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

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.

Key points

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.