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27 March 2017 Reasonable notice on termination of employment – has it a future?

By Richard Ottley, Partner and Simon Obee, Associate

Introduction

Termination of a contract of employment upon reasonable notice has long been regarded as part of the employment law landscape.  It bridges the gap where the parties to the employment relationship have failed to specify in the contract of employment, the period of notice necessary to end the relationship without cause.  In such circumstances, the principle was developed at common law that the contract of employment could be terminated on whatever period of notice was found to be reasonable.  Notice periods as divined under common law principles have ranged up to 12 months Quinn v Jack Chia (Australia) Ltd (1992) 1 VR 567 (in New Zealand reasonable notice of 18 months has been awarded: Ogilvy & Mather (NZ) Ltd v Turner [1996] 1 NZLR 641).

The ability to terminate on reasonable notice will only be implied into an employment contract where it is necessary for business efficacy.  In other words, where there exists a provision dealing with notice of termination (ie under an express term of the contract) there will be no requirement to "fill the gap" and no need to imply a term of reasonable notice to make the employment contract "work".

However debate has recently become enlivened over whether and the extent to which, award and minimum statutory requirements which concern notice periods, are properly to be regarded as filling the gap (thus in effect rendering reasonable notice claims obsolete).

This article looks at recent developments and the various and disparate approaches by courts and tribunals on this question.

Inconsistent approaches

Even before the Fair Work Act 2009 and the introduction of the modern award system, there were a number of decisions where claims for reasonable notice were refused because it was held that the existence of an award or statutory provision dealing with notice meant that there was no necessity to imply such a term.  Such was the position in Brackenridge v Toyota Motor Corporation Australia Ltd (1996) 67 IR 162, Elliott v Kodak Australasia Pty Ltd [2001] FCA 807; (2001) 108 IR 23, Holt v Musketts Timber Sales Pty Ltd [1994] FCA 137 and Australian National Hotels Pty Ltd v Jager [2000] TASSC 43; (2000) 9 Tas R 153.

It has also been held that the existence of a workplace agreement which dealt with notice meant that there was no necessity to imply a term of reasonable notice – see Hastings v JH Corporate Security Services Pty Ltd No SCGRG-00-436 [2000] SASC 216.

However there are some decisions where the existence of award provisions dealing with notice was not found to be a bar to a reasonable notice claim.  See for example: Westen v Union Des Assurances De Paris (No 2) (1996) 88 IR 268 (considered later in this article).  See also Logan v Otis Elevator Co Pty Ltd [1999] IRCA 4; (1999) 94 IR 218 (where before the Full Bench of the Industrial Relations Court of Australia it was not suggested by the employer that the award notice provision had "any contractual or decisive significance" to the reasonable notice argument albeit it should be taken account of in determining what constituted reasonable notice).

In Stewart v Nickles [1999] FCA 888 the Federal Court decided that the statutory notice provisions under the then Workplace Relations Act 1996 did not displace an implied contractual provision for termination by reasonable notice.

There are a number of recent NSW Supreme Court decisions, where claims for reasonable notice have succeeded, without judicial consideration of whether an entitlement to a minimum statutory notice period (for example under the Fair Work Act 2009) operated to preclude such a claim (see for example Susanna Ma v Expeditors Pty Limited [2014] NSWSC 859 (See also Ware v Amaral Pastoral Pty Ltd (No 5) [2012] NSWC 1550).

In 2013, the Full Court of the South Australian Supreme Court, reignited debate over the reasonable notice question in its decision in Brennan v Kangaroo Island [2013] SASCFC 151 (20 December 2013).  Other decisions in this area have subsequently flowed from Brennan

Brennan v Kangaroo Island

In Brennan the Full Court of the South Australian Supreme Court held that Ms Brennan (whose contract of employment did not deal with notice) was not entitled to reasonable notice because her employment was covered by an award which specified a period of notice required to terminate the employment.  There was therefore no necessity to imply a term of reasonable notice into the employment contract.

The plaintiff in Brennan made a special leave application to the High Court which was determined in August 2014.  The application was rejected by the High Court on the basis that the "Full Court's analysis is consistent with the statements in Byrne v Australian Airlines Ltd" (1995 185 CLR 410) and therefore there were not sufficient prospects of success to warrant a grant of special leave.  Whilst the High Court's disposition of the special leave application does not represent a detailed examination of the authorities, it is arguably an indication of the High Court's present attitude on whether award notice periods "bridge the gap".

The decision by the High Court not to accede to the special leave application and revisit the reasonable notice issue has added to current uncertainty, and in the post Brennan world, competing decisions have continued to multiply.

Westpac Banking Corporation v Wittenberg

In Westpac Banking Corporation v Wittenberg [2016] FCAFC 33 (14 March 2016) Buchanan J reviewed the authorities on reasonable notice.  He referred to the decisions in Jager and Brennan and considered that they had been decided consistently with the following statement of principle by the majority of the High Court in Byrne:

"In the absence of any provision in the award and of any express provision in the contract of employment the law would regard it as a legal incident of the contract that it should be terminable upon reasonable notice or summarily for serious breach".

Whilst in Wittenberg it was decided that a term of reasonable notice could not be implied due to pre-existing contractual provisions dealing with notice, the decision may be considered as providing support for the proposition that statutory notice periods (Jager) and award provisions (Brennan) fill the gap and leave no room for implying a term of reasonable notice.

Kuczmarski v Ascot Administration

In Kuczmarski v Ascot Administration Pty Ltd [2016] SADC 65 (1 July 2016) the District Court of South Australia held that the Fair Work Act 2009 notice provisions "bridged the gap".

Mr Kuczmarski's employment was not covered by an award (he was the National HR Manager) and he did not have a written contract of employment.  The only provisions dealing with notice were therefore those minimum periods of notice set out in section 117 of the Fair Work Act 2009.

Mr Kuczmarski's employment was terminated by his employer paying him 5 weeks' notice in lieu (the minimum stipulated by the Act).  Mr Kuczmarski then brought a claim for damages on the basis that – given his seniority and length of service – a period of 12 to 18 months' notice would have constituted reasonable notice.

On behalf of Mr Kuczmarski, counsel sought to distinguish this case from Brennan.  It was submitted that there was a fundamental difference between the provisions of the award that covered Ms Brennan and the provisions dealing with notice in the Fair Work Act 2009.  In the former, the award stated a specific period of notice that an employer must give an employee to terminate their employment.  Under the Fair Work Act 2009 the requirement was that the employer must give notice of at least those periods stated, in other words they were minimum requirements.

Judge Clayton was unpersuaded by these arguments and found that there was no material difference (in this context) between an award requiring a specific period of notice and the Fair Work Act 2009 setting a minimum notice period – the existence of either was fatal to a reasonable notice claim.  The fact that s 117 of the Fair Work Act 2009 contained a period of notice (albeit a minimum period) meant that there was no "gap to fill" and therefore no necessity for an implied term of reasonable notice.

His Honour also accepted submissions from the employer to the effect that s117 of the Act displaces or precludes any implication by law or fact, of a term requiring reasonable notice.  In particular, he accepted the employer's submission that by prescribing a minimum notice period, Parliament had recognised that the parties could expressly agree a longer notice period, but Parliament was to be taken to have intended to exclude the implied term of reasonable notice. 

It is understood that Kuczmarski was appealed to the South Australian Supreme Court but that the appeal was discontinued in December 2016.

McGowan v Direct Mail and Marketing

In McGowan v Direct Mail and Marketing Pty Ltd [2016] FCCA 2227 (30 August 2016) in the context of an adverse action, the Federal Circuit Court had cause to consider the potential impact of the notice provisions of s 117 of the Fair Work Act 2009 on the implication of a term of reasonable notice.  Judge McNab declined to adopt the reasoning in Kuczarmarski and considered that s 117 of the Fair Work Act 2009 would not displace a right to reasonable notice, or in his words:

"I think the better view is that s.117 is in that part of the Act dealing with National Employment Standards and is intended to provide a minimum period only.  It does not displace a right to reasonable notice when the contract of employment is silent on the question of notice.  By paying or giving the minimum period of notice under s.117(2), the employer will have satisfied the National Employment Standard and not be liable for a claim of breach of those standards.  However, it is strongly arguable that payment or provision of that notice will not necessarily satisfy a claim for reasonable notice."

"The proposition may be tested where the employment of two employees is terminated.  Both are over 45 years of age.  One has worked for 5 years in a mid-range role, the other has worked for 25 years and worked her or his way up on a high level role.  Both are employed under contracts that make no provision for notice of termination.  I doubt that parliament intended that both would receive the same period of notice of termination by the enactment of s.117(2) of the Act."

Whilst ultimately Judge McNab determined that it was not necessary to imply a term of reasonable notice into the employment contract due to the continued operation of the termination provision in the employment contract, his reasoning (whilst not binding) is at the very least, persuasive. 

Other decisions post Brennan

In Elwin v Edwards Motors Pty Ltd & Ors [2015] FCCA (24 February 2015) the Federal Circuit Court followed the principles in Brennan, Brackenbridge, Jager and Kodak and determined that s 117 of the Fair Work Act precluded a claim for reasonable notice.  In Pappas v P & R Electrical Pty Ltd & Anor [2016] SADC 132 (4 November 2016) the District Court of South Australia referred to Brennan and Kuczmarski as authority for the proposition that reasonable notice is not required to fill the gap where the contract of employment does not provide for notice as s117 of the Fair Work Act 2009 establishes the employee's entitlement to notice. 

The Full Bench of the Western Australian Relations Commission in Richards and Nicoletti [2016] WAIRC 00941 in a majority decision delivered on 22 December 2016 held that there was no room for implication of a term requiring reasonable notice to terminate an employment contract.  In a powerful minority decision, Smith AP conducted a detailed analysis of case law to date, ultimately finding in favour of the position adopted in cases such as McGowan and Westen.  In doing so she found that the purpose of s 117 of the Fair Work Act 2009 was to provide minimum periods of notice, and that such provisions did not exclude the operation of the right to reasonable notice.

Byrne v Australian Airlines revisited

In both Brennan (on appeal) and Kuczmarski reliance was placed on passages from the High Court decision in Byrne v Australian Airlines Ltd (1995) 185 CLR 410.  In that decision, attention was directed, amongst other things, to whether a provision in the Transport Workers (Airlines) Award 1988 - (cl 11(a), which stated that a dismissal could not be harsh, unjust or unreasonable) could be implied into the employee's contract of employment.  The High Court found that clause 11 (a) of the award was not implied into the employment contract (as a matter of contract law) as it was unnecessary to do so for the effective operation of the contract. 

In addressing this issue the High Court made the following statement:
" the answer must be that it is not necessary to imply a term in the form of cl 11(a) for the reasonable or effective operation of the contract of employment in all the circumstances.  In the absence of any provision in the award and of any express provision in the contract of employment the law would regard it as a legal incident of the contract that it should be terminable upon reasonable notice or summarily for serious breach." (our emphasis)

As noted in Wittenberg, the above statement has been regarded as a general statement of legal principle and as authority for the proposition that it is unnecessary to imply a term of reasonable notice where an award so provides. It is suggested that the position may not be so clear cut. 

First the High Court in Byrne did not discuss or review the doctrine of reasonable notice in detail.  The claim it had to determine was not a claim based on reasonable notice.  Indeed the majority stated (at para 28) that:
"The claim which the appellants advance is not a claim for wrongful dismissal based upon a failure to give reasonable notice.  It is a claim for damages for loss of employment for, it would seem, an indefinite period, based upon the inability of their employer, because of cl 11(a), to terminate the employment relationship".

Secondly it is arguable that the principle which has been drawn from the above statement is not the only way such statement can be interpreted.  Another interpretation of the above statement is that reasonable notice can still be a term implied into employment contracts unless an award specifically excludes the right to reasonable notice or the right to dismiss summarily (or where there is an express contractual provision dealing with these issues). 

Thirdly it is arguable that the High Court stated (at para 27) that it was not going to (and did not) decide the reasonable notice issue because in the context of the case, it was not necessary to do so:
"Termination of employment in breach of cl 11(a) is, of course, a breach of the award, but since cl 11(a) is not, unless made so, a term of the contract, it is not a breach of contract.  It is a different question whether a dismissal, if wrongful, otherwise amounts to a breach of contract sounding in damages.  In the absence of anything to the contrary and putting to one side the provision in the award for notice, at common law a contract of employment for no set term is to be regarded as containing an implied term that the employer give reasonable notice of termination except in circumstances justifying summary dismissal(43).  Clause 11(d) of the award prescribes periods of notice varying according to the length of service and the age of the employee.  If that provision were not to preclude the implication of a term that reasonable notice be given, it might provide evidence of what constitutes reasonable notice at common law.  Upon the basis of such an implied term, the appellants might possibly have been able to mount a claim for damages for wrongful dismissal because of the failure to give them the appropriate notice (44).  But it is unnecessary for the purposes of these appeals to determine the point".  (our emphasis)

The concluding sentence "But it is unnecessary for the purposes of these appeals to determine the point" appears to be directed towards the potential reasonable notice points that they outline.  The court expressly stated that it was "putting to one side" the award notice provision.  And by using the subjunctive ("If that provision were not to"), the court indicates that the subject matter is hypothetical - suggesting that the court is not deciding the point one way or another.  In particular it is not deciding if the award provision precludes the implication of a term of reasonable notice (the inference being that the award notice provision might not have that effect).   

While the paragraph above may suggest that the court might lean towards the award notice provision precluding a reasonable notice claim if it had to decide the point, it is suggested that it is reasonable to argue that the court expressly did not decide that point.

Fourthly if the majority in Byrne did not review the authorities on reasonable notice and did not make a determination on reasonable notice the following statement of the minority judges (McHugh and Gummow JJ) is particularly noteworthy.  In deciding whether it was necessary to imply into the employment contract, clause 11(a) of the Award (which as noted above, dealt with dismissal), they said:
"Nor could it be said that the implication into the contract of employment of a term to the effect of cl 11(a) of the Award would be necessary for their reasonable or effective operation.  In the absence of such a contractual provision, there would remain unaffected the entitlement of the employer at general law to terminate at will on giving reasonable notice and to dismiss summarily for misconduct.  That this would be the case was accepted in the submissions of both sides to this Court.  Thus, there would be no "gap" which it was necessary to fill by a provision such as cl 11(a). 

Accordingly, we accept the submissions for the respondent that the term for which the appellants contend is not to be implied as a matter of business efficacy in its contracts of employment with the appellants." (our emphasis).

In other words, the minority judges took the view that the entitlement to dismiss on reasonable notice remained - despite the fact that another award provision (clause 11(d)) dealt with notice.

To conclude Byrne is a decision not directed to a consideration of the authorities on reasonable notice and its relationship to awards.  To the extent to which the decision traversed this question it is suggested that it has not conclusively dealt with it.

Review of the approach in Westen v Union des Assurances de Paris

We now turn to look at the alternative approach in Westen v Union des Assurances de Paris (No 2) (1996) 88 IR 268 (which came after the High Court decision in Byrne).  In that decision, Madgwick J, sitting as the Industrial Relations Court of Australia, took the view that minimum notice provisions in an award did not limit the employee's right to reasonable notice.

In doing so he noted that the provisions of the Workplace Relations Act 1996 dealing with termination of employment, stated that their object was to give effect to the International Labour Organization's Termination of Employment Convention (to which Australia was a signatory). 

The Convention provided at Article 11:
"A worker whose employment is to be terminated shall be entitled to a reasonable period of notice or compensation in lieu thereof, unless he is guilty of serious misconduct, that is, misconduct of such a nature that it would be unreasonable to require the employer to continue his employment during the notice period." (our emphasis)

Furthermore, s 170HA of the 1996 Act stated that any award that was inconsistent with the requirements of the Convention would not have effect to the extent of the inconsistency.  Thus the award could not have the effect sought to be attributed to it by the employer.

Madgwick J noted, with reference to the relevant notice clause in the award:
"The clause does not say, nor does it necessarily imply, that the right of reasonable notice, for employees for whom such notice might be months longer than four weeks, is to be abolished or made inoperative.  The award can have a sensible and reasonable operation if it is read as meaning that an employer's obligation to give reasonable notice is assumed and endures, but, reasonable or no, the employer must give the minimum periods of notice prescribed in the award."

Madgwick J considered that if an Act of Parliament was to reduce common law rights it needed to say so.  Nothing in the relevant Act (Workplace Relations Act 1996) empowered the award to reduce the rights of certain employees. 

As noted above this theme was echoed by Judge McNab in McGowan where he considered that s 117(2) of the Fair Work Act 2009 as part of the NES, is only intended to provide a minimum and not to displace a right to reasonable notice.  A similar view was expressed in the minority decision of Smith AP in Richards.

It should be noted that in both Brennan and Kuczmarski the position in Westen was rejected.

Conclusion

Consideration of the relevance of and the extent, if any, to which legislative intention had in mind the abolition of the common law right to reasonable notice, should continue to play a significant role in the ongoing reasonable notice debate. 

Whether notice provisions are expressed in terms of a minimum amount or are otherwise expressed, may also continue to be re-agitated as an issue.  Whether notice provisions arise under an award or directly under statute, is we suspect, likely to exit the debate as a point of distinction. 

It is suggested that further evaluation of the High Court decision in Byrne ought to play a significant part in any future superior court determination on this question.

The reasonable notice debate has a distance to run and although perhaps less likely, it should not come as a total surprise if states other than South Australia choose not to follow Brennan and Kuczmarski.

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