By Alex Millman and Justine Ansell, NRA Legal
Khayam v Navitas English Pty Ltd  FWCFB 5162
Members will recall that earlier this year the Full Bench of the Fair Work Commission foreshadowed that it would re-evaluate how the Commission approached fixed-term contracts in unfair dismissal cases, namely whether a contract ‘expiring’ meant that the employee could not bring an unfair dismissal claim (see our earlier article HERE).
On Friday 8 December 2017 the Full Bench of the Commission handed down its decision in this matter, which brings with it some significant changes to how fixed-term employment contracts will interact with the unfair dismissal laws.
What’s the big deal?
Under the Fair Work Act 2009 (Cth), an employee can only bring an unfair dismissal if their employment has been terminated ‘at the initiative of the employer’ – that is, the employer has made a decision to cut short the employee’s continuing employment.
In the past, an employee employed under a fixed-term employment contract was considered to not have been dismissed ‘at the initiative of the employer’, but rather by the simple passage of time. If the fixed-term employment contract specified a date on which employment ended, the employer did not have to do anything to bring the employment to an end. It just ended on that date.
This has largely been the position for at least the last two decades, until now.
What will this decision change?
By this decision, the Full Bench of the Fair Work Commission demonstrated a shift away from the ‘employment contract’ and more towards the ‘employment relationship’, including a requirement to analyse the circumstances in which an employment contract was entered into.
The Full Bench set out a five-step approach to determine whether the expiry of a fixed-term contract also brings employment to an end:
- Was the expiry of the employment contract also intended by the parties to bring the employment relationship to an end, or merely those particular terms of employment?
- Was some action on the part of the employer the principal reason for the employment relationship (rather than the contract) coming to an end?
- Termination ‘at the initiative of the employer’ does not necessarily mean that termination must be done ‘by’ the employer – was the employment relationship ended by some decision or act of the employer?
- If the terms of the agreement reflect a genuine agreement that the employment relationship will end with the expiry of the employment contract, then generally the employment relationship will be terminated on the specified date unless a voiding factor arises (see point 5 below). If, however, the employment contract does not reflect a genuine agreement to end the employment relationship on a particular date, then the decision to not offer any further employment may result in termination at the initiative of the employer.
- The time limitation in the employment contract may not be able to be relied upon if:
- the contract is rendered unlawful (for example, by misrepresentation, mistake or coercion);
- the time limitation is contrary to law or public policy (for example, designed to avoid rights or obligations under the Fair Work Act 2009 (Cth));
- the employment contract was varied in such a manner that the time limit no longer applies;
- the employer may have made representations (such as asserting that continued employment is performance-reliant) which result in the time limitation being unenforceable;
- where a Modern Award or Enterprise Agreement regulates fixed-term employment, those terms may override the employment contract to the extent of any inconsistency.
So, what does this mean for my business?
The mere fact that an employment contract has an ‘end date’ will no longer protect an employer from unfair dismissal claims.
Instead, employers will need to be very careful about the words they use when:
- negotiating the employment contract;
- drafting the terms of the employment contract;
- dealing with the employee during the course of the recruitment process and employment, particularly any representations made about job security;
- how the employee is dealt with in the lead-up to the end date (including any representations made in further negotiations).
The question ‘does this fixed-term contract protect me?’ will need to be answered by an assessment of the whole relationship between the employer and the employee, from pre-employment discussions through to the end of the agreement.
To find out more about how this decision may affect your business and how we can help you to prepare appropriate employment contracts for your business and take steps to protect your business from unfair dismissal claims, contact NRA on 1800 RETAIL (738 245) to speak to a member of our legal team.