At its most basic level the relationship between employer and employee is founded on the concept of the “contract of employment”.
Historically, the concept of the employment contract has its origins in Common Law. Common Law recognises that the employment relationship represents a commercial transaction in which the buyer (employer) enters into an agreement (contract) for the services of the seller (employee), usually on the basis that the seller will perform certain services, at a certain time and place in return for a certain wage or salary from the buyer.
For all employees, Common Law provides the legal basis for their employment relationship. In other words, underlying any formal agreement negotiated under the Employment Relations Act, there is a legally enforceable common law contract of employment.
Hence, quite apart from the requirements of the Employment Relations Act, the process of hiring an employee creates a legally-binding common law contract. This contract is sometimes known as a “contract of service” because it involves an obligation on the employee’s part to serve the employer.