Important News

Your time is limited: maximum term contracts and the unfair dismissal regime

Thursday, 25 January, 2018


Your time is limited: maximum term contracts and the unfair dismissal regime

 

Roseanna Smith, Graduate Associate

Many employers choose the flexibility of maximum term contracts when engaging employees for specific tasks or short-term employment, and assume that their time-limited nature means that they cannot give rise to an unfair dismissal claim. A recent decision by the Full Bench of the Fair Work Commission brings this into question.

A maximum term contract is a contract that states the latest point at which the employment contract is to expire, but it may also provide a right for either party to terminate the employment contract prior to the nominated date with notice. This distinguishes it from a “true” fixed term contract, where neither party has the ability to terminate the employment contract prior to the nominated expiry date.

The Fair Work Act 2009 (Cth) (“FW Act”) requires that an unfair dismissal application be based on a termination of employment at the initiative of the employer. This generally does not include where the employment comes to an end merely through the effluxion of time.

Until recently, the leading authority on maximum term contracts and unfair dismissal was a decision involving an employee who had been employed on successive maximum term contracts over a period of seven years, with an on-going expectation of renewal. The Australian Industrial Relations Commission found that an unfair dismissal claim could not be brought on the basis of the non-renewal of her contract, as the termination was simply due to the effluxion of time, and therefore was not at the initiative of the employer.

In December 2017, the Full Bench of the Fair Work Commission departed from this approach. The case involved an employee who had been employed on a succession of back to back maximum term contracts, with an expectation of renewal, spanning over four years. At the expiration of the employee’s last contract, the employer did not offer him another employment contract due to his alleged poor performance.

The Full Bench determined that the correct approach was to look at the entire employment relationship, rather than simply having regard to the termination of the last of a series of employment contracts.

As a consequence of this approach, an employee may be able to bring an unfair dismissal claim if they were employed on a maximum term contract where the nature of the arrangement suggests on on-going relationship. Where the time-limited contact reflects a genuine agreement between the employer and employee that the employment relationship would not continue after a specified date, then in the absence of any vitiating factors, representations or sham agreement, there is unlikely to be a termination at the initiative of the employer.

A “true” fixed term contract continues to be protected from an unfair dismissal claim at the expiration of the fixed term. But if the time-limited contract does not in truth represent an agreement that the employment relationship will end at a particular time, the factual circumstances need to be examined to determine whether any actions of the employer were the principal contributing factor resulting in the termination of the employment, and therefore could be regarded as being at the initiative of the employer.

Key takeaways

  • Employers should be aware that simply allowing an employment contract to expire does not automatically exclude an unfair dismissal application if the nature of employment relationship creates an expectation of an on-going arrangement.
  • Employers should make clear the manner in which a maximum term contract is being used, and discuss this with the employee to avoid creating any unrealistic expectations.
  • Maximum term contracts should not be used to disguise the true intention of the parties regarding the employment relationship, as this can give rise to the risk of the arrangement being seen as a sham.

 

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