Consideration and certainty

One of the requirements for the creation of a valid contract of employment is that “valuable consideration” moves between the parties, and that the terms of the purported contract are sufficiently “certain” to be given legal effect.

Authored by Nicholas Ellery, Partner, and Alannah Hogan, Lawyer, Corrs Chambers Westgarth. Updated by the LexisNexis Legal Writer team.

One of the requirements for the creation of a valid contract of employment is that “valuable consideration” moves between the parties, and that the terms of the purported contract are sufficiently “certain” to be given legal effect.

The requirement of consideration

For an agreement to be legally binding, each party must provide some form of valuable consideration to the other party. Consideration is the price paid by each party for the performance, or promise of performance, by the other party. Put differently, for there to be a contract each party must do, or agree to do, something of value, or refrain, or agree to refrain, from doing something of value.

In the great majority of cases in the employment context, consideration will consist of the payment of wages or salary by the employer to the employee in exchange for the employee's promise to perform work and/or the performance of work. Employment contracts are often conceptualised as a wages for work bargain. However this view oversimplifies the consideration exchanged in ongoing and fixed term employment contracts.

What will constitute consideration?

Good consideration can consist of a promise or an act.

For example, an employment contract is likely to provide for the payment of salary, superannuation, allowances, bonuses, etc, by the employer as consideration for the employee being available for work as required by the contract and/or rendering service in accordance with the contract and complying with all other relevant terms of the contract.