In brief

The Full Bench of the Fair Work Commission has recently overturned the longstanding principle that precluded an employee subject to a contract with a specified end date from seeking unfair dismissal relief upon the expiration of the contract term.

What you need to know

  • Prior to this decision, the Fair Work Commission had held that when a contract for a specified period or a maximum term contract reached the nominated end date, the contract terminates through the effluxion of time and there is no termination of employment at the initiative of the employer.
  • Termination of employment at the initiative of the employer is a pre-requisite to seeking relief from unfair dismissal under the Fair Work Act.
  • This new ruling gives employees on maximum term contracts more latitude to pursue unfair dismissal claims in the Fair Work Commission.

Background

In Khayam v Navitas English Pty Ltd t/as Navitas English [2017] FWCFB 5162, the employee was employed as a teacher of English, first as a casual employer from 2005 to 2012, and then on a series of fixed term contracts from 2012 to 2016.

In late 2015, the employee was subject to disciplinary processes regarding the use of unsuitable material (being materials which allegedly promoted scientology) and punctuality.  In May 2016, the employee attended a meeting in which he was advised that he would not be offered a new contract on the expiry of the existing contract due to disciplinary concerns.

The employee lodged an unfair dismissal claim in that his employment had been terminated at the initiative of the employer.  The employer contended that there had been no dismissal and that the employment contract had terminated simply through an effluxion of time.  The employer’s argument succeeded at first instance so the employee appealed to the Full Bench of the Fair Work Commission.

The decision

The Full Bench overturned long standing authority and held that:

  • The analysis of whether there has been a termination at the initiative of the employer for the purposes of unfair dismissal is to be conducted by reference to termination of the employment relationship, not by reference to the termination of the contract of employment. This distinction is important in the case of an employment relationship made up of a sequence of time limited contracts of employment, where the termination has occurred at the end of the term of the last of those contracts.  In that situation, the analysis may, depending on the facts, require consideration of the circumstances of the entire employment relationship, not merely the terms of the final employment contract.
  • Where the terms of an operative time limited contract reflect a genuine agreement on the part of the employer and the employee that the employment relationship will not continue after a specified date and the employment relationship comes to an end on the specified date, then absent any vitiating or other special factor, the employment relationship will have been terminated by reason of the agreement between the parties and not at the initiative of the employer (invoking the unfair dismissal jurisdiction of the Fair Work Commission).
  • However, if the time limited contract does not in truth represent an agreement that the employment relationship will end at a particular time, the decision not to offer a further contract will be one of the factual matters to be considered in determining whether an action on the part of the employer was the principal contributing factor which results, directly or consequentially, in the termination of the employment. For example, the employment contract may not be limited to the terms of a written document and may, for example, be one of a series of standard form contracts which operated for administrative convenience and did not represent the reality or totality of the terms of the employment relationship.

Recommendations

  • This decision clearly creates a degree of uncertainty in the application of maximum term contracts and the ability of employees to access unfair dismissal remedies when subject to expiration of the last such contract in a series of term contracts.
  • However, where such maximum term contracts are linked to funding or project-based arrangements which form an important part of the employer’s business and a genuine need to link employment arrangements to such funding or project considerations, then such arrangements are still likely to withstand challenge in the unfair dismissal jurisdiction.
  • Finally, it is interesting to note that the exemption from the obligation to pay statutory redundancy pay also operates where there has been no termination at the initiative of the employer. The redundancy issue was not dealt with by the Full Bench of the Fair Work Commission but is now a live issue. Employers are cautioned to take this into account when terminating employees on the expiration of maximum term contracts.

About the Author

Tim Greenall

Special Counsel
Commercially savvy with over 30 years of experience, Tim provides pragmatic employment advice to his clients.

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