Australia: Employees on term contracts given the green light to pursue unfair dismissal claims

Following the recent Full Bench of the Fair Work Commission decision of Saeid Khayam v Navitas English Pty Ltd t/a Navitas English [2017] FWCFB 5162 (Navitas), employees on term contracts, or 'outer limit' contracts, have greater prospects of accessing the unfair dismissal jurisdiction.

Navitas had offered Mr Khayam a number of successive term contracts between April 2012 and May 2016. At the end of the last contract term, Navitas did not offer Mr Khayam a further contract because of performance concerns and his disciplinary record. Mr Khayam filed an unfair dismissal application.

A threshold question was whether a 'dismissal' had occurred at the employer's initiative, a requirement for eligibility to the unfair dismissal jurisdiction in the Fair Work Act 2009 (Cth) (FW Act). Mr Khayam was told in advance of his contract's termination that he would not be offered a further contract, and the parties acknowledged that the contract and the employment relationship ended on the same day. While the outer limit contract came to an end by the effluxion of time in accordance with the agreement of the parties, the contention was whether the employment ended at the initiative of the employer by not offering Mr Khayam another contract.

At first instance, the Commission followed the Full Bench decision in Department of Justice v Lunn (2006) 158 IR 410 (Lunn) and held that the 'termination of employment at the initiative of the employer' requirement of the unfair dismissal jurisdiction relates to the contract of employment and not the employment relationship. On that basis, it held there was no 'dismissal' as Mr Khayam's employment ended at the nominated date and he was therefore ineligible to bring an unfair dismissal claim.

On appeal, the Full Bench of the Fair Work Commission held that the Lunn principle was incorrect and not applicable to the FW Act. The Full Bench held that the correct approach for determining whether the expiry of a term contract is a 'dismissal' is determined by reference to the employment relationship.

The Full Bench emphasised that the 'termination of employment at the initiative of the employer' requirement should be interpreted and applied as follows:

• The analysis is to be conducted by reference to termination of the employment relationship, not by reference to the termination of the last contract. Where employees are on a sequence of time-limited contracts, the facts may require consideration of the circumstances of the entire employment relationship, not merely the terms of the final employment contract.
• In circumstances where the employment relationship is not left voluntarily by the employee, the focus of the enquiry is whether an action on the part of the employer was the principal contributing factor which results, directly or consequentially, in the termination of the employment.
• The expiry of a contract does not exclude the possibility that the termination of the employment relationship occurred at the initiative of the employer – that is, as a result of the decision or act on the part of the employer that brought about that outcome.
• Where the terms of an operative time-limited contract reflect a genuine agreement on the part of the employer and employee that the employment relationship will not continue after a specified date and the employment relationship comes to an end on that date, then, absent a vitiating or other factor of the types refereed to below, the employment relationship will have been terminated by reason of the agreement between the parties and there will be no termination at the initiative of the employer.
• A decision by an employer not to offer a further contract will not be relevant if the time-limited contract reflects a genuine agreement. However if the time-limited contract does not in truth represent an agreement that the employment relation will end a particular time, the decision not to offer a further contract will be one of the factual matters in determining whether an action on the part of the employer was the principle contributing factor to the termination of the employment relationship.
• Factors which may go against the nature of the operation on an 'outer limit' contract include (without limitation) misleading or unconscionable conduct on the part of the employer and other similar conduct such as coercion.

The Full Bench dismissed the appeal stating that while at first instance the Commissioner's consideration of whether Mr Khayam had been dismissed for the purposes of s 386(1)(a) of the FW Act did not take into account all of the relevant circumstances and facts, the Commissioner reached the correct conclusion.

The employer tried to argue that Mr Khayam was ineligible to bring a claim due to his contract of employment also being for a 'specified period' and therefore the statutory exclusion at section 386(2)(a) of the FW Act applied. The Full Bench, however, held that the exclusion did not apply as the contract included a notice of termination provision and therefore was not truly a contract for a specified period of time.

The decision is significant for employers who employ staff on successive term contracts. While previously such employers had a reasonable degree of certainty around such employees being ineligible to bring an unfair dismissal claim at the expiration of the term contract, this is no longer the case. There is now potential for employees on term contracts to access the unfair dismissal jurisdiction, particularly where there has been a series of term contracts and there is an underlying requirement in the business for the role to continue that is filled by that employee on the term contract. In these circumstances, a unilateral decision not to continue the employment relationship creates some risk. Following this decision it is now important for employers to revisit their use and management of term contracts.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.