Common Law Obligations for Employees in Australia

When you’re hiring your first team member (or scaling from a small team to a bigger one), it’s easy to focus on the practical things: pay, rosters, KPIs, and getting the work done.

But as an employer in Australia, it’s also important to understand the legal “baseline” that can apply even when you haven’t spelled it out in writing. That baseline can include common law obligations of employees - duties that may exist alongside (and sometimes fill gaps in) an employment contract, modern award, enterprise agreement, and workplace policies.

Getting clear on these obligations helps you:

• set expectations early (which can prevent disputes later)
• manage risk around confidentiality, conflicts, and conduct
• respond appropriately if an employee steps outside the line
• draft stronger employment contracts and policies that actually support your business

Below, we’ll break down the most common employee duties recognised at common law, what they mean in practice for small businesses and startups, and how to protect your business with the right documentation and processes.

What Is The “Common Law Obligation Of An Employee” In Australia?

In Australia, “common law” refers to legal principles developed through court decisions (as opposed to legislation made by Parliament). Employment relationships are governed by both legislation (like the Fair Work Act 2009 (Cth)) and common law.

A common law obligation of an employee is essentially a set of duties that may be implied into an employment relationship because of its nature - even if your employment contract doesn’t explicitly mention them.

These obligations don’t replace what’s in the contract. Instead, they usually work like this:

• If your contract is silent on a particular issue, common law may imply a duty (for example, confidentiality).
• If your contract addresses the issue clearly, the contract usually sets the standard (provided it’s lawful and enforceable).
• If the contract term conflicts with legislation, legislation will generally override it.

From an employer perspective, the practical takeaway is simple: even if you haven’t put a rule in writing, your employee may still have legal obligations - and you should set expectations clearly so you’re not relying on implied duties when things go wrong.

Key Common Law Obligations Employees Owe Employers

While the exact wording differs between cases (and can depend on the role and circumstances), there are several core employee obligations that commonly show up in Australian common law.

Think of these as the “minimum standards” of behaviour that come with being employed, not independent contracting.

1) Duty Of Fidelity (Loyalty)

One of the most recognised duties is that an employee must act loyally towards their employer during employment. This is often described as a duty of fidelity. (Some cases also refer to “good faith” in particular contexts, but it’s safest to think in practical terms about loyalty and not acting against the employer’s interests while employed.)

In practical terms, it can include obligations like:

• not acting against your business interests while employed
• not deliberately undermining your business (for example, poaching clients for a competing business)
• not misusing their position for personal gain at your expense

For startups: this is particularly relevant when employees wear multiple hats and have broad access to commercial decisions, customer lists, pricing, roadmaps, and investor information.

That said, “loyalty” doesn’t mean an employee can never leave or never compete in the future. This duty is strongest during employment. If you want post-employment restrictions, you’ll usually need carefully drafted restraints (and even then, enforceability depends on what’s reasonable and on the circumstances).

2) Duty To Follow Lawful And Reasonable Directions

Generally, employees must follow your lawful and reasonable directions connected to their role.

This obligation often underpins everyday management decisions, such as directing an employee to:

• use a particular process or system
• comply with a safety procedure
• follow a customer complaint workflow
• work from a designated location (if consistent with the contract and role)

Two words matter here: lawful and reasonable.

• A direction isn’t lawful if it requires breaking the law, breaching an award, or discriminating unlawfully.
• A direction may be unreasonable if it’s unrelated to the job, unsafe, or disproportionate to what’s required.

This is where a well-drafted Employment Contract helps: it can define duties, reporting lines, flexibility expectations, and policies the employee must comply with, so you’re not trying to “retrofit” expectations later.

3) Duty Of Care, Skill, And Diligence

Employees are generally expected to perform their work with reasonable care and skill, and to take reasonable steps to do their job properly.

This doesn’t mean perfection. It usually means:

• showing up and performing work to a reasonable standard
• not being recklessly careless (for example, ignoring known safety procedures)
• using the skills they claim to have
• taking reasonable care of your property and equipment

Why it matters for employers: performance management can be easier when you can point to a clear standard (role description, KPIs, training requirements) rather than arguing over what “good enough” means.

4) Confidentiality (Even Without An NDA)

Confidentiality is a major part of the common law landscape. In many employment relationships, employees have an implied duty not to misuse or disclose confidential information obtained through their work.

Confidential information might include:

• client lists and customer data
• pricing, margins, and quotes
• supplier terms
• product roadmaps, internal processes, and playbooks
• financial information and strategic plans

However, relying on implied duties alone can be risky. Common law confidentiality can be fact-specific, and disputes often turn on what exactly was confidential, whether it was treated as confidential, and how it was communicated internally. Also, an implied duty of confidentiality is typically strongest during employment. After employment ends, protections may be narrower and often depend on the nature of the information (for example, whether it’s a true trade secret) and what’s written in the contract.

In a startup, where information is shared quickly and informally, it’s worth formalising confidentiality expectations through contracts and policies (especially for key hires).

5) Not To Compete With You During Employment

A classic example of the employee’s duty of loyalty is that they generally shouldn’t compete with your business while they’re employed.

Competing conduct can look like:

• running a side business that directly competes with your business
• soliciting your clients for their own benefit while still employed
• setting up a competing venture using your time, systems, or staff

This issue often comes up in startups where employees also do freelance work, consulting, or side projects. Side work isn’t automatically prohibited - but if it creates a conflict or competes with you, it can become a real risk.

If you want to manage this proactively, build it into your contract (for example, disclosure requirements for secondary employment and conflicts). It can also help to have a clear internal policy for side projects.

6) Duty To Account For Benefits (No Secret Profits)

Depending on the role (especially for senior employees), an employee may be required to account to the employer for benefits or profits gained through their position.

For example, if an employee receives kickbacks from a supplier, or steers business to a related party for personal gain, that can trigger serious issues - including misconduct, breach of duties, and sometimes fraud allegations.

For small businesses, a good practical step is to implement a conflict of interest policy and ensure procurement decisions are transparent.

How These Obligations Show Up In Real Life (And Where Employers Get Caught Out)

Most disputes aren’t about the legal theory - they’re about what happened day-to-day and whether expectations were clear.

Here are a few common scenarios where employers and startups can get caught out if they don’t understand the common law obligation of an employee.

An Employee Takes Client Information When They Leave

If a departing employee downloads customer lists or pipelines, your first question is usually: “Can they do that?”

Often, the answer is no - but enforcement is much easier when you have:

• clear confidentiality clauses in the employment contract
• policies that define confidential information and data handling
• access controls (so you can show the employee didn’t need that information)
• an offboarding process that confirms return/deletion of company information

If you operate online or store customer data, you also need to be careful about privacy compliance. A Privacy Policy is often part of the broader governance picture (and helps demonstrate you treat data seriously).

An Employee Refuses A Direction

Refusals often happen when:

• a role has changed quickly (common in startups)
• the employee says “that’s not my job”
• the direction affects hours or location
• there are safety concerns or misunderstandings

If the direction is lawful and reasonable, refusal may become a performance or disciplinary issue. But if the direction isn’t reasonable (or it changes core terms without agreement), you may be creating legal risk.

As a practical step, make sure job scopes and flexibility expectations are documented clearly from the start and kept up to date.

A Team Member Runs A “Side Hustle” That Starts Competing

This can be tricky, because you want to be supportive - but you also need to protect the business you’re building.

A good approach is to:

• require disclosure of secondary employment and side businesses
• define conflicts of interest and competing activities clearly
• set boundaries around using company time, systems, or confidential information

Common law can help you, but written rules help you prevent the dispute in the first place.

How Common Law Obligations Interact With Employment Contracts, Awards, And Policies

In Australia, employment obligations rarely come from just one place.

For most businesses, obligations and rights will sit across:

• the employment contract
• the National Employment Standards (NES)
• any applicable modern award or enterprise agreement
• workplace policies (for example, confidentiality, IT use, performance management)
• common law implied terms and duties

So where does the common law obligation of an employee fit?

Common Law Fills Gaps (But It’s Not A Great Business Strategy To Rely On It)

Common law duties are most helpful when the contract is silent, unclear, or doesn’t cover a scenario you’re facing.

But common law can be uncertain, fact-specific, and expensive to enforce if you’re in a dispute.

If you’re building a business that you want to scale, it’s typically better to:

• spell out the obligations you care about most (confidentiality, IP, conflicts, conduct)
• keep contracts updated as roles evolve
• support expectations with practical policies and training

Written Terms Can Strengthen Protection (If Done Properly)

A tailored employment contract can:

• define what confidential information is (and how it must be handled)
• deal with intellectual property created during employment
• set expectations around hours, flexibility, and duties
• include dispute processes and policy compliance obligations

For founders, this is similar to why you’d adopt a Company Constitution early - not because you expect conflict, but because clarity is what lets you scale with confidence.

Policies Help You Prove What You Expected

Common law often turns on “what was reasonable” or “what was understood”. Written policies can help show what you expected, what the employee knew, and what steps you took to communicate and enforce standards.

Policies that often support the practical side of employee obligations include:

• confidentiality and information security policies
• conflicts of interest policies
• IT and acceptable use policies
• workplace conduct policies
• performance management and disciplinary procedures

What Employers Should Put In Writing (So You’re Not Relying On Implied Duties)

Even though common law duties can help, your best protection usually comes from clear documents and consistent processes.

Here are the key things many Australian employers and startups should consider documenting.

Employment Agreements That Match The Reality Of The Role

Your contract should reflect how the employee will actually work - especially in startups where roles evolve quickly.

At a minimum, you’ll usually want to deal with:

• position and duties (including flexibility where appropriate)
• confidentiality
• intellectual property (who owns what is created at work)
• conflicts of interest and secondary employment
• termination and notice

If you’re hiring different categories of staff, you may also need different templates (for example, casual vs full-time).

Confidentiality And IP Protection

For many startups, your “secret sauce” is not a physical asset - it’s your customer relationships, your product, your systems, and your brand.

Confidentiality clauses help, but also think about IP ownership. If an employee builds something for your business (code, designs, content, processes), you want clarity that the business owns it.

And if you’re also protecting brand assets externally, it may be worth thinking about trade marks and broader IP strategy early.

Clear Authority And Delegations (Who Can Do What?)

Many issues around loyalty and conflicts show up when employees have authority to sign suppliers, approve discounts, or negotiate commercial terms.

Consider documenting internal approvals and delegations, especially for:

• spending thresholds
• supplier onboarding
• discount approvals
• client contract signing

This helps prevent “grey area” conduct and makes investigations easier if something goes wrong.

Founder And Leadership Alignment (If You Have Co-Founders)

Employee obligations are one part of the picture. If you have multiple founders, the way you govern the business also matters, especially when key employees are close to founders and can become part of internal disputes.

A properly drafted Shareholders Agreement can help clarify decision-making, roles, and how disputes are handled, so internal tension doesn’t spill into employment issues.

Key Takeaways

• The common law obligation of an employee refers to duties that may be implied into many employment relationships, even if you haven’t written them into the contract.
• Common law duties often include loyalty (fidelity), obeying lawful and reasonable directions, exercising reasonable care and skill, confidentiality, and not competing with you during employment.
• Relying on implied duties alone can be risky - it’s usually better to set expectations clearly in an Employment Contract and supporting workplace policies.
• Confidentiality and data handling are common flashpoints, especially for startups with valuable commercial information and customer data (supported by tools like a Privacy Policy).
• Clear documentation and governance (including internal delegations and founder documents like a Shareholders Agreement and Company Constitution) makes it easier to prevent disputes and respond confidently if issues arise.

If you’d like help putting the right employment contracts and policies in place (or reviewing your existing documents), reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.