INSIGHTS: Unfair Dismissal claims under fixed term contracts

May 2, 2018

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In order to be eligible to bring an Unfair Dismissal claim against an employer, an employee must, among other things, have been dismissed at the employer’s initiative.

Historically, employees engaged on a term contract were generally not eligible to make an Unfair Dismissal claim as the contract ended due to the effluxion of time rather than at the employer’s initiative.  However, a recent decision of the Full Bench of the Fair Work Commission in Saeid Khayam v Navitas English Pty Ltd t/as Navitas English [2017] FWCFB 5162 (‘Navitas’) may change this approach in the future.

Two types of term contracts are generally used – fixed term and maximum term contracts.  As the name suggests, a fixed term contract ends on a specified date and there is no provision to terminate the contract earlier unless the employee engages in serious misconduct.  In contrast, a maximum term contract ends on a specified date however has a provision allowing either party to terminate earlier by providing notice to the other party.

The Navitas Case

In the Navitas case, Mr Khayam had been employed on a number of maximum term contracts from approximately 2012 until 2016.  Mr Khayam’s contracts made provision for either party to terminate the contract by providing 4 weeks’ notice to the other party.  The contracts stated that the employment would terminate automatically on the nominated expiry date unless either party had terminated it earlier.  Navitas made the decision not to renew Mr Khayam’s contract citing performance related concerns.

Mr Khayam filed an Unfair Dismissal Application with the Fair Work Commission which was challenged by Navitas on the basis that the termination was not at the initiative of the employer and therefore Mr Khayam did not have jurisdiction to bring the claim.  The matter was heard by Commissioner Hunt at first instance who rejected the Application by applying the Full Bench of the Australian Industrial Relations Commission in Department of Justice v Lunn (2006) AIRC 756 (‘Lunn’).

Mr Khayam appealed the decision to the Full Bench to consider the interpretation and application of the Lunn decision.  In particular, Mr Khayam argued that the approach in Lunn (decided prior to the introduction of the Fair Work Act 2009) (‘the FW Act’), meant that the exclusion at section 386(2)(a) of the FW Act was redundant.  Mr Khayam also argued that if the approach in Lunn continued to be followed, casual employees should be prevented from making Unfair Dismissal claims as their contracts terminate at the end of each engagement.

A 2:1 majority of the Full Bench found that the Lunn decision was not applicable to the Fair Work Act 2009 and provided guidance as to how section 386(1)(a) should be interpreted.  In particular, the Full Bench found a distinction between termination of the employment contract immediately before cessation of the employment and termination of the employment relationship.  Consideration must be given to the entire employment relationship not just the terms of the final employment contract.

Implications for Employers

Employers can no longer assume that they are protected from Unfair Dismissal Claims simply because an employee’s contract has an end date.  Careful consideration must be given to terminating fixed term contracts, particularly when the employee has been engaged under successive term contracts.

Conversations with employees being engaged on maximum term contracts both at the commencement of the contract as well as when deciding not to offer a further contract will be critical in determining whether the employment has been terminated at the initiative of the employer.  The employer will have to show that the employee was aware that, and agreed to, the employment relationship ending at the expiry date.

If you would like assistance with fixed term employment contracts, or employment related issues, please contact a member of our employment team, Principal Sharlene Wellard or Associate Leanne Dearlove.

 


Disclaimer: This information is current as of May 2018. This article does not constitute legal advice and do not give rise to any solicitor/client relationship between Meridian Lawyers and the reader. Professional legal advice should be sought before acting or relying upon the content of this article.