What is an Employment Contract?

An employment contract is an agreement between an employer and employee that sets out terms and conditions of employment. A contract can be in writing or verbal. A contract of employment is a legal agreement between the employer and the employee. Its terms cannot lawfully be changed or varied by the employer without agreement from the employee.

Employers should be aware that changing an employee’s contract of employment without the employee’s consent could be seen as termination or breach of the original contract. The employer or the individual employee may only change the terms of a contract where both parties agree to the variations. Where an employer seeks to substantially change an employee’s conditions of employment it must be put to the employee whether or not to accept the new contract.

If the offer is accepted, the employment will continue, based on the new terms of employment. If however, the employee refuses the new conditions, the employer will be faced with the decision of continuing the employment based on the existing contract or terminating the employment.

If the decision to significantly alter the employment contract is required for the operational requirements of the business, and the employee chooses not to take up the new contract the employer may dismiss the employee on the grounds of a legitimate redundancy. In this instance, for award or agreement covered employees, the redundancy provisions of the applicable award or agreement will apply. Entitlements for employees who are award and agreement free come from the employment contract and the Fair Work Act, including the NES (National Employment Standards).


Where an employee accepts the new conditions it is advisable that an employer obtain a signed letter setting out the circumstances of the change, and the new wage and conditions of the employee’s future position.


Variations to an employment contract that can amount to termination, particularly where the employee has refused to accept the changes, including:

  • Demotion,
  • Changes in the remuneration or process of payment which result in a reduction of wages
  • Major changes to work rosters e.g. continuous shiftwork to day work
  • Transfer, and
  • Changing an employee’s status at work.

It is helpful if the original contract provides some way in which variations can be made with the consent of both the parties, without resulting in the termination of the contract. Examples of this may include:

  • The inclusion in the contract of a clause that reserves the right to make changes while also setting out the correct procedure for making them
  • The insertion of a `flexibility clause’ into the original contract. This can be achieved by stating that the employee may be requested to perform any other duties within their capabilities, should the need arise
  • Include in the employee’s contract a commitment to multi-skilling and the possibility of job-rotation of all employees

Common Questions


You employ a volunteer.  Do you have an employment contract?

No.  For an employment contract to exist, wages must be paid in exchange for work or labour.  Volunteers are not be paid.  Therefore they will not be working under an employment contract.


The contract is for a fixed period of time or for a specific project.  Is there an employment contract?

Yes, but these types of employment contracts can mean that the employee has different legal rights.  An employment contract that is for a fixed period of time or a specific project will automatically end when the time period ends or the specific project is finished. These are called “fixed-term contracts”.  Sometimes an employment contract is for a fixed period of time or a specific project but it allows either party to end the contract earlier with reasonable notice.  These are not fixed-term contracts under the law. The difference is important because if an employee has a fixed-term contract, they cannot make a claim for unfair dismissal if the contract simply ends on the agreed end date or at the end of the agreed project.  Having said that, if you as the employer terminate the fixed term contract early (i.e. before the agreed end date), the employee might be able to make a claim for unfair dismissal or denial of contractual benefits or breach of contract.