Employment Agreement
This guide covers what employment agreements must include under Australian law, how they interact with Modern Awards and the NES, and when businesses should seek legal advice.
Written by: Mark Lazarus, Commercial Lawyer, Director of Lazarus Legal
Published: 12 March 2026
Legal Disclaimer: The information on this page is general in nature and is not intended to constitute legal advice. It does not take into account your personal circumstances. Laws and legal processes can change, and their application varies between cases. You should seek independent legal advice before acting on any information on this page.
What Is An Employment Agreement?
An employment agreement is a legally binding contract between an employer and an employee. It sets out the key terms of the working relationship, including duties, pay, hours, and conditions.
A well-drafted agreement creates clarity from day one. It reduces the risk of disputes, gives both parties a clear reference point, and ensures the employment relationship is built on documented, agreed terms.
Is An Employment Agreement Legally Required In Australia?
Australian law does not require employers to provide a written employment agreement. But the absence of one does not remove your legal obligations.
Under the Fair Work Act 2009, every employer must comply with the National Employment Standards (NES) and provide new employees with the Fair Work Information Statement before or on their first day. These obligations apply whether or not a written contract exists.
The NES establishes minimum entitlements covering leave, notice periods, redundancy pay, and flexible work requests. These apply automatically and cannot be contracted out of.
Without a written agreement, disputes about duties, pay arrangements, or termination terms are far harder to resolve. A signed employment contract is the clearest way to document what was agreed and protect your business if the relationship breaks down.
Employment Agreements Within The Workplace Law Framework
An employment agreement does not exist in isolation. It sits within a broader framework of Australian workplace law, and understanding how these layers interact is essential for compliance.
The Hierarchy Of Employment Law
Australian employment law operates in a defined hierarchy:
Fair Work Act 2009
The Fair Work Act sets the overarching legal framework for Australian employment law.
National Employment Standards
National Employment Standards (NES) establish 11 minimum entitlements that apply to all national system employees.
Modern Awards
Modern Awards add industry or occupation-specific conditions on top of the NES.
Employment Contracts
Employment contracts operate within all of the above legal layers.
A contract cannot override any entitlement sitting above it in this hierarchy. If your agreement offers less than the applicable award or the NES, the higher standard applies regardless of what the contract says.
Award-Covered VS Award-Free Employees
Many industries and occupations are covered by a Modern Award. Awards set minimum pay rates, penalty rates, overtime, allowances, and other conditions for covered employees.
Some employees, typically senior managers and high-income earners, are award-free. Their minimum conditions are governed by the NES alone.
Before drafting or reviewing an employment agreement, you need to know whether the employee is award-covered and, if so, which award applies. Getting this wrong is one of the most common sources of underpayment exposure.
Better Off Overall Test (BOOT)
The Better Off Overall Test applies when an enterprise agreement or individual flexibility arrangement is used instead of an award. Under the BOOT, the employee must be better off overall compared with the conditions they would receive under the applicable Modern Award.
The Fair Work Commission assesses BOOT compliance when approving enterprise agreements. If an arrangement fails the test, it will not be approved. Employers using individual flexibility arrangements also need to meet this standard.
Different Employment Types And Misclassification Risks
The type of employment relationship affects which clauses belong in an agreement and which obligations apply. Common employment types include:
- Full-time employees: Engaged on an ongoing basis for a standard number of hours per week, with access to all NES entitlements
- Part-time employees: Engaged on an ongoing basis for regular, agreed hours less than full-time, with pro-rata NES entitlements
- Casual employees: Engaged without a firm advance commitment to ongoing work, paid a casual loading in lieu of certain entitlements
- Fixed-term employees: Engaged for a defined period or task, with specific rules now applying to contract renewals
Getting the classification right matters. Misclassifying an employee as an independent contractor (sham contracting) carries significant penalties under the Fair Work Act. Since the Closing Loopholes reforms, a new definition of “employee” and “employer” applies, based on the real nature of the relationship rather than just what the contract says.
Fixed-term contract use is also restricted. Employees generally cannot be engaged on consecutive fixed-term contracts that exceed two years in total or two consecutive contracts, whichever occurs first, subject to limited exceptions.
Essential Clauses In An Employment Agreement
A legally sound employment agreement goes beyond listing a job title and salary. Each clause serves a specific protective function, and gaps in coverage are where disputes typically arise.
Key Clauses
- Job title and duties. Defines the role and sets expectations around scope of work
- Remuneration and benefits. Specifies the base salary or rate, superannuation, and any bonuses or allowances
- Hours of work. States ordinary hours and any flexibility arrangements
- Probation period. Sets the assessment period and any modified notice rights during that time
- Leave entitlements. References applicable NES and award provisions for annual leave, personal leave, and other leave types
- Confidentiality. Restricts disclosure of sensitive business information during and after employment
- Termination and notice periods. Sets out notice obligations for both parties and the grounds for summary dismissal
Offset Clauses
Some employment agreements include an offset clause, which allows the employer to apply the employee's salary against particular award entitlements such as overtime, penalty rates, or allowances. Offset clauses need to be drafted precisely.
A poorly worded clause may be unenforceable, leaving the employer exposed to back-pay claims. The clause must clearly identify which entitlements it is intended to offset and must result in the employee being better off overall.
Compliance With NES
Every employment agreement must be consistent with the National Employment Standards. The NES cannot be excluded or reduced by contract.
Employers should review agreements periodically to ensure they remain compliant as the NES is updated. A review is particularly important when Modern Award pay rates change, which typically occurs on 1 July each year.
Common Risks And Advanced Protections
Standard employment agreement templates rarely address the risks that matter most to your business. Several areas of employment law warrant specific contractual attention.
Pay Secrecy Changes
Since the commencement of the Secure Jobs, Better Pay Act 2022, employees have a protected right to disclose or discuss their remuneration with others. Pay secrecy clauses that prohibit employees from discussing their pay are unenforceable.
Employers should review existing agreements to remove any non-compliant pay secrecy provisions. Including such a clause, even if unintentional, creates legal exposure.
Post-Employment Restraints
Restraint of trade clauses restrict what a former employee can do after leaving your business. Common types include non-compete clauses (preventing the employee from working for competitors) and non-solicitation clauses (preventing them from approaching your clients or staff).
Australian courts will not enforce a restraint that goes further than necessary to protect a legitimate business interest. The clause must be reasonable in scope, duration, and geography. Courts apply a reasonableness test, and overly broad restraints are routinely struck down.
Intellectual Property Ownership
In most cases, work created by an employee during the course of their employment belongs to the employer under Australian copyright law. But “in the course of employment” has boundaries.
An employment agreement should expressly address ownership of IP created using company resources, outside business hours, or in connection with the employee’s role. This matters most in technology, creative, and product-focused businesses where the risk of ownership ambiguity is high.
Casual Conversion
Under the NES, casual employees have the right to request conversion to permanent employment after a qualifying period. Employers must also proactively offer conversion to eligible casuals in certain circumstances.
Employment agreements for casual employees should acknowledge the casual engagement terms clearly, including the basis for the casual loading. The Fair Work Ombudsman provides guidance on casual conversion obligations.
Recent Employment Law Changes Affecting Agreements
Employment law in Australia has undergone significant changes in recent years. Agreements drafted before these reforms, including the ones below, may no longer be fully compliant.
Payday Super
From 1 July 2026, employers will be required to pay superannuation contributions on the same day as wages, rather than quarterly. This change affects payroll systems and potentially the remuneration clauses in employment agreements that describe how and when super is paid.
Right To Disconnect
The right to disconnect allows eligible employees to refuse to monitor, read, or respond to employer contact outside their ordinary working hours, unless that refusal is unreasonable. Employment agreements should be reviewed to ensure they do not impose after-hours contact obligations inconsistent with this right.
Paid Parental Leave Changes
The Australian Government has progressively expanded Paid Parental Leave entitlements. From 1 July 2025, the scheme provides up to 22 weeks of government-funded leave, with further increases planned. Employment agreements that describe parental leave entitlements should reflect current law rather than referring to outdated figures.
Employment Agreement Templates
Template agreements are a starting point, not a finished product. Understanding their limitations is important before relying on one for your business.
Government Template Resources
The following sources provide free employment agreement templates for common employment types. These resources can be a useful starting point for understanding what a basic agreement should cover:
Limitations Of Templates
Generic templates are designed to apply broadly, which means they are rarely tailored to your specific industry, workforce, or risk profile. The following are common examples of issues with off-the-shelf templates:
- Restraint clauses that are too broad to be enforced
- Missing or inadequate IP provisions
- Outdated references to legislation or award conditions
- No offset clause where one would be appropriate
- Casual or fixed-term provisions that do not reflect current law
A template that was compliant when it was drafted may no longer reflect current obligations following legislative change. Relying on an outdated agreement can expose your business to underpayment claims, unenforceable clauses, or Fair Work proceedings.
When To Get Legal Advice For Employment Agreements
A lawyer specialising in contracts and employment law can help ensure your employment agreements are legally enforceable and tailored to the specific needs of your business. This may include reviewing existing contracts, identifying gaps in protection, and drafting clauses that address risks such as intellectual property, confidentiality, and restraint of trade.
Legal advice can be particularly valuable when hiring your first employee, engaging senior staff, updating outdated agreements, or responding to changes in Modern Awards. Well-drafted employment agreements provide clarity at the start of the relationship and can help reduce the risk of disputes, Fair Work complaints, or breaches of contractual obligations later on.
Summary
- Employment agreements are not legally required in Australia, but written contracts are strongly recommended for risk management
- All agreements must comply with the Fair Work Act, National Employment Standards, and any applicable Modern Awards
- The type of employment (full-time, part-time, casual, fixed-term) affects which clauses apply and which obligations exist
- Misclassifying employees as contractors carries significant penalties under the Fair Work Act
- Key clauses include job duties, remuneration, hours, probation, leave, confidentiality, and termination terms
- Offset clauses, restraint of trade provisions, and IP ownership clauses require precise drafting to be enforceable
- Recent reforms including the right to disconnect, pay secrecy changes, and Payday Super affect existing agreements
- Generic templates are a starting point only and are rarely compliant with current law out of the box
- Legal advice is recommended when hiring senior staff, including restraint clauses, or after any significant legislative change
About Mark Lazarus – Director, Lazarus Legal
Admitted in both Australia and the UK, Mark brings more than two decades of global legal experience to Lazarus Legal. Having worked as a barrister, in private practice, and as in-house counsel for a major international consumer brand he combines courtroom-honed advocacy with commercial insight. Specialising in commercial law, intellectual property and dispute resolution, Mark advises startups, creative businesses, and established enterprises on transactions, trademarks, contract drafting, and litigation strategy. His cross-jurisdictional background and history as a former in-house legal director give clients confidence that their legal issues will be managed with both strategic foresight and commercial realism.