Following a recent significant decision by the Full Bench of the Fair Work Commission, employees who cease employment at the end of an agreed contractual term may now be entitled to make an unfair dismissal claim.
Previously, an employee who was engaged for an agreed maximum term (e.g. 12 months) was not entitled to unfair dismissal protection when their contract ended. Maximum term contracts (also known as outer limit contracts) are contracts with an end date, but which may also be terminated before that end date by the giving of notice.
It was previously accepted that such employees were not “dismissed” when their contracts were not renewed as their employment ended by agreement. Rolling contracts of this type are common in a number of industries and in particular the health and education sectors.
However, the Full Bench of the Fair Work Commission (in Khayam v Navitas English Pty Ltd  FWCFB 5162) (Navitas) has upheld an appeal in an unfair dismissal decision involving a maximum term contract employee that will have far reaching implications for employers and employees using maximum term contracts in Australia.
In the Navitas decision, the Full Bench of the Fair Work Commission held that even though a particular employment contract has ended by the expiry of the maximum term, the employer may still have terminated the underlying employment relationship.
This may be the case where:
- The circumstances of a case are such that a maximum term contract does not in truth represent an agreement by the employee that the employment relationship will end at a particular time (e.g. because there have been a series of maximum term contracts). The primary focus is whether it was an action on the part of the employer that was the principal contributing factor which results, directly or consequentially, in the termination of the employment relationship;
- The employee entered into the employment contract as a result of misrepresentation, misleading conduct, mistake, unconscionable conduct, or duress or coercion;
- The employment contract was a sham in the sense that it was not intended by the parties to give legal effect to its apparent terms;
- The purpose of the maximum term contracts was to prevent access to the unfair dismissal jurisdiction;
- The employment contract may have been varied, replaced or abandoned by way of a separate agreement, whether in writing and/or orally, such that its stated time limit no longer applies;
- The employment contract may not be limited to the terms of a written document and may, for example, be one of a series of standard-form contracts which operated for administrative convenience and did not represent the reality or the totality of the terms of the employment relationship; and
- During the term of the employment relationship the employer may have engaged in conduct or made representations (for example, representing to the employee that the employment will continue subject to conduct and performance, notwithstanding a contractual time limit on the employment) which provide a proper legal foundation to prevent the employer from relying upon the terms of the contract as the means by which the employment relationship has been terminated.
Lessons for Employers
Maximum term contracts must reflect a genuine agreement as to the conclusion of the entire employment relationship if the employer wishes to avoid an unfair dismissal claim.
This article was written by Chris Egan, Partner and Matthew Reiman, Solicitor.