19 September, 2016
What you need to know
- Section 117 of the Fair Work Act 2009 (Cth), which forms part of the National Employment Standards, prohibits an employer from terminating an employee's employment unless the employer has given a period of notice, or a payment in lieu of notice, of up to 5 weeks' pay depending on the employee's period of continuous service and age. The provision is subject to exceptions such as in the case of an employee whose employment is terminated because of serious misconduct.
- Traditionally, a term requiring an employer to give "reasonable notice" of termination will be implied into an employment contract if the contract is silent on notice. However, it has been suggested that because section 117 provides for notice, there is no longer any reason to imply a term of reasonable notice into a contract. At least one judge of the Federal Circuit Court and a state court have expressed this view.
- The alternative view is that section 117 provides a minimum period only, leaving open the possibility that a term of reasonable notice could be implied.
- The recent case of McGowan v Direct Mail and Marketing Pty Ltd [2016] FCCA 2227 involved a claim by a dismissed Group General Manager for reasonable notice of 12 months. The case was decided by Judge McNab of the Federal Circuit Court. The employer's Managing Director was motivated to dismiss the employee because of his poor work performance and a pattern of crude behaviour towards staff and clients. Having regard to section 117, the employer paid the employee 5 weeks' pay in lieu of notice.
- The employer successfully defended the claim for reasonable notice on the basis that the employee's original employment agreement, made when his employment commenced 16 years earlier, contained an express notice period of 4 weeks. Judge McNab found that this provision continued to apply as a matter of contract despite the employee's subsequent promotions.
- Judge McNab expressed the view that section 117, being part of the NES, is intended to provide a minimum notice period only and that it does not displace a right to reasonable notice where the contract of employment is silent on the question of notice.
- Given there have been differing judicial views, we expect the question of whether section 117 prevents the implication of a term of reasonable notice to come before an appellate court for determination in due course.
What you need to do
- When terminating the employment of employees (particularly non-award covered employees) be alert to the possibility of claims for reasonable notice. In the absence of an express contractual term for notice, for senior managers the authorities support a range for reasonable notice of between 6 and 12 months.
- Ensure template contracts contain a notice provision. Also consider stating that the terms and conditions in the contract apply to all future roles the employee may hold, unless otherwise varied in writing.
- Ensure that you can rely on an express notice period following promotions, salary increases and other changes in terms and conditions of employment over the course of the employment relationship by updating an employee's contract of employment (including reference to an express term for notice) when you promote the employee.
- Review template employment contracts and letters of variation to ensure you manage this risk well. Always adapt templates to the circumstances and role of the relevant employee.
- Give special consideration to this issue in circumstances of redundancy related terminations of employment where employees are covered by redundancy policies that afford benefits greater than NES minima.
MAKING THE CASE: Insights from Geoff Giudice
When considering the legal position under a contract of employment rights arising under the contract should be distinguished from rights arising under a statute, such as the Fair Work Act 2009. Where the contract and a statute deal with the same subject matter it is necessary to interpret the statutory provision to see whether it is intended to operate concurrently with the contractual provision or to modify it and if so in what circumstances. Judge McNab's reasons for decision illustrate this process well in relation to notice of termination of employment. His Honour found that the statutory period of notice applied to the contract of employment as a minimum and was not intended to override the implied contractual term of reasonable notice where that would result in a longer period of notice. It may be unwise to assume that all of the National Employment Standards operate in the same way – although most probably do. The meaning and operation of the statutory provision needs to be considered in each case.
For further information, please contact:
Marie-Claire Foley, Partner, Ashurst
marie-claire.foley@ashurst.com
