Summary

In Cerin v ACI Operations,1 an employer tried to persuade the Federal Circuit Court that its employee's employment had come to an end due to the "doctrine of frustration", which allows contracts to be set aside where an unforeseen event leads to circumstances where contractual obligations cannot be fulfilled. On this basis, the employer argued that it did not need to provide notice or payment in lieu of notice of termination under the National Employment Standards (NES), such that by only providing the employee with one month's notice (instead of the five weeks' due under the NES), it was not in breach of the Fair Work Act 2009 (Cth) (FW Act).

The Court rejected the employer's argument, finding that it had breached the FW Act. It also found that the employer's Human Resources Manager was in breach of the FW Act (under the accessorial liability provisions of the FW Act) because of her involvement in the company's contravention.

This decision closely follows an earlier decision of a Full Court of the Federal Court of Australia, Melbourne Stadiums Ltd v Sautner,2 where the Court held that once a contract has been lawfully terminated, an employer cannot later exercise a right to summarily terminate the contract, as a contract can only be terminated once.

Information about the Melbourne Stadiums decision and its implications for employers is available here.

Background

In this case, an employee, Mr Cerin, sustained a shoulder injury at work, which resulted in a successful compensation claim. Mr Cerin's employer, ACI Operations, had provided Mr Cerin with suitable alternative employment working modified duties, in accordance with its statutory return to work obligations.

Two years later, in 2011, ACI informed Mr Cerin of changes to his role with at ACI, and provided him with a new contract of employment. The new contract of employment took into account Mr Cerin's injury in terms of the duties he would be required to perform under the new contract.

In early 2012, ACI decided to downsize its operations, and in May 2012, offered employees voluntary retrenchment packages. Mr Cerin submitted an application for voluntary retrenchment, but was not successful.

In July 2012, Mr Cerin received a letter from WorkCover SA advising that it could not find any suitable employment which he was fit to perform and, therefore, that ACI had no further obligation to provide him with alternative employment.

ACI again offered voluntary retrenchment packages in August 2012. Mr Cerin did not apply for a package on this occasion.

In October 2012, Mr Cerin received a letter from ACI's Employee Development Manager, informing him that his employment would be terminated with effect from 12 November 2012 because ACI was "unable to provide suitable employment due to your injury/capacity". The letter stated that Mr Cerin would not be required to attend work from the date of the letter, but would continue to be paid until 12 November 2012.

Legal claim

Mr Cerin subsequently took his case to the Federal Circuit Court, arguing that his employment had been terminated without him being provided with five weeks' notice of termination, or payment in lieu, as required by the NES. Mr Cerin alleged that ACI was therefore in breach of the FW Act (which prohibits contravening any provision of the NES).

ACI argued that Mr Cerin's employment had come to an end by reason of the doctrine of frustration, the frustrating event being Mr Cerin's "inability to render his services in accordance with the contract." ACI contended that as a result of this, it was not obliged to comply with the notice of termination requirements under the NES.

ACI submitted that during the period that Mr Cerin was receiving workers' compensation payments, it was obliged under workers' compensation legislation to continue to provide Mr Cerin with suitable employment, and that this was the only reason the employment relationship continued after Mr Cerin was placed on workers' compensation in April 2009.

ACI also argued that in 2012, when WorkCover SA determined that it was no longer reasonably practicable for it to provide Mr Cerin with suitable alternative employment, the employment contract came to an end at that time, on the basis of the frustrating event.

Outcome for the employer

The Court rejected ACI's assertions that the employment relationship came to an end by virtue of the doctrine of frustration, noting that the new contract which ACI and Mr Cerin had signed in 2011 recognised the limitations to Mr Cerin's working capacity, and that the parties "had been happy to recognise that contract as valid".

According to the Court, the very fact that ACI delivered the letter advising Mr Cerin that his employment would be terminated with one month's notice was sufficient to demonstrate that ACI believed that a contract of employment remained in existence. It stated that if the contract of employment had “already been terminated by the doctrine of frustration, there would be no need for a letter advising of termination some time in the future.”

On the basis that ACI only provided Mr Cerin one month's notice of the termination, the Court found that ACI had contravened the FW Act. In addition, it held that ACI's Employee Development Manager was also liable for breaching the FW Act, due to her involvement in ACI's contravention of the NES.

The parties in Cerin agreed that the matter should initially proceed in relation to liability only, and a termination of penalty and other consequential orders are yet to be determined by the Court.

Key learnings for employers

The decision in Cerin demonstrates the risks posed to employers and human resources and payroll practitioners by non-compliance with statutory notice of termination periods.

Failure to observe and comply with the required notice period will impact the legal efficacy of any dismissal, exposing the employer and human resources and payroll practitioners to the risk of contravening the FW Act, as well as subsequent damages for breach of contract.

The Cerin decision in particular highlights that employers' obligations under the NES will be strictly enforced by the Courts, irrespective of the amount of loss that is suffered by the outgoing employee.

Where a contract permits the termination of employment by payment in lieu of notice of termination, employers should be mindful that the termination of the contract will not be effective until the payment is actually made. Employers should ensure that payment is made in full at the time it is intended that the termination takes effect, and that the payment comprises the proper amount due to the employee.