In Melbourne Stadiums Ltd v Sautner,1 a Full Court of the Federal Court of Australia held that once a contract has been lawfully terminated (whether by either party on notice, on grounds of redundancy or otherwise), an employer cannot later exercise a right to summarily terminate the contract, as a contract can only be terminated once.
This decision demonstrates the importance for employers of properly applying contractual termination principles. In this eBulletin, we look this decision and what employers should learn from the outcome when implementing terminations of employment.
Another recent decision, Cerin,2 has also emphasised the need for employers to be vigilant about ensuring that they are terminating employment contracts effectively and in strict compliance with the minimum notice of termination periods prescribed by the National Employment Standards.
Information about the Cerin decision and its implications for employers is available here.
Melbourne Stadiums Ltd (MSL) provided written notice to its employee, Mr Sautner, that his position was redundant. The notice advised that Mr Sautner would receive six months' payment in lieu of notice of termination (in accordance with his contract) and a redundancy payment.
A couple of weeks later, MSL notified Mr Sautner that it had since discovered evidence entitling it to terminate his employment for serious misconduct. Under Mr Sautner's contract, this meant that he was not entitled to payment in lieu of notice of termination, nor a redundancy payment.
In doing so, MSL sought to rely on the principle espoused in Shepherd v Felt and Textiles of Australia Ltd3 (Shepherd Principle), that:
“[T]he dismissal of an employee may be justified upon grounds on which the employer did not act and of which the employer was unaware when the employee was discharged”.
Importantly, despite having earlier advised Mr Sautner that his position was redundant, MSL had not at this time made any payment to Mr Sautner.
Mr Sautner commenced proceedings against MSL alleging breach of contract and of various sections of the FW Act.
The issues before the Court included whether Mr Sautner's conduct warranted summary dismissal, and if so, whether MSL could rely on the misconduct despite not being aware of it at the time of the original termination of his contract of employment.
Once bitten, twice shy no resuscitation and retermination of contracts
The Court held that the Shepherd Principle does not justify termination of a contract on a different basis where a valid termination has already occurred at an earlier time. According to the Court, once lawfully terminated, a contract cannot be "resuscitated and then re-terminated upon some ground not known at the time of the termination". Employers are unable to rely on a different reason to effectively "undo" a valid initial termination and then to re-terminate the contract on a different basis or for different reasons.
This is in contrast to circumstances where an initial termination is legally ineffective, but can be justified on the basis of evidence coming to light after the purported termination. For example, it is well established that if an employer attempts to summarily dismiss an employee for serious misconduct without having grounds to do so, they will be able to rely on subsequently ascertained evidence of misconduct which they had not known about at the time of the termination in order to justify its validity.
In this particular instance, the Court found that although MSL had notified Mr Sautner that it was terminating his employment by paying him in lieu of notice, the termination had not been effective, as the payment in lieu of notice had not been paid to Mr Sautner. The mere giving of notice without the required payment was not sufficient to effectively terminate the contract.
MSL's failure to properly exercise its right to terminate Mr Sautner's contract on notice meant that his contract remained active. Therefore, MSL retained its ability to summarily terminate the contract and avoid its obligations to make payment in lieu of notice of termination.
Melbourne Stadiums and the National Employment Standards
Although not decided on this basis, the decision in Melbourne Stadiums echoed the Cerin decision in relation to the potential exposure to liability for breaching the National Employment Standards (NES) if the proper notice of termination is not provided.
Justice White stated that in payment in lieu of notice situations, the relevant NES provision prohibits the termination of an employee's employment unless the employer "has paid" the requisite payment in lieu of notice. Accordingly, his Honour observed that "employers who terminate an employee's employment in the circumstances contemplated by s 117(2) without providing the minimum period of notice or by making a payment in lieu at the time of termination are likely to expose themselves to the imposition of a civil penalty" (emphasis added).
Justices Tracey, Gilmour, Jagot and Beach in their joint judgment also referred to the NES, but stated that they did not base their conclusion on section 117. Rather, they found that the express terms of the relevant provision in Mr Sautner's contract required that the termination of the contract would only be achieved by either giving him notice; or by providing remuneration in lieu of notice and, in fact, making the payments.
Key learnings for employers
Employers should consider their options carefully when deciding on the grounds of termination, for example termination without cause (ie termination on notice or payment in lieu) or with cause (ie for serious misconduct). If an employment contract is validly terminated on one ground, the contract cannot be enlivened at a later stage (for example, if evidence of the employee's misconduct which would justify summary dismissal comes to light) in order to terminate the contract on new grounds.
However, an employer may rely on evidence of serious misconduct after termination for the purposes of defending a claim for wrongful dismissal. Employers should seek to preserve their right to reclaim notice payments - where misconduct justifying summary dismissal is discovered after the contract has been lawfully terminated on other grounds - by incorporating a term into their employment contracts which entitles the employer to repayment of notice monies by way of damages.
Where a contract permits the termination of employment by payment in lieu of notice of termination, employers should be mindful that the termination 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.