What is an employment contract

What is an employment contract?

Many people who call me up for advice, both employers and employees, deny when I ask them whether there is a contract of employment in existence, believing, quite wrongly, that a contract of employment must be in writing. This is not the case, any more than a written contract is required to purchase an apple.

When an apple is purchased the vendor and the purchaser make a contract to that effect the transaction. To the extent to which there are express conditions attaching to the contract, they will be constituted by what is agreed, for example the price and the type of apple. Other terms and conditions of the contract will be implied; that is to say although unstated there will be conditions which apply from statute law (for example that the apple be of merchantable quality) and others from a mutual understanding, perhaps that it will be of the same quality as the product on display.

There are however several essential elements of a contract of employment, in the absence of which there simply is no employment relationship.

The essence of the issue is expressed as follows on the Fair Work Commission’s website.

‘The law holds that before any simple contract [including a contract of employment and a contract for services] is enforceable it must be formed so as to contain various elements. These are:

  1. There must be an “intention” between the parties to create a legal relationship, the terms of which are enforceable.
  2. There must be an offer by one party and its acceptance by the other.
  3. The contract must be supported by valuable consideration.
  4. The parties must be legally capable of making a contract.
  5. The parties must genuinely consent to the terms of the contract.
  6. The contract must not be entered into for any purpose which is illegal.
Valuable consideration can be the payment of money or the promise to perform certain duties.