Breach of Employment Contract: What Employers and Employees Need to Know

Author: Zeinab Farhat, Progressive Legal

A breach of an employment contract (whether by an employee or an employer) is a serious event. Employment contracts, like all other contracts can be complex and it is imperative that both employees and employers are sufficiently aware of their obligations under an employment contract, and any implications arising from a failure to not perform (whether in full or in part), any relevant obligations under that contract.

This article will consider:  what is an employment contract, what is a breach of an employment contract, considerations for breach by an employee, considerations for breach by an employer, remedies available for breach of an employment contract and key takeaways.

What is an employment contract?

An employment contact is an agreement between an employee and employer which outlines the terms of the employee’s employment.  

An employment contract must not provide an employee with less entitlements as prescribed by the National Employment Standards (“NES”) and any awards, enterprise agreements and/ or other registered agreements that may apply to the employee.  

It is important to note that the NES applies to all employees, whether or not the employee has signed an employment contract.  

What do I need to prove to demonstrate a breach?  

In order to demonstrate that a breach of an employment contract has occurred, a party must be able to show: 

1. an employment contract existed; and
2. demonstrable proof that the employer or employee breached the terms of that contract.  

What is a “breach of an employment contract”?

Considerations for a breach of employment contract by an employee  

If you are an employer who suspects that an employee has breached his/ her employment contract, you may have a range of options available to you to address that breach.  

However, prior to considering those options, it is important to identify where a breach has actually occurred. It is best to obtain legal advice in this respect, but some common examples of situations regarding a breach of an employment contract by an employee are without limitation: 

1. a breach of a restraint of trade clause (i.e. where an employee sets up a competing business to his/ her employer);  
2. failure to comply with the employer’s reasonable directions;  
3. stealing confidential information and intellectual property of an employer; and  
4. failure to comply with the notice period stipulated in the employment contract.  

If you are considering what to do where an employer has breached an employment contract, the available options will depend on the facts at hand.  

Should you engage a lawyer, some options typically advised will include: 

1. attempting to resolve the matter amicably;  
2. engaging lawyers to send a letter of demand;  
3. attempting to settle the matter outside of court following the provision of correspondence; and  
4. if all else fails, commencing legal proceedings against the employee for the breach(es). 

Considerations for a breach of employment contract by an employer

Many of the above considerations apply to an employer who has breached an employment contract (specifically, options available for an effected party).  

Common examples of a breach of contract by an employer include, without limitation: 

1. termination of an employee, in breach of the applicable notice period as provided for in the employment contract; and 
2. failure to pay an employee’s salary on time and/ or at all. 

It is important that employers should also consider the distinction between wrongful dismissal and unfair dismissal: 

Wrongful dismissal

 Generally speaking, a wrongful dismissal is taken to occur when:  

1. an employer has terminated an employee without providing the requisite notice as stipulated in the employee’s employment contact; 
2. an employer terminates an employee prior to the completion of the employee’s term of employment; or  
3. an employee terminates on the basis of misconduct, without providing the employee a chance to respond.  

As such, unfair dismissal matters are more concerned with breaches of the employment contract and any applicable common law principles.  

Unfair dismissal

Unfair dismissal is covered by s 385 of the Fair Work Act 2009 (“the Act”). 

Pursuant to section 385 a person is unfairly dismissed if the Fair Work Commission is satisfied that that: 

1. the person has been dismissed; 
2. the dismissal was harsh, unjust or unreasonable;  
3. and the dismissal was not consistent with the Small Business Fair Dismissal Code; and 
4. the dismissal was not a case of genuine redundancy.  

Remedies available for breach of employment contract

The remedies available to an employer or employee will depend on the nature of the breach. 

Remedies available for breach of an employment contract may include: 

1. damages; 
2. specific performance; and  
3. injunctive relief.  

Again, the availability of a remedy will depend on the facts of the matter and nature of the breach.

Key takeaways

A breach of an employment contract is a common occurrence in any industry. 

If you are an employee or employer, it is important to know your obligations as set out in any employment contract you have entered into.  

If you believe that a breach of that contract has occurred, it is best to obtain legal advice from our experienced employment contract lawyers. We’ll advise you on potential causes of action and any next steps available to you in your circumstances.

Contact us via phone or make an online enquiry by requesting our advice below.

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