Several recent cases heard by the Fair Work Commission (FWC) suggest verbal agreements in the workplace can carry more legal weight than some employers realise.

Many workplace disputes don’t begin with formal decisions – they begin with informal conversations.

Managers communicate decisions in meetings. Employees accept outcomes verbally. Roles evolve long before paperwork is updated.

In some cases, verbal statements are decisive. In others, they’re legally irrelevant. So how can HR determine whether an informal ‘handshake’ agreement is binding or not?

According to Neil Napper, Partner at law firm Pinsent Masons, employers may not realise how quickly ordinary workplace conversations can drift into legally significant territory.

“[Particularly] when you’re entering into the employment relationship, you need to be careful about what is said, because that might create unintentional obligations for people down the track,” he says.

Several recent Fair Work Commission (FWC) rulings have shed light on how the Commission assesses a verbal agreement or contract.

Below, Napper provides insight on what these cases tell us about when verbal agreements do – and don’t – hold legal weight.

Case 1: Employer claims verbal dismissal was binding

In one recent case, the FWC considered whether an employee was dismissed at the moment he was told verbally that his employment was over, or when his dismissal was later confirmed in writing.

The employee had been absent from work and was suspected of drug use after paraphernalia was found in a company vehicle. He was told verbally: “You’re done. Clear out your truck,” and sent away from the workplace. A formal written termination followed three days later.

The timing mattered because the employee was close to reaching six months’ service – the minimum employment period required to lodge an unfair dismissal claim. If the verbal dismissal had been binding, he would have fallen just outside jurisdiction. If the written dismissal was binding, he would still be eligible.

The Commission ultimately found that the written termination was the operative dismissal, meaning the employee could proceed with his claim.

Learnings for HR

The case highlights that even seemingly definitive statements made in the heat of the moment rarely constitute a legally effective dismissal.

“For most employees in Australia, who are what we call ‘national system employees’ under the Fair Work Act, a verbal notice of dismissal is not effective,” says Napper. “In fact, it’s a breach of the Fair Work Act and the National Employment Standards, and therefore can expose employers to significant civil penalties.”

Even in cases where the employee has engaged in serious misconduct warranting summary dismissal, he suggests formalising the decision in writing.

“Depending on how serious the misconduct was, the employer might be able to construct an argument that in that situation, they’re not actually dismissing – they’re just accepting that the actions of the wrongdoer effectively ended the contract,” he says. “But if you don’t put it in writing, you could [still] be facing an argument that you’ve dismissed them unlawfully.”

The FWC’s decision also underscores the importance of moving quickly to formalise any decisions communicated verbally.

“Employers should be wary about acting in haste and then repenting at leisure,” he says. “If at all practicable, they should be doing it that same day.”

Case 2: CEO claims to be an employee despite absence of written contract

A complex case from 2025 considered whether an individual who worked as a senior executive without a written contract was in fact an employee, despite being described at times as an independent contractor.

The individual was initially engaged as a marketing consultant, before later being appointed as general manager and interim CEO. At no stage was there a formal written employment contract.

Following allegations of misconduct, she was investigated, stood down and later dismissed. The employer described the termination as the end of a “verbal independent contractor agreement”. 

The employee subsequently brought a general protections claim, arguing she was in fact an employee.

“Employers should be wary about acting in haste and then repenting at leisure.” – Neil Napper, Partner, Pinsent Masons

In its decision, the FWC noted that she had been presented externally and internally as CEO, performed core executive functions and participated in processes consistent with employment – including the internal investigation into her behaviour.

On that basis, the Commission concluded she was an employee and allowed her claim to proceed.

Napper notes that disputes like these have become more common since the definition of employment was updated in 2024 via the Closing Loopholes #2 Act. The new definition considers both the contract terms and the real substance, practical reality and true nature of the working relationship.

Some employers have found that the new definitions make it more difficult to work out whether an individual worker is an employee or a contractor, he says.

“[But], if there’s a comprehensive written contract, then that’s your starting point. And that’s given a lot of weight.”

Learnings for HR

The FWC’s decision is a reminder that verbal employment contracts are assessed on the real substance of the relationship.

To have a binding verbal employment contract, a number of conditions need to be met, says Napper. These include:

• Agreement: One party makes an offer, and the other accepts it.
• Consideration: Something of value is exchanged between the parties (e.g. wages and benefits in exchange for skills and services).
• Capacity: Both parties must be legally capable of entering into a contract (for example, not minors or people of unsound mind).
• Certainty: The terms of the agreement must be clear enough to be enforceable.
• Intention: Both parties must intend to create a legally binding relationship.

This case also highlights the risks that arise when senior roles evolve informally over time without contractual clarity, says Napper.

“Any time there’s significant change in the employment relationship, whether it’s in the kind of work the person is doing, their role or title, you need to really look at the terms of that relationship and make sure you’ve got something in writing about it. If you don’t, then it just increases your legal risk.”

For example, he says, if an employee started in a junior position and worked their way up the ladder to a leadership level, they might be entitled to a much longer notice period than the one specified in their original contract – meaning a senior leader could be entitled to a significant payout if dismissed with the original notice.

Case 3: Employee claims verbal acceptance of redundancy was not binding

In another unfair dismissal case, an employee claimed he had withdrawn from a redundancy arrangement after initially agreeing to it verbally.

The employee had agreed to the redundancy settlement in a formal conciliation setting, but later changed his mind and argued that the agreement was not valid because it had not been documented in writing.

The FWC rejected this argument and found that the verbal agreement reached during conciliation was binding. As a result, the employee’s unfair dismissal claim was dismissed.

“The Commission effectively said, ‘You’re bound by the agreement you made during conciliation, and if you didn’t want to be bound by it, you should have [asked for] a cooling off period to think about it,” says Napper.

Learnings for HR

This case highlights the importance of clarity at the point agreements are reached – particularly in redundancy and separation discussions where emotions and expectations can shift quickly.

“This situation is not uncommon, and that’s why it’s really important to take a lot of care in phrasing those settlement outcomes,” says Napper. “[The FWC’s decision] really boils down to the evidence about the intention of the parties.”

Importantly, the Commission will only look at the intention of the parties at the time the agreement was made, he says. In other words, if an employee intentionally enters an agreement and later changes their mind, the initial agreement will still be enforceable.

“[In a redundancy setting], if there is a deal, an employer would want to grab that deal and make sure it’s clear that it’s a binding agreement, as was found to be the case here.”

The bottom line for HR

Taken together, these cases show that verbal agreements in the workplace are neither or automatically binding or automatically unenforceable.

Instead, the FWC will look closely at:

1. The context in which the agreement or statement was made
2. Whether there was clear mutual intention
3. How the relationship was conducted in practice
4. Whether subsequent actions supported or contradicted the alleged agreement
5. The clarity and timing of any written follow-up.

Ultimately, the risk for HR is assuming that informality equals flexibility. In practice, it often creates the opposite effect.

“People wouldn’t sell their business on a verbal agreement, because there’s too much at stake – too many things could go wrong,” he says. “You have to look at employment relationships in the same way – if you don’t document things, you’re asking for trouble.”