Breaches in employment contracts

Why you need to be careful when setting your contract terms, and what it means to breach them.

First published on Thursday, Sep 02, 2021

Last updated on Tuesday, Jul 02, 2024

Once an employment contract fulfils the following three elements:

  • An offer

  • An acceptance of the employment contract

  • Consideration

They are legally enforceable. So, by signing employment contracts both employers and employees are legally bound.

The obligations that contracts outline go both ways to cover the legitimate interests of both parties. In this article, we’re going to talk about what takes place if one party, or both of them, go against the terms of that employment contract.

What is a breach of contract?

When one party—either you as the employer or your employee—fails to stick to any term in the employment contract, this is a breach of contract, which can lead to the other party choosing to terminate the contract early.

While breaching a contract can't automatically lead to the end of that contract, when the breach of contract is a serious breach or the breach of an essential term, it may give a party the right to terminate the contract.

If a breach occurs its best practice to seek employment relations advice and know your rights as an employer.

Examples of breaching a contract:

  • Having to delay a deadline may be a minor breach of contract that can be rectified by the party responsible for the breach.

  • A major breach or material breach of contract are circumstance such as a failure to pay an employee for work they've done.

When a major breach of contract occurs, it may lead to a court awarding compensation for the party adversely affected by the breach.

How do employees breach employment contracts?

An employee under a contract can often still decide to break their contract through early termination. They just need to make sure that they serve out their notice period first.

However, breaking employment contracts doesn't always mean your employee is in breach of the law, there are certain actions that do breach employment contracts.

Examples of an employee breaching a contract:

  • Sharing their employer's confidential information

  • Leaving an employer to join a competing company

  • Taking client contact information when they leave the company

Breaching employment contracts is one of the most common grounds for dismissal. That is as long as your contracts specify that dismissal is on the line if contract terms are broken.

How do employers breach employment contracts?

As an employer, you need to make sure that you're following the law in every step of your contract process.

From making sure that the terms in your contracts align with your employees' award or agreement to following through on your contract terms right up until the end of your employees' time with you.

Examples of breaching employer obligations:

  • When a company unfairly dismisses an employee either by not giving them the proper notice or without reasonable grounds for dismissal. This can lead to financial penalties that the Fair Work Commission orders.

  • Altering the terms of employment contracts without first consulting with the employees who will be affected by the change.

  • Neglecting to pay your employees the money their contract entitles them to. This includes financial benefits, bonus payments, overtime, casual loading, or any other payments outlined in your contracts. This can also lead to financial repercussions in the form of fines and penalties.

Maintaining compliant HR documentation with BrightHR

Missteps with important business documentation, including your employment contracts, can lead to legal hot water and miscommunication.

You can avoid all of that by making sure your business and your documentation are up to date with evolving employment legislation. BrightHR clients have access to a library of HR documents and templates and when they need custom advice, our team of employment relations advisers are available on the phone 24/7.

Juan Galang

Bright Service Manager Australia New Zealand

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