3 January, 2018
What you need to know
Employers cannot assume that non-renewal of an expired maximum term employment contract will avoid scrutiny under unfair dismissal laws.
Since our Employment Alert 'Not renewing the last contract – will unfair dismissal laws apply?', a Full Bench of the Fair Work Commission has determined that where a maximum term (outer limit) contract expires and is not renewed, this may be a termination of the employment at the employer's initiative. The result is that the employee can access the unfair dismissal laws if he or she otherwise qualifies.
This is a departure from the previously understood position that an employee does not have access to the unfair dismissal laws in these circumstances. It may result in a much wider range of employees having access to the unfair dismissal laws, especially in sectors where successive maximum term contracts are prevalent – eg, higher education, local government and other public sector employment.
The majority of the Full Bench has not provided clear guidance for employers as to when a decision not to renew a maximum term employment contract will be considered to be a termination of the employment at the employer's initiative. This will need to be determined on a case by case basis having regard to the specific factual context, including whether the employee had an expectation of ongoing employment and whether an action on the part of the employer was the principal contributing factor resulting in the employment ending.
What you need to do
Employers should review current employment practices and put in place a risk management protocol for managing and ending maximum term employment arrangements so as to avoid unexpected exposure to unfair dismissal actions. This should be worked through when deciding whether or not to renew a maximum term contract.
In the case of shorter term contracts, employers should consider foregoing the right to terminate the employment on notice mid-term, making the employment for a true fixed term, and thereby preserving the statutory exclusion from unfair dismissal remedies.
Employers may also consider being more adventurous in exploring non-traditional employment arrangements.
What happened?
Up until now, the position has been that when a maximum term contract expires, even after a series of them, an employee cannot access the unfair dismissal laws. This is no longer the case.
The position now is that where an employer decides not to renew a particular maximum term contract – ie one for a specified period but able to be terminated on notice during its term – this may amount to a termination of the employment relationship at the employer's initiative. So, under section 386 (1)(a) of the Fair Work Act, the employee may be able to access the unfair dismissal laws.
The majority drew attention to the fact that terminating the employment is not always the same as terminating the employment contract.
When considering the apparent limitation on access to an unfair dismissal remedy in section 386 (2)(a) in the case of an expiring full term maximum term contract, the majority considered it decisive that the expression there used, employed under a contract for employment for a specified period of time, has a settled meaning under predecessor legislation: it would not be applicable if there is a power to terminate during the term other than for misconduct. The majority thought this meaning remained applicable even though the expression is now placed in a sentence with additional words which appear to contemplate that it might be ended early. The majority also declined to be influenced by Explanatory Memorandum, apparently pointing the other way, where it states:
The fact that an employment contract may allow for earlier termination would not alter the application of this provision as the employment has terminated at the end of the period, task or season…
Although agreeing on much of the legal theory behind the view taken by the majority, an alternative view was explained by Deputy President Colman in his dissenting judgment. Deputy President Colman considered that the employee had not been "dismissed" because his contract of employment was for "a specified period of time" and his employment terminated at the end of that period as contemplated in section 386(2)(a). The position adopted by Deputy President Colman appears to be available on a literal reading and supported by the Explanatory Memorandum passage quoted above.
The majority of the Full Bench did not ultimately determine whether the employee's employment had been terminated at the initiative of the employer. Rather it remitted the matter to the first instance Commissioner for determination.
Implications for employers
Employers have previously been able to rely, with reasonable certainty, on the expiry of a maximum term employment contract as being effective to terminate the employment. Given that employers no longer have that certainty, each situation will need careful management, often with no sure guide available.
Consideration will need to be given to the following questions:
- Is it a termination of employment at the initiative of the employer, taking into account factors such as whether the employee had an expectation of ongoing employment and whether an action on the part of the employer was the principal contributing factor resulting in the employment ending?
- If allegations to the above effect are made by an employee, how will the employer rebut these allegations on the facts?
- Will the employer be able to establish that a dismissal, if challenged, is not harsh, unjust or unreasonable?
- Might there be other consequential liability for redundancy pay if the reason for the termination of employment at the initiative of the employer is because the employer no longer requires the job to be done by anyone and the termination is not due to the ordinary and customary turnover of labour?
Making the case: Insights from Geoff Giudice
When a Full Bench of the Fair Work Commission decides a matter of wide significance by a 2 to 1 majority, some uncertainty is bound to follow. In this case the decision involves a novel conclusion about the operation of the common law, contestable issues of statutory construction and no clear guidance about the circumstances in which the expiration of a maximum term contract might give rise to termination of the employment relationship at the employer’s initiative.
Uncertainty brings costs. It is to be hoped that further proceedings in the Commission or the Federal Court might deal with these issues more authoritatively before too long.
For further information, please contact:
Richard Bunting, Partner, Ashurst
richard.bunting@ashurst.com
