Contents
Employment contracts form the backbone of the relationship between employers and employees in Australia. They set out the terms, conditions, rights, and responsibilities that govern each party’s actions during the course of employment. When one side is in breach of employment contract, the consequences can be far-reaching and complex. In this article, we explore what constitutes a breach, the legal implications involved, the remedies available, and the steps you can take if you find yourself in such a situation.
Overview of Employment Contracts
An employment contract is a legally binding agreement that outlines the details of the working relationship between an employer and an employee. Whether written down, verbal, or implied by conduct, these contracts provide clarity on job responsibilities, remuneration, benefits, termination procedures, and much more. They are essential in:
- Defining roles and responsibilities
- Ensuring compliance with workplace laws
- Protecting the rights of both parties
It is important to understand that employment contracts serve as the blueprint for your working relationship. A clear contract helps prevent misunderstandings and reduces the likelihood of disputes that might leave one party in breach of employment contract.
What Constitutes a Breach of an Employment Contract?
A breach occurs when one party fails to fulfil the obligations set out in the employment contract. Breaches may be committed by either the employer or the employee, and the nature of the breach can vary greatly.
Examples of Breaches
Common examples include:
- Employer Breaches: Failure to pay the agreed salary, not providing promised benefits, or wrongful termination without cause when the contract clearly requires a specific procedure.
- Employee Breaches: Leaving employment without providing adequate notice, violating confidentiality agreements, or disregarding non-compete or other restrictive clauses.
In situations where either side is in breach of employment contract, the injured party may be entitled to seek legal redress.
Legal Consequences of Being In Breach of Employment Contract
The legal landscape for breaches of employment contracts is designed to ensure that the aggrieved party is made whole. If you, as an employer find yourself dealing with a breach, it is crucial to understand both the immediate and long-term implications.
Damages and Compensation
One of the primary remedies for a breach of an employment contract is the award of damages. Damages aim to compensate the non-breaching party for any financial loss suffered as a result of the breach. For example, an employee terminated without proper notice or justification may seek compensation based on the salary and benefits they would have earned had they been allowed to continue in their role.
Mitigation of Damages and Injunctions
If you’re an employer involved in a potential breach of an employment contract – whether you’ve unintentionally breached the terms yourself or are dealing with an employee who has – it’s important to understand the legal remedies that may be available.
One possible outcome is a court-issued injunction. This is an order that requires a party to either do something or stop doing something. For example, a court may order you to stop a termination process that breaches the contract, or it might prevent an employee from joining a competitor if there’s a valid restraint of trade clause in place. In some situations, the court may also require you to follow through on certain benefits or entitlements that were contractually agreed upon.
Another key legal principle to be aware of is the duty to mitigate loss. If an employee claims damages for breach of contract, they’re legally required to take reasonable steps to minimise their losses – for example, by seeking alternative employment. Likewise, if you’re on the receiving end of a breach, you can’t simply let the situation worsen in order to claim a higher amount in damages later.
Understanding these remedies can help you manage disputes more effectively and avoid further liability. It’s always a good idea to seek legal advice early to ensure you’re meeting your obligations and protecting your business.
Steps to Address a Breach
If you suspect that either you or an employee may have breached an employment contract, taking prompt and measured steps is key to minimising risk and resolving the issue effectively. Below is a practical guide to help you manage the situation with professionalism and care.
1. Review the Contract and Gather Documentation
Start by reviewing the employee’s signed contract and any related documents. It’s important to understand exactly what terms may have been breached. Collect supporting records such as:
-
Employment agreements or written terms
-
Pay records, rosters, and performance documentation
-
Relevant emails or messages that confirm or dispute the agreed terms
Having a clear paper trail will help if you need to engage in dispute resolution or defend your business’s position.
2. Address the Issue Internally
Where appropriate, raise the issue directly with the employee. If the breach is minor or unintentional, it may be possible to resolve it through an open and respectful discussion. Be clear about:
-
Which contractual term may have been breached
-
The impact on your business
-
What resolution you are seeking (e.g. corrective action, clarification, or an amendment to the agreement)
If you have a human resources process or policies in place, follow them to ensure procedural fairness.
3. Understand Your Legal Obligations
As an employer, you are required to comply with the Fair Work Act, applicable awards, and any enterprise agreements. Even if an employee is in breach, it’s important that your response remains lawful – for example, you must avoid taking adverse action that could breach general protections provisions.
Consulting the Fair Work Ombudsman website is a good starting point for understanding your obligations and options.
4. Consider Mediation or Negotiation
If internal discussions don’t resolve the matter, third-party mediation may be a practical next step. This can help both parties reach a mutually acceptable outcome without the need for formal legal proceedings. Mediation is particularly useful where the employment relationship may continue and a cooperative resolution is preferred.
5. Seek Legal Advice
If the matter cannot be resolved informally, it may be time to seek legal advice. A lawyer can help you:
-
Assess the seriousness of the breach
-
Clarify your rights and risks
-
Recommend appropriate action, such as terminating the contract or negotiating a settlement
-
Ensure any next steps comply with employment laws and minimise exposure to claims (e.g. unfair dismissal or general protections)
Taking early legal advice can help you resolve the issue efficiently and reduce the likelihood of future disputes.
Preventing and Managing Breaches
When it comes to employment contracts, prevention is always better than cure. For small business owners, taking proactive steps to minimise the risk of contract disputes not only protects your business but also supports a productive and compliant workplace. Here are key strategies to help you stay on the front foot.
1. Draft Clear and Comprehensive Contracts
A well-drafted employment contract is your first line of defence. Ambiguities in contract language are one of the most common causes of disputes, so it’s essential that the terms are clear, complete and tailored to the specific role. Engaging a lawyer at the drafting stage ensures that the contract covers all legal requirements and accurately reflects your expectations as an employer.
2. Regularly Review and Update Contracts
As your business evolves, so will the roles and responsibilities of your staff. It’s important to revisit employment contracts regularly to ensure they reflect any changes in duties, salary, benefits, or reporting lines. This is particularly critical in fast-moving industries or growth stages where job scopes shift over time. Regular reviews can prevent claims that certain expectations or entitlements were unclear.
3. Invest in Training and Open Communication
Good communication helps prevent misunderstandings. Providing training on workplace policies, expectations, and contract terms – especially during onboarding – sets a strong foundation. Ongoing communication between you and your employees can reduce the risk of issues escalating into formal disputes. Consider holding regular check-ins or HR briefings to reinforce key obligations and keep everyone aligned.
4. Include Well-Drafted Protective Clauses
Protect your business with carefully considered clauses that address key risks. For example:
-
Confidentiality clauses to safeguard sensitive information
-
Non-compete clauses to limit competition from former employees (where legally appropriate)
-
Non-solicitation clauses to protect client relationships and prevent poaching of staff
These clauses need to be enforceable, reasonable, and relevant to your business. A lawyer can help draft terms that are both effective and compliant with Australian law.
5. Seek Legal Advice Early
If you suspect a contract breach may occur – or that you’ve already breached a term – seeking legal advice early can help you manage the risk. An employment lawyer can clarify:
-
Whether a breach has occurred
-
What remedies or damages might apply
-
How to negotiate a resolution or take further legal action if necessary
Even if the issue seems minor, professional guidance ensures you’re making informed decisions and complying with your obligations as an employer.
Key Takeaways
- Employment contracts are vital for protecting the rights and obligations of both employers and employees.
- A breach can be committed by either party and may lead to significant financial and legal consequences.
- Legal remedies include seeking damages, enforcing injunctions, and requiring mitigation of losses.
- Thorough documentation, clear communication, and regular contract reviews are crucial in both preventing and addressing breaches.
- Seeking timely professional legal advice is a key step in resolving disputes effectively.
If you would like a consultation on in breach of employment contract, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
Meet some of our Employment Law Lawyers
Get in touch now!
We'll get back to you within 1 business day.
Book in a free consultation with us to discuss your legal needs.