Often employees on fixed-term contracts are unaware that there are circumstances in which they could contest the termination of their contracts under relevant unfair dismissal law.
If the fixed-term contract of employment is terminated prior to the nominated expiration date, the employee may make an application for unfair dismissal under certain circumstances and may seek balance of the contract.
However, an employee of a “contract for a specific period of time” as described under the Fair Work Act 2009 is not generally entitled to make an application for unfair dismissal when the employment is terminated at the end of that period and not “at the initiative of the employer.
Recently there have been some developments that may change what was historically not considered unfair dismissal for fixed-term contracts that expire at the agreed date in the Contract of Employment.
Recent Development in Law
Under the Fair Work Act 2009, a claim for unfair dismissal may only be brought by an employee if the employer decides to terminate an employee’s continuing employment. Hence, if the employment ends at the fixed date nominated in the employment contract, the general conception was that the employee did not have a claim of unfair dismissal.
The recent decision of the Full Bench of the Fair Work Commission shed some light in this issue in the case of Khayam v Navitas English Pty Ltd [2017] FWCFB 5162 by focusing more on the relationship of the employer and the employee.
In this case the employee was employed on a series of fixed term contracts. At the end of the expiration of the last contract, the employer did not offer a further contract due to its concern in relation to the employee’s performance. At first instance, the Fair Work Commission considered the Lunn principle and concluded there was no unfair dismissal at the initiative of the employer.
The Full Bench in Navitas held that the Lunn principle was incorrect and not applicable to the Fair Work Act. It held that the correct approach for determining whether an expiry of a maximum term contract is considered a ‘dismissal’, is determined by reference to the employment relationship, rather than the termination of the maximum term contract of employment.
The Full Bench did not consider the Lunn principle as the correct approach. They found that when the fixed-term contract was not renewed following its expiration, the employment was terminated at the initiative of the employer. The Full Bench concluded that eemployers have historically been able to rely on the expiry of a maximum term employment contract as being effective to terminate the employment.
Following the decision of the Full Bench there are other factors to be considered by the employers when making a decision as to whether an employee may be able to make a claim for unfair dismissal if a time-limited contract is not renewed beyond its expiry date.
- What was the intention of the parties in determining the period of the employment?
- What was the relationship between the employer and the employer and did the relationship rather than the term of the employment agreement cause the employment to come to an end?
- Termination at the initiative of the employer does not necessarily mean that the employer terminated the contract. It could be a decision of the employer that caused the employment relationship to end.
- Implement risk management protocol in relation to the fixed-term contracts as well as the general permanent contracts of employment
- It was also established there are two distinctive fixed-term contracts: A fixed term contract that is “time-limited” and a contract for a “specified period of time”. In a “time-limited” contract, the employment continues until the agreed expiry date. It is however at the discretion of the employer to terminate the employment prior the agreed expiry date albeit with the required period of notice. A contract for “specified period of time” on the other hand cannot be terminated prior to the expiry date (with the exception of serious misconduct). Accordingly the distinction of the two is crucial in drafting the contract employment.
Conclusion
This decision may encourage the employers to now consider the possibility of an unfair dismissal claim when deciding not to renew a fixed-term contract.
It is important that employers carefully consider the possible ramifications of engaging employees when drafting fixed-term contracts. Similarly employees should seek legal advice when their fixed-term contract that has expired is not being renewed.
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