Summary

In the recent decision in Cerin v ACI Operations,1 the Federal Circuit Court rejected an employer's argument 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), they were not in breach of the Fair Work Act 2009 (Cth) (FW Act).

The Court did not agree, finding that the employer had breached the FW Act. It also found that the employer's Human Resources Manager was in breach of the FW Act because of her involvement in the company's contravention (under the accessorial liability provisions of the FW Act).2

This decision closely follows an earlier decision of a Full Court of the Federal Court of Australia in Melbourne Stadiums Ltd v Sautner,3 where the Court 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.

Both these decisions highlight the importance for employers of properly applying contractual termination principles. In this eBulletin, we look at the decisions and highlight what employers should learn from the outcomes when implementing terminations of employment.

A more detailed analysis of the particular circumstances and key considerations in each of the Cerin and Melbourne Stadiumsdecisions is available from the links below.

Read more about Cerin

Read more about Melbourne Stadiums

Cerin v ACI Operations

Mr Cerin lodged a claim alleging contravention of section 44 of the FW Act (which prohibits contravention of a term of the NES). ACI argued that Mr Cerin's contract did not require it to find suitable work for Mr Cerin, and that it had only provided him with suitable work because of its obligations under workers' compensation legislation. On this basis, ACI argued that the employment contract had been frustrated when WorkCover SA notified ACI that it was no longer under an obligation to provide Mr Cerin with suitable employment.

ACI's argument was rejected by the Court, which found that the parties had accepted a contract entered into in 2011, and which recognised Mr Cerin's limitations, as valid for approximately 16 months until the advice from WorkCover SA.

The Court also took into account the fact that ACI had provided Mr Cerin with a letter advising that his employment would be terminated in a month's time, and found this action to be inconsistent with ACI's assertion that it did not believe that a contract was in place.

The Court found that ACI had contravened the FW Act by providing less than the notice of termination required by the NES. Relying on evidence from her LinkedIn profile, it also found that the HR manager was "involved in the contravention", and exposed to personal liability.

A more detailed analysis of the particular circumstances and key considerations in Cerin is available here.

Melbourne Stadiums Ltd v Sautner

Melbourne Stadiums serves to highlight the potential risks for employers from the improper application of contractual termination principles. In this decision, the Full Court 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.

Fortunately for the employer in this case, the Court found that under the terms of the contract, the right to terminate the contract by payment in lieu of notice required the actual making of the payment in lieu of notice - rather than an ability to terminate the contract on the giving of notice of an intention to make a payment in lieu of notice.

As the employer had not made the actual payment in lieu of notice, the contract and the employment remained active, such that the contract could be summarily terminated when evidence of the employee's misconduct subsequently came to light. Employers will not want to have to bank on this kind of "good fortune" when seeking to bring an employee's employment to an end.

A more detailed analysis of the particular circumstances and key considerations in Melbourne Stadiums is available here.

Cerin and Melbourne Stadiums ­ Key learnings for employers

Employers must take great care to ensure that they comply with both the requirements of the FW Act and their contractual obligations when providing notice and giving effect to termination of employment.

Both the Cerin and Melbourne Stadiums decisions give fair warning to employers and human resource and payroll practitioners that terminating an employee's employment contrary to the requirements of the NES may expose the employer to a civil penalty and the HR or payroll practitioner to a personal penalty under the FW Act.

While a number of key issues were not explored in great detail by the courts in these decisions, particularly in respect of the difference between the employment contract and the employment relationship,4 the decisions do clearly demonstrate the risks posed to employers by non-compliance with contractual or statutory notice of termination periods.

Failure to observe and comply with the required notice period will impact the legal efficacy of any dismissal and possibly expose the employer to the risk of contravening the FW Act, and if applicable, subsequent damages for breach of contract. The Cerindecision 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.

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 a 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 in most cases 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, particularly if the entitlements arise under the NES.