Contracts of Employment
Common law contracts exist on top of the pyramid of industrial instruments in that a contract cannot provide for conditions that are less than conditions that are provided for in an Award, the NES or an enterprise agreement but can provide for terms that are greater than those in workplace instruments.
What are common law contracts?
Common law contracts are binding agreements between an employee and an employer for the provision of service. They are different to independent contractor arrangements in that they intend to bind the employee to the employer.
An employment contract does not need to be formal it can be written in a formal contract or by an exchange of letters or emails, it can be oral or partly oral partly written.
How do they interact?
Common law agreements cannot alter awards, agreements or the National Employment Standards but they can top up those industrial instruments and can clarify the expectation of the employer and the employees as to how their relationship is to function within the confines of those industrial agreements.
For employees who are not covered by an enterprise agreement, common law contracts may be used instead of having a collective agreement to cover all the staff. This is particularly the case with managerial and supervisory employees who may be excluded from the enterprise agreement that applies to operational staff.
Terms of Contracts
Two types of terms – Express and Implied.
Express are the terms that the parties discuss and agree to.
Implied are the terms inserted into the agreement either by custom and practice or by law.
There are two forms of implied terms – terms implied in law and terms implied in fact. A term implied by law is one where the common law determines that all classes of contracts should include particular provisions. A term implied by fact is dependant upon the intentions of the contracting parties and is dependant on the unique situation surrounding the negotiations between the parties and the enterprise conducted.
Terms implied in fact
The Privy Council in BP Refinery (West Port) Pty Ltd v Shire of Hastings set out five requirements for implying terms into an agreement:
- It must be reasonable and equitable;
- It must be necessary to give business efficacy to the contract;
- It must be so obvious that “it goes without saying”;
- It must be capable of clear expression; and
- It must not contradict any express terms of the contract.
In the context of contracts for employment, terms contained in policy manuals etc are most often the types of clauses that are implied (in fact) into the employment agreement (but see Nikolich).
Terms implied at law
The types of terms that are presently implied by law into employment contracts include the following:
- Implied duty of mutual trust and confidence
- Duty of confidence;
- The employer’s obligation to provide work;
- Employee’s duty of obedience and cooperation;
- Employee’s duty to perform work with reasonable competence or skill;
- Compliance by the employee with the lawful and reasonable orders of the employer;
- Due care and diligence in the performance of work by the employee;
- Payment of remuneration by the employer;
- Provision of a safe working environment;
- Being present at work, performing the work and being available for it;
- Affording reasonable notice on termination of employment.
There are express provisions under the Act that an employer must not apply duress to an employee entering into an AWA or provide false or misleading information in relation to an AWA (ss 400 and 401). These are civil penalty provisions.
The Russell Case
– Teacher at Roman Catholic School;
– Accused of a sexual impropriety;
– Church investigated matter but did not interview a witness who would have vindicated the accused;
– Based on the investigation, the school dismissed the accused;
– Accused brought unfair dismissal claim and won reinstatement;
– Then brought claim for breach of implied duty of mutual trust and confidence but not fairly conducting the investigation;
– Sought damages for cost of UFD proceedings, cost of hiring PR expert and damages for injury to reputation, feelings and humiliation.
– Implied duty was owed and was breached, but where loss flows from unfair dismissal, no right to remedies other than those provided in that jurisdiction.
In most contracts of employment the following basic matters will be set out in writing:
- Who the employer is (parties);
- When the employment starts (duration);
- What the rate of pay is (remuneration);
- What the hours of work are;
- What the leave entitlements are; and
- Whether an industrial award or certified agreement covers the employment.
Other matters which should also be included, but which are often dealt with inadequately include:
- The position and duties of the employee (position description);
- Whether a probationary period applies;
- Measures to protect the employer’s business (such as confidentiality and restraint of trade provisions);
- Termination of employment (notice, summary dismissal and redundancy);
- The remuneration package; and
- The application of policies and procedures.
When setting down terms and conditions in contracts of employment, it will be necessary to consult the conditions prescribed by the Australian Fair Pay Commission. Any contractual entitlements that are less generous than the Australian Fair Pay Commission’s standards will be unenforceable.
In specifying remuneration, the following matters should be checked:
- Incidence of payment (monthly, fortnightly and so on);
- Is ‘reasonable overtime’ included in the base salary or is all overtime compensatable;
- Whether certain payments (for example bonuses and commissions) are discretionary or obligatory;
- Whether performance reviews and salary reviews are fair and transparent;
- What is the amount of salary on which superannuation is payable;
- How is payment to be affected;
- Does vehicle allowance form part of the total remuneration package?
Depending on the class of work, some overtime may be a reasonable requirement of the job. In general, persons whose employment is covered by industrial awards may be required by their employer to work reasonable overtime since such a provision is usually a term of the applicable award. But, as a matter of contract – especially for areas not covered by an industrial award – the entitlement of the employer to require overtime will depend upon any term of the contract set out in a letter of appointment or implied by law, especially arising from custom and practice.
For example, in salaried private employment to which no award is applicable, it is usually implied that reasonable overtime will be worked without additional pay. Indeed, the contract may not specify the number of hours to be worked, but rather require the employee to carry out specified duties without reference to hours. This practice has been tempered by the requirement under the National Employment Standards that the maximum hours of work over a 12-month period be 38 hours a week. This may allow employees on contracts to negotiate for additional leave payments or time off in lieu (TOIL).
The terms upon which a bonus scheme operates should be clearly set out. If the bonus is to be calculated in accordance with a particular formula, the formula should be set out in clear terms either in the contract, in policy or expressly incorporated in the contract by reference. The information that forms the basis for the bonus formula should be freely available to all participants in the bonus scheme. If the bonus scheme is discretionary, the extent of the discretion should be identified along with who exercises the discretion and whether the discretion is absolute or limited.
Position and Duties
In reviewing an employee’s position and duties it is important to ascertain:
- The employees initial position;
- The duties attaching to that position;
- The location of that position; and
- The circumstances in which that position, those duties or the location might change.
While many contracts tend to insert clauses that require the employee to perform any duties “reasonably directed by the employer” the vagueness of this approach can lead to disputes. Where the duties of the employee are fully and comprehensibly stated it makes it clear to both parties the point at which the imposition of additional duties are of such a nature that a new contract is created. This has consequences in situations where the employee may be threatened with termination for failure to carry out contractual duties. It may also allow an employee to negotiate better terms and conditions where the roles performed by the employee have so drastically altered the original employment agreement that a new agreement is implied:
Quinn v Jack Chia (Australia) Limited  1VR 567 illustrates the importance of clearly recording the contractual duties of the employee, and providing a clause to deal with the manner for changes in those duties. In this case, the employee had been employed in a particular position with an express period of notice of termination of one month. Later he was consecutively appointed to other, more senior positions. No new letter of appointment was signed for the new positions and no agreement about notice was made. Ashley J held that the change to the employee’s situation was “exceptional, far-reaching, not within the original contemplation of the parties and not comprehended by the contract initially made between them”. The Court decided that new contracts had been entered into and therefore reasonable notice was required to terminate the contract (in this case 12 months).
Broadly speaking the probationary period is an opportunity for the employee and the employer to assess their working relationship. A probationary period should be long enough for both parties to determine whether it is worth continuing the employment relationship. While the current statutory unfair dismissal provisions exclude employees who are serving a probationary period of up to 6 months, or longer if justified as reasonable in all the circumstances, this does not prevent the parties from negotiating a shorter probationary period.
The contract of employment should clearly indicate how the parties can bring an end to the employment during the probationary period. This would be covered by a clause stating a period of notice required to terminate the employment and whether the employee is bound to work out the notice period.
It would also be beneficial to set out what is to happen at the end of the probationary period, such that the parties know whether another contract is to be entered into or whether the parties are to continue on the basis that the probationary period has expired. There may even be provision to state that once the probationary period is completed the employee does not have to undergo any further period of probation while performing the current role.
Termination of Employment
Under this particular contract heading it is important to consider the following:
- The circumstances in which the employer can dismiss the employee summarily;
- The period of notice to be given by either party to terminate the employment (other than in circumstances of summary dismissal);
- Whether the employer may, in the alternative, pay the employee in lieu of notice;
- The rights and obligations of the parties during the notice period; and
- The rights and entitlements in relation to redundancy. These are to be discussed further.
An employee cannot be sacked for refusing to negotiate, make, sign, extend, vary or terminate an AWA (s400).
Redundancy/ Severance pay
Issues to be aware of under this heading include:
- Definition – when is this payable?
- Redeployment options/ obligations – are these imposed on the employer?
- Does the employer have a duty to consult with the employee/ trade union?
- What benefits are payable?
Simply because an employment agreement does not expressly make reference to a redundancy provision does not mean that the Courts or the Commission will not imply such a provision. A full bench of the Western Australian Industrial Relations Commission (WAIRC) upheld a decision of a single commissioner that had found that there was a term implied into a worker’s contract of employment, by custom or usage. The commissioner found that on redundancy there was an entitlement to severance payment calculated at the rate of 3.5 weeks’ per year of service.
Although the full bench said that such a severance payment was not an industry-wide practice and the single commissioner had therefore erred in finding that the term was implied by way of custom, it held it was an express term of the contract by reason of it being a well-understood company policy applying to all people in the worker’s position. Alternatively, the term could be implied by way of reason of the history of the employer’s business and its dealings with its employees. (Richardson Pacific Ltd v Miller-Smith (2005) 56 AILR 400-068;  WAIRC 00537)
It is important to clarify the composition of the remuneration package. Any salary packaging arrangements should be subject to a written agreement which specifies the benefits to be packaged and the circumstances in which arrangements may be altered.
Also, if salary packaging is arranged, care should be taken to ensure calculation of additional entitlements are based on pre-package salary amount and not the notional salary after the application of salary sacrifice. This has potential consequences for:
- Superannuation entitlements;
- Payments for leave entitlements;
- Payments on termination; and
- Taxation (particularly FBT).
Redundancy provisions and clauses dealing with payments in lieu of termination should specifically identify the basis on which the amounts payable under those clauses are to be calculated.
Policy and Procedures
It is important to consider relevant policies and procedures to ascertain whether the policies and procedures form part of the contract. A term of a policy document may be expressly or impliedly incorporated into the contract of employment. A question may rise as to whether only one or both parties are bound to comply with the obligations contained in the policy and procedures document. Finally, one will need to consider the consequences of the breach of the policies document. The parties should have a clear understanding not only of the content of the policies but the consequences of failure to comply with the policies.
In Nikolich v Goldman Sachs J B Were Services Pty Ltd  FCA 784 (23 June 2006) the Federal Court ruled that a breach of a company policy could amount to a breach of the employment contract. In this case, the employer had a detailed policy that outlined the company’s grievance handling procedures, goals in providing a health and safe working environment, strict policies against bullying and harassment of staff and a code of conduct dealing with ‘integrity’. The Court found that the company had breached the employee’s employment contract by not providing a healthy and safe work environment as set out in the policy, in failing to prevent the employee from being bullied and harassed and in failing to follow the grievance procedures set out in the policy. The Court took into account that facts that all employees received a copy of the policy and that employees could be disciplined for breaches of the policy. Damages of $515,000 were awarded.
Restraint of Trade
It is not uncommon for employment contracts to contain a provision whereby the employee agrees not to work, after leaving the employer, in a particular type of work within a stated area for a stated period of time. Such agreements, being in restraint of trade, are held by the courts to be prima facie void. As such, restraint clauses will only be enforceable if they are found be the Court to be reasonable. ‘Reasonableness’ will be established where:
(1) the employer has an interest to protect (such as confidential information or a unique form of goodwill) and the restriction imposed is no wider than this interest;
(2) the stated area of restriction is no wider than that in which the employer’s interest might be affected; and
(3) the period of the restriction is no longer than is needed to protect that interest.
In considering the three points listed above, the reasonableness of the restraint must be considered both from the point of view of the parties and also with reference to the public interest. This then becomes a two part test:
- Reasonable between the parties: Reasonableness is determined by its effect in practice. It is judged at the time the parties entered into the contract, taking into account, as far as possible, probabilities and future contingencies and is a question of law to be decided by the court.
- In the public interest: Because restraint clauses are prima facie void, it is up to the employer to first establish that the restriction is reasonable between the parties. If the employer is able to establish that the restriction is reasonable, it is then up to the employee to establish that an otherwise reasonable restraint is contrary to the public interest. Again, this is a question to be decided by the Courts.
The courts have traditionally been reluctant to enforce restraints of trade imposed on employees, because of the relative inequality of bargaining strength between employers and employees. As a result, if a restrictive clause is in any way unreasonable, the courts will most likely declare the whole clause void unless the unreasonable part is completely severable by the ‘blue pencil’ test; that is, if the unreasonable part were to be crossed out by a blue pencil, the remainder of the clause would be both reasonable and readable, and able to stand alone. For this reason many restraint of trade clause have a range for the area of restriction (eg a) 1 kilometre, b) 5 kilometre and c) 10 kilometre from the employer’s business) and a range for the length of time for which the restriction is to remain in effect (1 year, 2 years, 5 years etc).
On the whole, the Courts recognise an individuals right to work and will not support clauses that try to unreasonably undermine this right. The Courts will, however, have regard to any payments made in determining whether valuable consideration has been paid for the restraint clause and, therefore, whether the clause is reasonable. This could allow an employee to negotiate a payment for restraint of trade that is a payment above and beyond any other termination payment or entitlements. Additionally, such payment will only be conditional on the employee observing the terms of the breach, meaning that the employee could commence other employment and still be paid for the restrain period, provided the alternative employment does not breach the terms of the restraint.
In the recent case of Marlov Pty Ltd v Murat Col & Anor  NSWSC 50, the New South Wales Supreme Court held parts of a restraint of trade clause in a real estate agent’s employment contract unenforceable. The case serves as a reminder that restraints of trade in employment contracts will usually be considered unlawful and invalid on public interest grounds, unless they can be justified.
The facts and findings
On 28 May 2009, Mr Col started working for the real estate agency (the agency). His employment agreement contained a restraint of trade clause that, amongst other things, prevented him, for a period of 6 months from the date of termination of employment and within 7.5km from the agency, from:
- inducing, encouraging or soliciting any customers, clients or suppliers of the agency with whom he had contact in the preceding 12 months, to end or restrict their trade relationship with the agency (solicitation restraint)
- carrying on or being engaged or interested in any business which competes with the agency (competition restraint).
On his resignation from the agency, Mr Col commenced working for another real estate agent located 4.5 km away from the agency.
The agency brought proceedings against Mr Col alleging that Mr Col had acted in breach of the solicitation and competition restraints and sought declarations to that effect. It also sought orders restraining Mr Col from acting in breach of these restraints.
The court restated the general principles in relation to restraints, in particular that “any contractual restraint of trade is prima facie unlawful and invalid” and that “a restriction on a person’s ability to trade will be justified only if it is reasonable in reference to the interests of the parties concerned and reasonable in reference to the interests of the public…”. The court confirmed that “a distinction must be drawn between, on the one hand, a covenant that restrains an employee from disclosing confidential information or from soliciting customers of his former employer and, on the other, a covenant that simply restricts competition.”
The court did not make any finding in relation to the validity of the solicitation restraint as it found that there was no evidence to suggest that Mr Col had solicited any customers and therefore, he had not breached his obligations.
The court stated that the solicitation restraint may have been reasonable as it was limited to a period of 6 months and did not seek to prevent contact with all customers or clients (but only to some customers with whom Mr Col dealt).
The court found that the competition restraint was invalid as it was simply directed at restricting competition within the area in which the agency conducted its business. It also found that this was not a case where it was proper to restrain a former employee from competing directly with an employer because:
- while the agency had a number of recurring customers, the greater number of its clients were persons who deal only once with it, and there was no suggestion that Mr Col dealt with recurring customers or that he had established any special relationship with any clients
- given that Mr Col was one of 6 employees and had only been employed by the agency for 7 months, there was no evidence that Mr Col had been instrumental in establishing the goodwill of the business
- very little of the agency’s business was confidential
- while it is reasonable that the agency seek protection from the possibility of losing business due to the personal knowledge and influence that Mr Col might have acquired during his employment, the business of a real estate agency could be distinguished from other kinds of businesses “where there is a real interest in preserving the relationship with a customer” or professions such as law and accounting where clients returned for advice.
The court held that the competition restraint was clearly a burden to Mr Col and did not protect any legitimate interest of the agency in its business connection or goodwill. Since the restraint clauses could not be read down so as to be valid, it was “void against public policy and unenforceable”.
The case of Spencer Industries Pty Limited (Spencer Industries) v Collins is a timely reminder of the principles to be applied in Australia in determining an employer’s right to the inventions of an employee. It also provides some interesting observations on some other matters relating to the employer/employee relationship in this area.
The case was an appeal by the applicant, Spencer Industries, from a decision of a delegate of the Commissioner of Patents that the first respondent, Anthony Collins, made the invention which was the subject of a petty patent application, outside the course of his normal duties as an employee of Spencer Industries. The effect of the decision being that the relevant invention was owned by Collins.
For relevant purposes the facts of the case are as follows:
- Spencer Industries was a small family company that conducted business as a manufacturer and supplier of equipment used in tyre retreading.
- Until March 2002 the business was controlled by James Pincott and thereafter by other members of his family.
- Sometime in 1989, Pincott decided that Spencer Industries should employ a Sales Manager to reduce his workload.
- Collins applied for and was appointed to the position. In the letter making the appointment, the only reference to Collins’ terms of employment were as follows:
‘Your title will be Sales Manager, your starting salary will be $40,000 per annum and you will have full use of a fully maintained company Toyota Cressida, including private use and petrol card.
Paid holiday comprising four weeks per annum with normal office hours 8.30am to 5.00pm. Your business expenses will be charged to a company credit card expense account. As discussed there will be considerable overseas travel involved.’
- For the period 2 April–1 August 1990, Collins’ group certificates stated that Spencer Industries was his employer but thereafter, Bijay Pty Ltd, a related company of Spencer Industries employed and paid Collins.
- Collins was a first class machinist and at the time of applying for the job had considerable experience as a sales representative.
- Included in his role as Sales Manager, Collins recommended expansion of the Spencer Industries product range in response to customer suggestions. He also used his technical skills to demonstrate the products that he was responsible for.
- In 1990 on the instructions of Pincott, Collins and another employee, Smith, designed a tyre rasp hub. A patent application was filed in respect of that product and both Collins and Smith assigned their interest in the invention in favour of Spencer Industries. In 1994 Collins also assisted in a similar way with respect to a tyre rasp spacer, for which design registration was obtained.
- The subject matter of the current proceedings related to the design of a more efficient and effective tooth for a rasp blade (Invention). In 1996 Collins formed the idea of staggering the teeth of adjacent blades to produce a more uniform cutting action across the rasping surface of the hub. Between May and November 1996 he made paper cut outs and subsequently transparencies of the prototype invention in his own time. By November 1996 Collins had prepared a note which incorporated a simple diagram outlining the Invention. In November 1996 Collins sought to interest Pincott in the Invention but was rebuffed.
- In early 1998 Pincott changed his view and asked Collins to prepare enlarged drawings of the offset rasp teeth. Collins prepared the enlarged drawings in his own time using the equipment that either belonged to him or his wife.
- At the direction of Pincott, the Invention was progressed further in that full sized drawings were prepared. Those drawings were prepared by Collins partly during working hours when he was free of sales work and partly outside working hours. The size of the drawings necessitated his use of Smith’s drawing board. Dyes were also prepared in order to conduct trials.
- Following on, meetings in late 1999 which included Mr Griziotis, the patent attorney for Spencer Industries, Mr Griziotis expressed the view that the Invention was patentable, that the inventor was Collins and that an assignment of Collins’ rights in the Invention in favour of Spencer Industries would be required. In those discussions, a nominal consideration of one dollar was mentioned by Pincott.
- By letter dated 15 November 1999, Mr Griziotis advised Pincott of the filing particulars for the application and also enclosed a deed of assignment between Collins as assignor and Spencer Industries as assignee relating to the Invention. The deed provided for a one dollar consideration.
- In early February 2000, after Collins had returned from an overseas sales trip, Pincott requested Collins sign the deed of assignment. Collins refused unless a proper payment regime was provided for.
- Further discussions took place in April 2000 between Pincott and Collins at which time Pincott again requested that Collins sign the deed of assignment. Collins responded that the issue of payment and increased job security needed to be discussed first.
- On 5 June 2000 after returning from a sales trip to the US, Collins gave notice of his resignation from Spencer Industries.
- The dispute the subject of these proceedings arose after Collins and the second respondent (B & J Manufacturing), a potential acquirer of the rights to the Invention from Collins, filed a notice under section 28 of the Patents Act 1990 notifying the Commissioner of Patents that they asserted that the patent was invalid on the ground that Spencer Industries was not entitled to be granted the petty patent.
Legal position in Australia
Pursuant to section 15(1) of the Patents Act 1990 (Cth), a patent for an invention may only be granted to the person who is the inventor or a person who would on the grant of the patent be entitled to have the patent assigned to them. In the context of an employer/employee relationship, an employer is a person so entitled where the relevant invention is made in the course and scope of the employee’s employment—what the courts have referred to as the ‘normal incidents’ of that relationship. As the employer/employee relationship is a product of contract, parties can choose to change those ‘normal incidents’. Additionally they can expressly set out the scope of the relevant employment. In this case the ‘normal incidents’ were said to apply and there were no terms which expressly set out the scope of the employment relationship. That being the case, the Court in making its assessment as to the scope of Collins’ employment agreed with Spencer Industries’ submission that it was necessary to give consideration to the following:
- the nature and seniority of Collins’ position with Spencer Industries;
- the nature of Collins’ duties as a Sales Manager, and
- whether Collins received a specific directive in relation to the invention.
Courts application of the lawIn considering the circumstances at hand in the context of the above three matters, the Court found that:
- Collins’ position with Spencer Industries was principally a sales position. ‘However, as might be expected in a relatively small, family owned, company he occasionally undertook tasks outside his principal area of responsibility … [and] that he could be given reasonable directions to perform duties outside the area of sales that were within the area of his technical skills and that were not incompatible with his principal responsibility for sales.’
- The contributions that Collins made to the tyre rasp hub and the tyre rasp spacer ‘fell outside his ordinary duties as Sales Manager, but within the residual area in which it was open to Spencer Industries to direct him, whether expressly or impliedly, to use his technical skills to undertake additional duties’.
- ‘It was no part of Collins’ ongoing duties to invent products for Spencer Industries.’
- The Invention was not the outcome of a direction given to Collins within the residual area in which Spencer Industries could direct Collins to perform tasks other than sales tasks.
- Collins was not directed by Spencer Industries ‘to invent a new rasp blade or to undertake any inventive activities which resulted in the Invention’ and accordingly the Court rejected Spencer Industries’ submission that because Collins had a duty as a Sales Manager to advance the sales of Spencer Industries, any invention made by him which was capable of advancing Spencer Industries’ sales was an invention made by him within the course and scope of his employment.
- Collins had conceived and developed the Invention in his own time.
The inventive steps concerning the Invention had been completed by the time that Collins advised Pincott of the Invention.
- The Invention was not the product of work that Collins was paid to do.
- The fact that Collins was paid a salary that exceeded the Managing Director and General Manager of Spencer Industries, both family members, did not indicate a level of seniority or control within Spencer Industries that was a significant determinant factor supporting a proposition that Collins made the Invention in the course and scope of his employment.
Additionally, the Court rejected Spencer Industries’ submission that by reason of his conduct, that Collins acknowledged that Spencer Industries was entitled to the benefit of the Invention and in that regard made the following comments:
‘The fact that Mr Collins envisaged, as I find that he did, that the Invention would be exploited by Spencer Industries does not establish that he undertook the Invention within the course and scope of his employment by Spencer Industries. I am satisfied that Mr Collins had little understanding of intellectual property law while he was employed by Spencer Industries. I am also satisfied that Mr Collins hoped that he and Spencer Industries would work together to exploit the Invention; that it would be added to the Spencer Industry range of products … However, I am also satisfied that Mr Collins expected that Spencer Industries would appropriately reward him if the Invention proved a commercial success. It was when Mr Pincott made it quite clear to Mr Collins that Spencer Industries proposed to assume complete control of the benefit of the Invention without negotiating any financial reward for Mr Collins that Mr Collins unequivocally refused to sign the deed of assignment offered to him by Mr Pincott.’
Finally while the point was not necessary for the purposes of the decision, the Court took the view that notwithstanding that from 1 August 1990 Collins’ salary had been paid by Bijay and not Spencer Industries, that that did not necessarily mean that Spencer Industries was not Collins’ employer. In the end result the Court therefore dismissed Spencer Industries’ appeal.
Significance of the case
While the case does not contain ground breaking law, it does contain significant useful reminders of issues to be considered in relation to both employment and intellectual property matters in an employer/employee situation in an Australian context. Those matters are summarised as follows:
- In the event that an employer wishes to ensure that all inventions made by employees, which can be used for the benefit of the employer, come to be owned by the employer, that entitlement should be expressly provided for in the appropriate manner in the relevant contracts of employment. In New South Wales, however, employers will need to have regard to the fact that the Industrial Relations Commission has the power to vary contractual provisions dealing with the ownership of intellectual property developed by employees, and to order the payment of compensation to employees if those arrangements are held to be unfair or to have operated unfairly.
- That where a contract of employment does not expressly provide for the ownership by the employer of all inventions made by employees, which can be used for the benefit of the employer, then it is highly unlikely that such a term will be implied where anyone or more of the following apply:
- the invention is created in the employee’s own time
- the invention is not made pursuant to a direction of the employer
- the invention is not the product of work that the employee was paid to do
- the inventive steps in creating the invention have been completed before involvement by the employer.
- In fact, the courts are now more ready to imply an obligation of good faith and fair dealing that would require an employer to recognise an employee’s rights in respect of intellectual property in appropriate circumstances.
- That in cases where an employee’s conduct may be equivocal as to whether they intend or do not intend to vest rights in an invention made by them in their employer, there may be some advantage from an employer’s perspective in showing that they have provided their employees with some education as regards intellectual property rights, as part of their regular training program.
- That the position as to ownership of other forms of intellectual property rights such as copyright, designs, trademarks, circuit layouts and plant breeder’s rights need to be separately considered in the context of contracts of employment, as each are governed by a separate legal regime. While those legal regimes may have elements in common with the treatment of inventions and patents in an employer/employee relationship, they also have elements that are not.Position internationally
Employers should not assume that a similar regime to the above applies in overseas jurisdictions. For example, Japanese patent law provides employees with the right to receive ‘a reasonable remuneration’ for an invention produced within the scope of their employment.