A recent decision of the Full Bench of the Fair Work Commission means employers can no longer rely on maximum term contracts as absolute protection from unfair dismissal claims.
The Full Bench of the Fair Work Commission has handed down a decision that alters the Commission’s approach to determining whether employees engaged on maximum term contracts have been dismissed ‘at the initiative of the employer’.
Unlike a true fixed term contract, which does not allow for termination of the employment before the end of the specified term (except in cases of serious misconduct), a maximum term (or ‘outer limit’) contract allows a party to bring the employment to an end before the expiry of the term upon the giving of notice to the other party.
Previously, the expiry of a maximum term contract would generally not result in the employee being ‘dismissed’. Instead, it was considered that the contract had ended due to the ‘effluxion of time’ and not at the initiative of the employer, which prevented the employee from bringing an unfair dismissal claim.
The decision of Saeid Khayam v Navitas English Pty Ltd t/a Navitas English  FWCFB 5162 (Navitas) has departed from that principle. Now, whether or not an employee has been “dismissed” at the end of a maximum term contract will be determined with reference to a number of additional factors.
Mr Khayam, a teacher at Navitas English, was employed as a casual employee from 2005 to 2012, before moving to a series of consecutive maximum term contracts from 2012 to 2016. Due to alleged performance and disciplinary concerns, Mr Khayam was not offered a new contract in 2016.
At first instance, the Commission rejected Mr Khayam’s application for an unfair dismissal remedy on the basis his employment had ended due to the expiry of his latest maximum term contract and so there had been no dismissal at the initiative of the employer. Mr Khayam appealed this decision on the basis that the Commission had erred in applying the established authority to the provisions of the Fair Work Act 2009 (Cth) (FW Act), which differed from its predecessor.
The Full Bench upheld the appeal, with the majority determining that where the terms of a time-limited contract reflect a genuine agreement on the part of the employer and employee that the employee relationship will not continue after a specified date, then, absent any vitiating factors such as those outlined below, the employment will be terminated by way of agreement and not at the initiative of the employer.
The Full Bench concluded that when assessing if a termination was at the initiative of the employer, and therefore if an employee may make a claim for unfair dismissal, consideration must be given to a number of factors, including:
- the totality of the employment relationship, not merely the terms of the contract that operated immediately prior to the cessation of employment;
- whether the contract was varied, replaced or abandoned by way of a separate written or oral agreement;
- whether the contract was in fact limited to the terms of a written document, or was simply a series of agreements which operated for administrative convenience and did not represent the reality of the employment relationship; and
- whether the employer made representations or engaged in conduct that would prevent the employer from relying upon the terms of the agreement as the means by which the relationship was terminated.
These additional factors remove the traditional protection afforded by the expiry of a maximum term contract, and create the potential for an employee to be deemed terminated ‘at the initiative of the employer’ despite their employment ending due to the expiry of the specified term.
In light of this decision, employers looking to implement maximum term contracts must be aware of their increased exposure to unfair dismissal claims.
While contracts representing a genuine agreement that the employment relationship will end at a specified date remain a useful contractual tool, it is likely the whole employment relationship will be examined in assessing an employee’s access to the unfair dismissal jurisdiction should the contract not be renewed once it comes to an end.
To limit exposure, employers offering maximum term contracts should ensure a mutual understanding between the employer and employee that the employment relationship will end on the date specified in the agreement. Any indication or promise of continued employment beyond the fixed term may demonstrate an intention to continue the employment relationship and expose the employer to unfair dismissal claims.
This area of law is evolving, and it is likely subsequent decisions will provide more clarity to employers and employees alike.