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10 September 2014 Can termination upon reasonable notice still be implied into an employment contract?

By Richard Ottley, Partner and Ellen Davis, Solicitor


In Brief

The traditionally accepted notion that an employment contract with no express notice provision may require an employer to provide or pay "reasonable notice" has increasingly come under the spotlight.

Generally speaking (absent summary termination for misconduct), when the need to terminate employment arises, notice of termination is required to be given. The parties will generally first look to the employment contract in order to determine the required contractual notice period.  

Where there is no written employment contract, or the written contract is silent as to notice of termination, courts have held that it is necessary to imply a term of reasonable notice, being a notice period ranging from weeks to a period of 12 months and sometimes beyond. Various factors have influenced the length of notice period including the length of service, seniority of position, age of employee, opportunity of alternative work and other relevant facts.

In recent times it has been argued that the court does not need to imply a term of reasonable notice where an award applies, as the notice period provided for in the award makes such exercise unnecessary.

Two recent decisions of the Full Court of the South Australian Supreme Court in the cases of District Council of Barunga West and Hand and Brennan and Kangaroo Island Council have looked at this issue.


District Council of Barunga West and Hand

Mr Hand had enjoyed employment for a period of 41 years in Local Government in South Australia. He was appointed CEO of the District Council of Barunga West in November 2009. Since his appointment he did not have a written employment contract.

During 2012 it became evident to Mr Hand that his relationship with the Mayor had broken down. Mr Hand proposed that he should retire as CEO in late 2014. The Council however took the initiative and in November 2012 gave Mr Hand approximately 9 and a half months notice of termination.

Mr Hand claimed in the Supreme Court that his termination was invalid as the termination was not in conformity with the requirements of section 97 of the Local Government Act 1999 (SA) which governed the termination of CEOs and therefore sought reinstatement as CEO or alternatively damages.

The Council submitted that Mr Hand's employment was in fact governed by the relevant industry award, being the South Australian Municipal Salaried Officers Award 2006 (the 2006 Award) and therefore they were only required to give him 5 weeks' notice under the Award (but had chosen to give a greater notice period). The Council further submitted that the giving of 9 and a half months' notice was reasonable in any event.

At first instance, the Supreme Court accepted that Mr Hand's original contract of employment along with the subsequent variations over the years was oral. It was common ground that there were no dealings between the parties in writing concerning the issue of termination. The Court held that: the 2006 Award did not apply to Mr Hand's contract of employment and that a term was to be implied at common law that either party could terminate the contract without cause, upon the giving of reasonable notice.

The Court held that 12 months in Mr Hand's case was reasonable notice and awarded Mr Hand the shortfall, Mr Hand having already received some 9 and half months.

An issue for determination on the appeal included, if the 2006 Award was found to apply, did the contract of employment nevertheless contain an (overriding) implied term requiring reasonable notice to be given on termination without cause.
The Full Court upheld the trial judge's findings that: there was no written contract between the parties providing for termination, the 2006 Award did not in fact apply to the position of a CEO and section 97 of the Local Government Act 1999 (SA) did not extend to the termination of a CEO without cause, and therefore a reasonable notice provision of 12 months could be implied.

There was therefore no need to address the question: if the 2006 Award was found to apply, did the contract of employment nevertheless contain an (overriding) implied term requiring reasonable notice to be given on termination without cause.

However, the Full Bench took the opportunity to refer to another decision of the Full Court of the South Australian Supreme Court (differently constituted) in Brennan v Kangaroo Island Council which had recently considered a similar issue.

Brennan v Kangaroo Island Council

In Brennan, it was common ground that the appellant's employment as Deputy CEO of the Kangaroo Island Council was covered by the South Australian Municipal Salaried Officers Award.

Counsel for the appellant in Brennan had argued that she was entitled to reasonable notice, because the award which covered her was made under the Fair Work Act and only set minimum standards for employment, therefore a finding that the more generous implied term of reasonable notice was not necessarily precluded.

The Full Court in Brennan having reviewed a number of authorities rejected the Appellant's submissions and determined on the facts before it, that a term requiring the giving of reasonable notice was not to be implied in the appellant's employment contract. In its words:

"[T]he implication of an obligation to give reasonable notice was not necessary to give business efficacy to the appellant’s employment contract. The existence of the award provision, albeit that it operated outside the contract, had the result that the employment arrangement was effective without any need to imply an obligation to give reasonable notice, ie there was no gap that needed to be filled. Furthermore, because of the existence of the award provision it could not be said that the implication of such a term would have been accepted by the contracting parties as a matter so obvious as to “go without saying”


It was noted that a special leave application to the High Court had been made in Brennan on this very question.

POINTS TO TAKE AWAY

The following points emerge:

  • The law in relation to reasonable notice is under siege.
  • There is strong South Australian Supreme Court authority for the proposition that the presence of an applicable award provision dealing with the notice period "fills the gap" in relation termination without cause, and that it is not necessary to fall back on "reasonable notice";
  • For employees not covered by an award it would appear that reasonable notice can still apply.
  • Employers should still continue to seek to ensure that they have up to date contracts with appropriate notice provisions.

It will be interesting to see what the High Court does with the special leave application in Brennan. One cannot help wondering what would happen in the future to reasonable notice, if the High Court were to reject the argument that applicable award notice provisions only set minimum standards (and therefore do not preclude an implied term of reasonable notice). If it took that view, it might equally be argued that the minimum notice provisions in the Fair Work Act also only set minimum standards and fall to be considered in the same way as awards.

For further information, please contact:

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email: rbo@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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