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Can non-renewal of a maximum term contract amount to dismissal?

By Charles Power on August 31st, 2017

If an employment contract provides that, after a certain of period of time, employment under that contract will end, can the employee argue they were dismissed when this occurs?

For the purposes of the Fair Work Act 2009 (Cth) a person is not dismissed if they are engaged on a contract of employment for a specified period of time, and the employment terminates at the end of that period.

However, this exception does not apply if a substantial purpose of the employment of the person under a contract of that kind is, or was at the time of the person’s employment, to avoid the employer’s obligations under unfair dismissal provisions.

In an upcoming appeal (Khayam v Navitas English Pty Ltd), a Full Bench of the Fair Work Commission (FWC) is going to examine the extent to which an employer’s non-renewal of a maximum term or ‘outer limit’ contract amounts to dismissal of the employee.

A maximum term contract is an employment contract that specifies a period for its operation but also entitles either the employer or employee to terminate the employment earlier on notice.

The case concerns a teacher who was employed on a series of maximum term contracts between April 2012 and May 2016, as follows:

  • a contract titled ‘fixed-term contract’ with a term from 23 April 2012 to 30 June 2013, with provision allowing either party to terminate the employment by giving four weeks’ written notice;
  • a further fixed-term employment contract from 1 July 2013 to 30 June 2014, on substantially the same terms as the letter of 14 April 2012; and
  • a further fixed-term contract from 1 July 2014 to 30 June 2016, with provision the employment will terminate automatically on the expiry date unless

On 31 May 2016, the employer informed the employee he would not be offered a further contract, based on an assessment of his performance and disciplinary record.

The employee sought to make an unfair dismissal claim on grounds he had been dismissed from his employment at the initiative of his employer.

At first instance, the FWC applied an earlier decision in Department of Justice v Lunn (2006). In Lunn, the employee sought to make an unfair dismissal claim after being employed on a series of ‘outer limits’ contracts spanning nearly seven years. The FWC’s predecessor (the Australian Industrial Relations Commission) ruled that the non-renewal of the last contract was not dismissal.

In Khayam, the employee argued that the Lunn decision should not apply to maximum term contracts, and the proper approach is to ask what, as a matter of practical reality, brought about the end of the employment relationship.

The Full Bench constituted to hear the appeals has concluded it should reconsider the application of the Lunn decision to the provisions of the FW Act in determining whether there has been a termination of employment at the initiative of the employer, particularly in relation to employees who have been employed on a series of fixed-term or outer limit contracts.

Avoidance

The employee in Khayam also argued the employer employed him on a maximum term contract to avoid its ‘obligations’ under the FW Act unfair dismissal scheme.

The FWC Full Bench observed it was arguable the FWC unfair dismissal provisions do not confer obligations on employers – rather they confer on certain employees protection from unfair dismissal, subject to various conditions.

In this sense the unfair dismissal provisions are different to the general protections in the FW Act. In any event the FWC accepted the maximum term contracts were aligned with periods of relevant funding and not for the substantial purpose of avoiding unfair dismissal liability.

Stay tuned for the outcome!

PS: If you’re about to employ a new worker, especially if you are offering them a fixed-term contract, are you sure you’ve covered all your bases?

Contracts might not always be as straightforward as first thought, so it pays to get them right from the get-go.

Thankfully, the Employment Law Practical Handbook has employment contracts covered. With chapters like E1 Employment Contracts, G1 and G2 General Protections and Adverse Action, D2 Dismissal and F1 Fair Work Commission, you’ve got all the information you need to access in the one place, all written in plain English by the employment law experts at Holding Redlich.

Test out the Employment Law Practical Handbook on an obligation-free trial and see for yourself how it can help to simplify your business. It’s a small investment in your time and your business.





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