The question of what constitutes reasonable notice of termination, in the absence of an express term in an employment contract, has recently resurfaced in the case of McGowan v Direct Mail and Marketing Pty Ltd [2016] FCCA 2227 (McGowan). In this case, the Federal Circuit Court of Australia (FC Court) confirmed that employers may be required to provide reasonable notice greater than the minimum period in the National Employment Standards (NES) set out in the Fair Work Act 2009 (Cth) (FW Act).

This decision disregarded the controversial July 2016 decision of Kuczmarski v Ascot Administration P/L [2016] SADC 65 (Kuczmarski) in which the South Australian District Court held that the right to reasonable notice was a thing of the past given the NES provides for minimum notice periods.

In this update, we take a look at the legal position on reasonable notice and what measures employers can take to avoid dismissed employees claiming large amounts of reasonable notice.

The Historical Position

In the absence of any express term in an employment contract or an established and recognised custom, the common law will generally imply a term that either party can terminate the employment on "reasonable notice". This principle has been supported by a long line of cases where the courts have implied a reasonable notice period far beyond the statutory minimum. In determining what period of notice is reasonable, the courts consider a number of factors including (but not limited to) the employee's length of service, age, position, seniority and the availability of similar employment post-employment.

The Turning Point

The case of Brennan v Kangaroo Island Council [2013] SASCFC 151 (Brennan) suggested a turning point had been reached. In this case, the employee was covered by a state award but argued that she was entitled to a more generous implied term of reasonable notice. The Full Court held that it was not necessary to imply reasonable notice given the award set out the minimum entitlement to notice. The employee's subsequent appeal to the High Court was refused on the basis that it did not have sufficient prospects of success.

While Brennan dealt with award-covered employees, it also threw into doubt whether non-award employees entitled to the minimum notice periods in the NES could claim reasonable notice.

Kuczmarski 

In Kuczmarski, the employee's employment contract did not set out a termination notice period. However, when his role of HR Manager was made redundant, he was paid five weeks' notice in accordance with the minimum notice period in section 117 of the FW Act. Mr Kuczmarski claimed that five weeks' notice was inadequate and that he was entitled to reasonable notice of between 12-18 months. The Court held that it was not necessary to imply a term requiring reasonable into Mr Kuczmarski's contract because section 117 of the FW Act already provided for this.

McGowan The Final Frontier?

The decision in Kuczmarski disturbed the position that in the absence of an express term, there would be a reasonable notice period implied. It was therefore little surprise that the FC Court disagreed with the decision in Kuczmarski and came to the opposite conclusion just two months later in the case of McGowan.

As part of his overall adverse action claim, Mr McGowan claimed that he was entitled to reasonable notice of 12 months on the basis that his various promotions resulted in new contracts of employment. The FC Court rejected this argument and stated that there was "genuine controversy" as to whether section 117 precluded the implication of a term of reasonable notice for employees not covered by awards.

Ultimately, the FC Court held (in contrast to Kuczmarski) that section 117 of the FW Act was intended to provide a minimum period only and did not displace the implication of a reasonable notice period where a contract of employment is silent. The FC Court commented that the same notice period under section 117 would not have been intended to apply to an employee who had worked with an employer for five years and another who had worked for 25 years.

Tips for Employers

Following the McGowan case, it appears that the implied reasonable notice term is here to stay (for now). Accordingly, employers should ensure that employment contracts:

  • Contain an express notice of termination clause clearly specifying a notice period (the length of which is appropriate to the position)
  • Make it clear that the employer can make a payment in lieu of notice
  • Are varied in writing or replaced to reflect changes to positions and material changes to duties, roles or responsibilities
  • Provide flexibility and allow employers to direct an employee to carry out additional duties and responsibilities with the terms of the contract continuing to apply