Flawed employment contracts are a speedrun towards employee litigation

Employee-motivated disputes and litigation saw an uptick last year, forcing HR teams across various organisations to ensure that risks are reduced.

Data from the Fair Work Commission (FWC) showed that the total number of employee claims against employers across Australia increased by 27 per cent in 2024. According to Paul O’Halloran, employment law partner at Dentons Australia, the odds are stacked against employers when it comes to employee-motivated disputes and litigation, yet both they and their HR teams can take steps to reduce these disputes.

One aspect that O’Halloran believes is often neglected by employers and HR is ensuring the organisation has compliant employment contracts and policies in place.

“Case law shows that employers frequently neglect the importance of written contracts of employment. While enterprise agreements, modern awards and the National Employment Standards contained in the Fair Work Act 2009 (Cth) cover off on many statutory terms of employment, it is important to remember that these statutory benefits are usually orientated in favour of employees,” O’Halloran said.

“The written employment contract can be used to ‘fill the gaps’ in areas where employers require protection, and which are not dealt with by statutory instruments, for example, matters relating to discipline and dismissal, intellectual property, confidentiality and post-employment obligations.”

O’Halloran stated that there have been multiple examples over the years of employers breaching their obligations.

“Multiple infamous employment law decisions over the years have held that where a contract imposes obligations on employees to comply with policies and procedures, those policies and procedures may be incorporated into the contract, unless the employer’s reciprocal obligation to comply is expressly excluded,” O’Halloran said.

“The most recent case of this kind was handed down in 2024, which resulted in an employee being awarded AU$4.4 million for psychiatric injury flowing from breach of a disciplinary procedure incorporated into the employment contract.”

As previously reported by HR Leader, a recent High Court case was yet another example that O’Halloran can point towards.

“In late 2024, there was a further example in the case of Elisha v Vision Australia Ltd [2024] HCA 50, which resulted in AU$1.4 million in damages to a former employee,” O’Halloran said.

“One of the easiest things employers should be getting correct is a professional review of policies and contracts by lawyers. Had Vision Australia done that for the contract in that case, they would have saved a lot of legal fees and compensation! A stitch in time saves nine!”