Many employers will use template contracts, but when doing so it is important to carefully check that the contract has been tailored and correctly populated with the relevant information. Failing to do so can have significant financial consequences. This was highlighted in a recent decision where an employer’s failure to properly complete a termination clause and specify a period of notice resulted in a substantially longer notice period being awarded by the Court.
Background
The employee had been employed for 34 years and had signed a written employment contract. However, in that contract, the employer neglected to insert the number of months’ notice required to terminate the employee’s employment. Despite this, the employer proceeded to provide three months’ notice of termination to the employee. The employee brought a claim in the Federal Circuit and Family Court of Australia (the “Court”).
The Court held that, because the contract did not clearly stipulate a notice period, a term requiring “reasonable notice” should be implied. On the facts, the Court determined that reasonable notice amounted to 12 months, significantly exceeding the three-month notice period which had been provided by the employer.
Consequently, the employer was required to pay an additional nine months’ salary to the employee, on top of the notice already given. The total award was $176,250, plus interest. The case highlights how seemingly minor administrative oversights in contract preparation can lead to substantial liability.
How is “reasonable notice” determined?
The length of a reasonable notice period is assessed at the time notice is given. Courts consider what is fair and appropriate to allow an employee to transition following the termination of their employment. The court will take into account the employee’s individual circumstances and the broader employment context.
In determining that 12 months’ notice was reasonable in this case, the Court considered several key factors, including that the employee:
had 34 years of continuous service and was close to 60 years of age, with no history of misconduct or negligence;
had a long tenure which gave rise to an expectation of respect and fair treatment on termination of employment;
was regarded as loyal, well-liked, and a consistent performer, having received bonuses and short-term incentive payments for meeting key performance indicators;
had extensive institutional knowledge and contributions over many years that were valuable to the employer; and
had limited prospects of securing a comparable role with similar remuneration and status given his age and seniority.
These factors collectively supported a lengthy notice period, reflecting the real challenges the employee would face in re-entering the workforce.
Takeaways and tips for employers
This decision provides a clear reminder of the risks associated with template contracts and highlights the importance of robust contract management processes. Employers should consider the following practical steps:
Audit template systems: ensure that contract templates which contain appropriate prompts or mandatory fields requiring key information, such as notice periods, are completed before the document is finalised.
Include default provisions: consider incorporating a fallback clause specifying a minimum notice period (for example, consistent with the National Employment Standards) where a specific period has not been specified.
Train staff appropriately: employees responsible for preparing contracts should be trained to identify incomplete fields and feel confident seeking clarification before issuing contracts.
Update contracts on promotion: when employees are promoted or transition into new roles, ensure that negotiations are properly finalised and that updated contracts are issued and executed.
Review existing agreements: conduct periodic reviews of current employment contracts to identify and rectify gaps, inconsistencies or outdated provisions.
Ultimately, careful attention to contract drafting and template management can mitigate the risk of unintended obligations. Investing time in these processes upfront is far more cost-effective than defending claims or paying significant compensation due to avoidable errors.
