Employment contracts provide the foundation for the relationship between an employer and employee. They set out important terms such as remuneration, working hours, duties, leave and how employment may end.
However, a contract that looks comprehensive may still expose an employer to legal risk if it contains outdated, unclear or unenforceable terms.
For Australian employers, understanding common contractual issues is essential for maintaining compliant workplace arrangements in 2026.
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Using Outdated Employment Contracts
Employment law continues to change, and employment contracts should not be treated as “set and forget” documents.
Changes to the Fair Work Act, modern awards, minimum wages, workplace rights and other legislation can affect contractual arrangements.
Employers should periodically review contracts to ensure they accurately reflect current legal obligations.
A contract cannot simply override minimum entitlements under the National Employment Standards or an applicable modern award.
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Misunderstanding Fixed-Term Contracts
Fixed-term contracts can be useful where employment is genuinely required for a defined period or specific purpose. However, employers need to understand the restrictions that apply.
For contracts entered into from 1 January 2025, the Fair Work Act generally limits fixed-term contracts to a maximum of two years and restricts consecutive fixed-term contracts in certain circumstances. There are exceptions, including some circumstances involving training arrangements, high-income employees and work linked to specific projects or funding. (fairwork.gov.au)
Employers should therefore avoid repeatedly renewing fixed-term contracts simply because they have always done so.
Where an exception applies, the employer should ensure the arrangement actually meets the relevant requirements.
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Confusing Contractors With Employees
Calling someone a “contractor” does not necessarily make them an independent contractor.
Whether a worker is an employee or independent contractor depends on the legal character of the relationship and, where applicable, the terms of the contract and how the relationship operates.
Misclassification can expose businesses to claims relating to minimum wages, leave, superannuation and other employee entitlements.
Employers should assess worker classification carefully before entering into contractor arrangements.
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Salary Clauses That Do Not Cover Award Entitlements
An employment contract may state that an employee’s salary includes overtime, penalty rates, allowances or other entitlements.
However, simply including an “all-inclusive” clause does not automatically make the arrangement compliant.
Employers should identify the applicable award and determine whether the employee’s remuneration sufficiently compensates them for the minimum entitlements that apply to their actual work.
This is particularly important following the 4.75% increase to modern award minimum wages from 1 July 2026. (fairwork.gov.au)
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Unclear Duties and Working Hours
Contracts should clearly establish what is expected from both parties.
Vague clauses around duties, hours or flexibility can create disagreements later, particularly where an employee’s role changes.
Employers should consider clearly addressing:
- Position and key responsibilities
- Ordinary working hours
- Additional hours and overtime
- Place of work
- Remuneration
- Applicable award or agreement
- Leave entitlements
- Confidentiality and intellectual property
- Notice and termination arrangements
The contract should reflect the actual employment relationship rather than simply using a generic template.
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Termination Clauses Need Careful Drafting
Termination is one of the areas where poorly drafted contracts can create significant problems.
A contract should clearly explain applicable notice requirements and any lawful termination rights.
However, contractual termination rights do not eliminate an employer’s obligations under workplace legislation.
Depending on the circumstances, termination may raise issues involving unfair dismissal, general protections, discrimination or other workplace rights.
Employers should obtain advice before terminating an employee where there is a potentially contentious history, complaint, leave issue or exercise of a workplace right.
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Policies Are Not a Substitute for a Contract
Workplace policies can provide important guidance on matters such as conduct, bullying, social media, technology, privacy and flexible work.
However, employers should understand the distinction between contractual terms and workplace policies.
Simply placing a policy in an employee handbook does not necessarily mean every provision forms part of the employment contract.
Contracts and policies should work together without creating conflicting obligations.
How Can Employers Reduce Contractual Risks?
Employers should consider conducting a regular employment contract audit.
This can include:
- Identifying all current contract templates.
- Checking whether employees are correctly classified.
- Reviewing applicable awards and agreements.
- Checking remuneration against minimum entitlements.
- Reviewing fixed-term arrangements.
- Updating outdated clauses.
- Checking termination and notice provisions.
- Ensuring contracts accurately reflect current working arrangements.
New employees should also receive clear written terms before or when they commence employment.
Employers must provide employees with a Fair Work Information Statement when they start employment. Fixed-term employees must also receive the Fixed Term Contract Information Statement.
Protect Your Business With NB Employment Law
A well-drafted employment contract can help establish clear expectations, but it is only effective when it reflects current legislation and the actual employment relationship.
If your business is using old contract templates, regularly renewing fixed-term arrangements or is unsure whether its employment contracts remain compliant, talk to NB Employment Law today for practical legal advice.