Implied Terms In The Employment Contract

Staff in the course of employment usually creates inventions. Employer usually owns the ownership of the invention created by employees [1] . Nevertheless, sometimes it isn’t so clear who owns it, if the contract or the agreement between both employer and employees is not specifically predefined, which in many time could lead long and expensive legal disputes. In many case employees believe that they have the right of the patents for their inventions since they invented those inventions. Employers, on the other hand, may consider the patents for those inventions belong to them and should be given the legal right over the invention because employees have invented that invention during their employment using their own facilities

In Australia, the law relating to ownership of patentable inventions developed by employees has been based on common law principles developed by United Kingdom Courts prior to 1977 [2] .The Australian Patents Act 1990, different than the UK Patents Act 1977 .It does not have any express provisions dealing with the ownership of employee inventions or compensation for employee inventors [3] . Moreover, the Australian Courts have also adapted some legal notice of United States resolutions on employee inventions.

Many approaches of Law relating to ownership of patentable inventions have been presented worldwide. Under Australian patent law, an employer usually will have the rights of invention prepared by employee. Under Japan law, on the contrary, the employees will have the rights over inventions created by them. The US rules to this type of inventions is quite open since there is no particular federal law for compensation of employees’ inventions. Nearly all organization have policies and rules concerning about compensating employee inventions [4] . There is no statutory obligation to deal with these situations. In general, patent ownership go to employers through an implicit agreement with employees or that any compensation terms with employee would work out previously at some stage of employment contract.

The Intellectual Property

Several intellectual property systems considered when determining the ownership of intellectual property in the employer and employee context. Intellectual property primary areas have affect on employers cover patents, trademarks, industrial designs, and copyrights [5] . Two common types of disputes between employees and employers

a. Inventions and patents

b. Literary works

Employees and employers will surely be at odds when employee invents or build up a profitable invention and the employer wants to use it and would like to have an exclusive right to use that patent, if the employment contract doesn’t not have any terms indicate the employee is responsible to develop or create .

Inventions and Patents

Patent ownership is the culmination of a three-step process after the Creation of Invention [6] :

Entitlement to Apply for Patent

Application and Entitlement to Grant

Grant and Ownership of Patent

A patent invention under patents laws grants the patentee the rights to use an invention and to allow other parties to use the invention at some point in the term of the patent, which is regularly for a period of twenty years under the Patents Act 1990 [7] . Usually, the person that will have the right to grant a patent is the inventor. On the other hand, in some situation, employer may have the patents’ right over the invention.

The Patents Act 1990 (Cth) [8] does not expressly address the circumstances in which an employer of an inventor is entitled to the grant of a patent. Generally, employer will allow to the grant of a patent where it would have the right to have the patent assigned to it by the inventor. Because implied term of employment contracts give the employer the benefit of any invention created by an employee during employment period. However, if the invention has not created during employment time or is not the related to work, in these cases the employer will not granted a patent over the invention.

The implied term can be changed, varied, or disqualified by an express or implied contract between the employer and employee [9] . Significantly, an understanding made between both employer and an employee concerning inventions will not be enough to unseat the general legal law that the advantage of inventions created by employees during his employment period belong to the employer. An employee may have to set up the existence of a real agreement, express or implied, not in agreement with the general principle.

Employment Relations

The employment contract

The employment relationship start based on the contract of employment, as a result no one will be considered as an employee if there is no a contract of employment ,if not, known as a contract of service and distinguished from a contract for services. Many employment rights, such as, the right to claim redundancy and unfair dismissal are dependent upon the worker qualifying as an employee [10] .

In University of Western Australia v Gray [2008] FCA 498, Professor Gray Signed a standard employment contract with University of Western Australia setting out his responsibilities and duties, which included the following:

To teach, to conduct examinations and to direct and supervise the work in his field in accordance with the Statutes and regulations of the University and the directions of the Senate;

To undertake research and to organise and generally stimulate research among the staff and students; and

To perform such other appropriate work as the Senate from time to time determined. [11] 

Common law specifies that patent created by an employee in during employment period belongs to the employer [12] . However, two points has considered when deciding whether patent belongs to employee or employer. First, whether employee hired for the reason of invention then directly it will go to the employer. The second point is where the employee owes a fiduciary duty to act in the best interests of the employer, or to further the commercial success of the employer.

Implied terms of an employment contract

Implied terms are those terms, which inserted into a contract by court to fill the gaps left by the express terms to which the parties agreed. Contracts of employment are unusually reliant upon implied terms because they subsist over such long periods. [13] 

Terms implied by the common law that affect employers and employees

Employment contract are set out by only express agreed terms. In addition, Statues imply many terms into employment contracts. Besides, to statutory implied terms, many terms implied by the common law. In addition to the usual contract law principles of terms implied by custom and fact, several particular implied terms that merely have an effect on employment law. Even in the nonexistence of a written contract, the employment relationship regulated. The general duties of mutual trust, confidence and cooperation, which is also shows how implied terms have advantage for both employee and employer

a. Employer’s duties

to be fair and reasonable

to pay wages

to provide a safe system of work

to insure and indemnify for authorized expenses

no duty to provide a reference

to provide work

b. Employee’s duties

to act in good faith

to provide personal service and be ready and willing to work

to obey reasonable orders

to exercise reasonable care and skill and be reasonably competent

to indemnify if at fault

to exercise fidelity

The general contract law principle of terms implied in fact

Courts in several situations will imply terms into a contract in turn to provide ‘business efficacy’ to the contract that means make the contract work. Court will only imply term in fact if the proposed term:

is reasonable and equitable

is necessary to give business efficacy to the contract

is so obvious that "it goes without saying"

is capable of clear expression

Does not contradict any express term of the contract.

The general contract law principle of terms implied by custom

Sometimes, there may be customs within an area or an industry that everyone follows. These customs implied into the contract if there are no express rules dealing with the matter.

Useful guidelines for when custom may form part of the terms of the contract:

The custom must be general, provable, and reasonable.

The bound party need not have known of the existence of the custom if that party dealt in, or the contract was made in, or was to be performed in, the district or country where the custom prevails

The custom must not be repugnant to the express terms of the contract or any necessary implication arising from the express terms

If the contract is in writing the custom may only be added if it is incidental to the contract's express terms.

Specific employment law implied terms

Terms implied by employment law are of limited number. They need pedigree. At the heart of these implied terms is the duty of mutual trust, confidence and co-operation. This implied term applies to both employees and employers (although in practice it usually seems to be used against employees).

In University of Western Australia v Gray (No 20) [2008] FCA 498 (17 April 2008), UWA assumed that ownership of patent belong to them due to employee has developed while working at the university, therefore they took the matter to the court to obtain the ownership of that patent. As a result The Full Court implies that the contract between Professor Gray and UWA has got no implied term which make him entitled to own patents.

Some Fact about professor gray contract, which has not got any implied term that, gives UWA the exclusive ownership of the patent

Dr Gray had not been engaged to use his inventive faculty in an agreed way or for an agreed purpose, for UWA’s benefit. 

However, even if there was an existence of an implied duty to invent, it would be inconsistent with the flexibility that Dr Gray had to share and to publish his research results.

Dr Gray solicited grants and funding from various sources which were likely to be made to him on the premise of this fame as a researcher rather than because of his links with UWA

The need for Dr Gray to conduct inter-institution research was against UWA’s exclusive appropriation of the products of the research.

Although Dr Gray’s employment contract made reference to UWA regulations, it only empowered UWA to make regulations pertaining to its own property and not that of others. Moreover, the relevant policy documents were also insufficiently promulgated (publicly disclosed) so as to presume acknowledgement.

Breach of contract

A breach of contract takes place when a employee or employer fail to do, specifically and precisely, their responsibilities under the agreement or contract . This can be in many types such as, the failure to provide goods or carry out a service as arranged.

Actual breach takes place when one party rejects to form his side of the bargain on time or performs partly.

Anticipatory breach takes place when one party states in advance not to do his side of the deal. Second party can take legal action against the first party for damages immediately the breach announced.


UWA pleaded that Professor Gray had breached his contract of employment by failing to meet the implied term of the signed contract that support UWA rights over patent developed. As well Professor Gray had breached his fiduciary obligations to the UWA on the basis that he should have dealt with his inventions in a way that preserved the benefit of the rights in the inventions for the university. However, The Full Court did not consider the issue of breach of fiduciary duty in any detail. This was because the fiduciary duties, which UWA pleaded, were premised on UWA’s contractual right to the patent in the invention. UWA did not argue that Gray misappropriated an ‘opportunity’ that was offered to UWA.


The rule in this matter is that an employee who invented something as part of job may have a legal duty to give complete attention in the invention and any patent may granted on that invention to employer. If the employee invents something which is related to his job and part of standard job duties and responsibilities, in that case the invention, and any patent will most likely will go directly to the employee. However, the employer may permit to a partial use of the invention if certain conditions met.

When employers require employees to sign a written employment agreement that define the rights and duties of employee and the company-related inventions, then these general rules may not apply to employers [15] . At least, an apparent orientation and concepts from employer to employee about invention will deliver clear idea to employee at the time of hiring, whether the employee will be hired to invent or not and who owns what. These concepts are mainly vital where employer purposely hire employees to engage in doing research and development activities that are significant to the company or potentially valuable to competitors.

The question of “who owns the patent" often occurs when an invention is created by an employee who is not likely expected in the course of employment to create inventions [16] . In other words, the employee not hired to do so. Lack of any express employment that clearly classifies the ownership of an invention created by that employee throughout the course and scope of employment, the employer will most likely have an implied license in the invention.

This implied license believed to be non-exclusive, non-transferable and non-copyrighted as it belongs to the employer. This implied license grants the employer to use the invention. It ought to be kept in mind that only the true inventor is able to apply for a patent, an employer is prohibited from applying for a patent on that invention with no cooperation from employee. Several employers present financial benefits to make sure that such cooperation takes place. Implied license usually arise where the employee has create an invention during working hours, where all materials tools, and other resources supplied by employer. In those cases, it is fair to compensate employer for the investment that it may have unsuspectingly made.

Moreover, to inventions, ownership matters can occur with other works produced in house. For instance, website designs, computer codes or even architectural strategy plans. Unlike most of the work of this kind, where the author consider the holder of the work, ownership of a work made for hire vests in the hiring party, the employer. However, the majority of cases signifying whether a work is made of hire need deal with the issue of whether the work was arranged by the employee within the scope of employment. Where scope of employment is subject to a number of issues:

The hiring party’s right to control the manner and means of creation of the work.

The skill required.

The provision of employee benefits.

The tax treatment of the hired party.

Whether the hiring party has the right to assign additional projects to the hired party. [17] 

In University of Western Australia v Gray, As mentioned before no express term in employment contract between professor Gray and UWA that clarify who would own the patent rights resulting during the course of his employment [18] .

The court found out that the requirements for implying the essential term in law were not fulfilled UWA sides, as the situations of Professor Gray's employment were against the implication. Moreover, list of issues support of Professor Gray ownership of the patent [19] :

He was not under a duty to invent;

He was free to publish the results of his research and any inventions that he made, notwithstanding that such publication might destroy patentability;

was required to solicit external funding for his research; and

Needed to enter into collaborative arrangements with external organizations, such as the CSIRO. [20] 


Organizations believed that creativity and innovation could be encouraged when Employees are motivated to work and compensated for the patent that results from their inventions during their employment. Moreover, the inventive process has become the most significant factor in economic growth. The trend in university intellectual property policies to reward faculty for their creations shows that universities recognize the correlation between the motivation to work, the compensation, and economic growth.

An organization may believe that Intellectual Property created by that person during the course of employment will go to the organization just because a person is an employee. Especially where the employee's contract terms of employment does not require the creation of patent rights. Moreover, employers need to be aware of using or building upon pre-existing patent brought to them by an employee.

Employee’s legal rights over inventions are not threat to the financial structure of organizations research. However, organizations that require controlling ownership of their employees’ inventions can consider some points to minimize the risk of finding themselves in UWA’s situation. The specific requirements may differ from one organization to another, but the organization should consider the following to minimize the risk.

Employment contracts expressly deal with intellectual property ownership

Employment contracts expressly import the organization’s policy statements.

Clear policies stating ownership and management of intellectual property subsisting in employee inventions

Contracts and policies require employees to do all things necessary to give effect to those contracts and policies.

Are employees advised to seek independent advice before relinquishing any intellectual property rights?

Are the employee inventors employed to invent, according to their job descriptions or employment contracts? [21]