to the matter is also, with respect, obscure. Section 12 of the Act contains a definition of “serious misconduct” for the purposes of the Act which simply cross-refers to reg.1.07. Apart from s.12 itself, the expression “serious misconduct” is used in only three places in the Act. In s.123(1)(b), a dismissal for serious misconduct is a circumstance in which the notice and redundancy entitlement provisions of Pt 2-2 Div 11 are not applicable; in s.534(1)(b) a dismissal for serious misconduct is one to which the requirements for notification and consultation in Pt 3-6 Div 2 do not apply; and in s.789(1)(b) a dismissal for serious misconduct is one in relation to which the requirements established by Pt 6-4 Div 3 for notification and consultation do not apply. The expression “serious misconduct” is not used anywhere in Pt 3-2, Unfair Dismissal, of the Act. Section 392(3) requires the Commission, in relation to the award of compensation for an unfair dismissal, to reduce the amount that it would otherwise order by an appropriate amount where it is “satisfied that the misconduct of a person contributed to the employer’s decision to dismiss the person”. However, it is clear that conduct may constitute “misconduct” for the purpose of s.392(3) without necessarily being “serious misconduct”. The expression is used in the Small Business Fair Dismissal Code, but that had no application in this case (and it is at least highly doubtful in any event whether the reg.1.07 definition applies to the Small Business Fair Dismissal Code). Reg.1.07 therefore had no work to do in the application of the provisions of Pt 3-2 to the circumstances of this case.
If you are an employer considering a summary dismissal, you should review the following resources:
The Small Business Fair Dismissal Code provides protection against unfair dismissal claims, where an employer follows the Code. The Commission will deem a dismissal to be fair if the employer follows the Code and can provide evidence of this. A small business is defined as any business with fewer than 15 employees;
Summary dismissal is a complex area of law. There will be circumstances that justify a summary dismissal but an employer should carefully examine those circumstances against the applicable law before taking action. A failure by an employer to act on breaches by an employee may be taken to be a waiver of the employer’s right to terminate the employee for those breaches.
When examining obligations of an employer, applicable statutory obligations should be examined followed by the employment contract and any applicable award or industrial agreement. Only then can an employer understand their obligations with respect to termination.
Please contact us if you have any questions on the above.