Workers on Maximum Term Contracts now have access to Unfair Dismissal

A recent case before the Fair Work Commission Full Bench (FWCFB) has given greater scope to workers under maximum term contracts to seek recourse in the unfair dismissal jurisdiction (Navitas). [1]

Prior to this decision, the expiry of a maximum term contract at its specified date did not result in the employee being “dismissed”. This legal principle underpinned the advantage and widespread use of maximum term contracts, which was affirmed by Department of Justice v Lunn (2006) 158 IR 410 (Lunn).

However, several recent cases questioned the validity of Lunn.

Most notably, in Navitas the FWCFB reviewed the legal foundations of Lunn and held that Commissioner Hunt had failed to clearly or correctly state the correct method to interpret the expression “at the initiative of the employer” in the Workplace Relations Act 1996 (Cth) or its application to the circumstances of a maximum term contract. Therefore, the FWCFB held Lunn does not affect the interpretation of section 386(1) of the Fair Work Act (2009) (FW Act).

The Full Bench offered guidance on how s 386(1)(a), which deals with the meaning of “dismissal” and when employment has been terminated at the employer’s initiative, should be interpreted in the context of non-renewal of maximum term contracts:

1. Whether the expiry of a maximum term contract constitutes dismissal is determined by reference to the employment relationship, rather than the termination of the contract.

• This distinction is particularly relevant to an employment relationship made up of a sequence of maximum term contracts as the analysis may require a consideration of the “entire employment relationship”. The purpose of which is to determine whether there was an action by the employer that was the principal contributing factor resulting in the termination of the contract.

2. If the terms of the agreement reflect a genuine agreement that the employment relationship will end with the expiry of the employment contract, then generally there will be no termination at the initiative if the employer.

• A decision in these circumstances to not offer another contract of employment will not be relevant to the question of whether there was a “dismissal”.

3. The expiry of the contract may have impacted the termination of employment, but this does not exclude the possibility that the termination was at the Employer’s initiative.

• If the contract does not reflect an agreement that the employment relationship will end with the expiry of the employment contract the decision to not offer a further contract will be considered in assessing whether the employee was dismissed at the employer’s initiative.

4. Maximum term contracts do not qualify as “contracts for a specified period of time” under the FW Act (this is restricted to true fixed term contracts), because they include rights for the parties to terminate the contract (and employment) with notice during the term of the contract.

• Prior to Navitas, maximum term contracts were classified as contracts for a “specific period of time”, which enlivened the exclusion from unfair dismissal remedy under s 386(2)(a) FW Act.

5. If one or more of the following vitiating factors apply to an employment contract then the employee will be able to access an unfair dismissal claim:

• the contract is rendered unlawful (for example, by misrepresentation, mistake or coercion);
• the contract is contrary to law or public policy (for example, designed to avoid rights or obligations under the FW Act;
• the contract was varied in such a manner that the time limit no longer applies;
• the employer may have made representations (such as asserting that continued employment is performance-related), which result in the time limitation being unenforceable;
• where a Modern Award or enterprise agreement regulates fixed-term employment, those terms may override the employment contract to the extent of any inconsistency.

Navitas has potentially significant and developing implications for businesses who engage employees on maximum term contracts as those employees now have broader scope to pursue unfair dismissal claims. The majority have referred the matter to Commissioner Hunt for re-determination of the unfair dismissal claim.

If you require a review of your employment contracts, or have any questions arising from this article please contact Nick Stevens, Megan Cant or Isabella Paganin.