Will the implied term requiring reasonable notice of termination soon be a thing of the past? A recent decision suggests this may well be the case.

Background

Claims seeking payment for reasonable notice of termination remain a regular feature of employment-related litigation in Australia. However, a recent decision by the High Court not to grant an employee leave to appeal1 gives cause to question whether this will continue to be the case in future.

It has long been assumed that where an employment contract fails to make specific provision for termination on notice, there will be an implied term enabling it to be brought to an end on reasonable notice. What the period of reasonable notice is for a particular employee can only be finally decided by a court. It will depend on a number of factors, including the employee’s age, length of service, qualifications, the seniority and specialisation of the position and the availability of similar roles.

In recent times, the courts have frequently found that periods of nine to 18 months constitute reasonable notice.

These types of claim often arise where an employee is initially engaged under a contract which provides for a modest period of notice and then promoted without their contract being updated accordingly. If the original contract cannot be said to apply to the new position, the assumption is that the employee is entitled to reasonable notice of termination.

Decision

This was essentially the scenario in Brennan, where Ms Brennan was originally employed as a Human Resources Manager, but ultimately rose to the position of Deputy Chief Executive Officer. When her employment was terminated on the grounds of redundancy and she only received notice in accordance with her initial contract and the minimum requirements of the Municipal Salaried Officers Award, Ms Brennan brought a claim for a longer period of reasonable notice.

Ms Brennan was unsuccessful at trial and appealed to the Full Court of the Supreme Court of South Australia. The parties agreed that Ms Brennan’s modified employment contract did not deal with notice of termination. As such, the only issue for the Full Court to determine was whether or not to imply a term of reasonable notice.

This required the Court to consider whether a term of reasonable notice should be implied into contracts of employment where an award (in this case the Municipal Salaried Officers Award) applies which deals with dismissal on notice. While claims for reasonable notice are most commonly brought by award- free executive level employees,2 there are now a number of decisions which deal with claims by employees where an award applies.3

Earlier cases considered whether the award left room for the implication of a term requiring reasonable notice by focusing on whether the notice period it stipulated was expressed as an actual or minimum entitlement.4  However, in later decisions, the analysis appears to have shifted to whether it is necessary to imply a term providing for reasonable notice where notice is addressed by the award, regardless of how it is expressed.5 The conclusion that has been reached on a number of occasions is “no”.

The Full Court in Brennan followed these later decisions and rejected Ms Brennan’s submission that a minimum notice entitlement should not preclude the implication of more generous terms into the contract. It held that, given the application of the Municipal Salaried Officers Award, “the implication of an obligation to give reasonable notice was not necessary”.6

In 2014, Ms Brennan sought special leave to appeal to the High Court. This was refused by the High Court on the basis that an appeal “would not enjoy sufficient prospects of success”, endorsing the reasoning of the Full Court in Brennan.7 

This suggests that, award-covered employees are unlikely to be able to establish that they are entitled to reasonable notice of termination, significantly restricting the scope of the implied term. However, in  light of the notice of termination provisions in the National Employment Standards (NES),8 the decision in Brennan also gives rise to the question of whether any employee (at least to whom the NES or State legislation with equivalent termination on notice provisions applies) will continue to enjoy the implied right to reasonable notice of termination in future.

It is difficult to see why the reasoning which has denied award-covered employees a right to reasonable notice would not extend to all who are covered by the minimum notice provisions of the NES. The same argument can be made that it is not necessary to imply a term requiring reasonable notice of termination because of a minimum right to notice external to the contract, regardless of whether this exists by virtue of an award or the NES. Any distinction between award-covered employees and others in this regard would seem particularly arbitrary now that most modern awards simply incorporate the notice of termination provisions of the NES.

While the matter is yet to be considered by a superior court, Justice O’Sullivan commented in Bognar that, although he had refused to find an implied term of reasonable notice because of the application of an award, he would have reached the same conclusion based on the notice of termination provisions in the Workplace Relations Act 1996 (Cth) (as  it was then).9  As such, while the matter is unlikely to be settled without High Court authority or legislative intervention, it appears possible that the guarantee of minimum notice could eventually displace the implied right to reasonable notice.

Bottom line for employers

  • It appears unlikely that award covered employees will be able to establish an implied right to reasonable notice in future.
  • It should be assumed such a term will continue to be implied into contracts of employment with award free employees (whose agreements do not deal with termination on notice) until a superior court decides otherwise, but the term has an uncertain future.
  • However, regardless of whether an employee is award covered or not, it remains prudent for employers to take precautionary measures to reduce the likelihood of becoming embroiled in claims for reasonable notice in the first place. Such measures include:
    1. ensuring that contracts of employment are drafted to address the notice of termination that is applicable in all, not just certain, circumstances; and
    2. providing updated written terms to employees who are promoted or whose positions are otherwise subject to change.