Pub­li­ca­tions

Out­er limit/​maximum term employ­ment con­tracts their future after the Nav­i­tas decision

Intro­duc­tion

The deci­sion of the Full Bench of the Fair Work Com­mis­sion on 8 Decem­ber 2017 in Saeid Khayam v Nav­i­tas Eng­lish Pty Ltd t/​a Nav­i­tas Eng­lish [2017] FWCFB 5162 (Nav­i­tas) has nar­rowed the oppor­tu­ni­ty for employ­ers to rely upon out­er lim­it or max­i­mum term con­tracts as a defence to a claim for unfair dismissal.

An out­er lim­it” or max­i­mum term” con­tract is a con­tract for a spec­i­fied peri­od” which may be ter­mi­nat­ed before the end of that peri­od upon the giv­ing of notice.

The offer­ing of a series of fixed term” con­tracts to employ­ees (often by the use of out­er lim­it” or max­i­mum term” con­tracts), has been seen as an attrac­tive strat­e­gy for employ­ing per­sons and then hav­ing their employ­ment ter­mi­nate with­out attract­ing the unfair dis­missal pro­vi­sions of indus­tri­al rela­tions leg­is­la­tion (as ter­mi­na­tion would gen­er­al­ly be regard­ed as not have occurred at the ini­tia­tive of the employ­er”).

The cri­te­ria for deter­min­ing the effi­ca­cy of such arrange­ments in the con­text of unfair dis­missal law has, until recent­ly, been regard­ed as set­tled by a deci­sion of the Full Bench of the Aus­tralian Indus­tri­al Rela­tions Com­mis­sion in 2006 in the mat­ter of Depart­ment of Jus­tice v Lunn (C2006/2686) (Lunn).

How­ev­er in Nav­i­tas, a 21 deci­sion of the Full Bench has cre­at­ed greater scope for employ­ees to argue that employer’s actions should be inter­ro­gat­ed to deter­mine whether they are impli­cat­ed in the ter­mi­na­tion of the employ­ment rela­tion­ship, where it ceas­es upon the expiry of an employ­ment con­tract for a spec­i­fied period”.

This arti­cle looks at the most recent deci­sion of the Full Bench of the Fair Work Com­mis­sion in Navitas. 

Full Bench deci­sion in Nav­i­tas – Minor­i­ty Decision

In Nav­i­tas, the appli­cant Mr Khayam had been employed under a series of max­i­mum term con­tracts” between April 2012 and May 2016. At the expi­ra­tion of his last con­tract, his employ­er decid­ed not to offer him a fur­ther con­tract because of con­cerns about his performance. 

At first instance, Com­mis­sion­er Hunt dis­missed the applicant’s unfair dis­missal appli­ca­tion, find­ing in accor­dance with the prin­ci­ples in Lunn, that the employ­ment had ter­mi­nat­ed by efflux­ion of time and in accor­dance with the agreed terms of the par­ties and there­fore oth­er­wise than at the ini­tia­tive of the employ­er. A claim for unfair dis­missal could there­fore not be entertained.

The mat­ter was then appealed to a Full Bench of the Fair Work Com­mis­sion which deter­mined to grant Mr Khayam per­mis­sion to appeal against the deci­sion of Com­mis­sion­er Hunt. Per­mis­sion was grant­ed for var­i­ous rea­sons includ­ing that the deci­sion in Lunn had been based upon ear­li­er leg­is­la­tion and that the Com­mis­sion had yet to deter­mine the issue of con­tracts for a spec­i­fied peri­od” of time in the con­text of the Fair Work Act (s. 386) (Act).

Fol­low­ing that deci­sion the mat­ter came then before a dif­fer­ent­ly con­sti­tut­ed Full Bench of the Fair Work Commission. 

The minor­i­ty deci­sion of Deputy Pres­i­dent Col­man who found for the employ­er and dis­missed the appeal, is a use­ful start­ing point.

There were essen­tial­ly two sub­sec­tions of s. 386 which arose for con­sid­er­a­tion in the appeal. The first relat­ed to s. 386 (1) and whether or not the employ­ment” had been ter­mi­nat­ed on the employer’s ini­tia­tive”.

Sec­tion 386(1) of the Act states that a per­son will have been dis­missed” if their employ­ment” has been ter­mi­nat­ed on the employer’s ini­tia­tive. In oth­er words, if ter­mi­na­tion of the employ­ment has occurred oth­er­wise than on the employ­ers’ ini­tia­tive, a claim for unfair dis­missal will not be available.

Col­man DP con­sid­ered the Full Bench’s inter­pre­ta­tion in Lunn, of the expres­sion ter­mi­na­tion of the employ­ment at the ini­tia­tive of the employ­er” (in ear­li­er leg­is­la­tion) as lim­it­ed to ter­mi­na­tion of the con­tract of employ­ment to be erro­neous. Col­man DP con­sid­ered that ter­mi­na­tion of employ­ment meant ter­mi­na­tion of the employ­ment rela­tion­ship not sim­ply the employ­ment con­tract. In a prac­ti­cal sense, deter­min­ing whether ter­mi­na­tion of the employ­ment rela­tion­ship occurred at the ini­tia­tive of the employ­er will involve a much greater lev­el of inquiry than if sim­ply deter­min­ing whether the employ­ment end­ed due to expiry of the employ­ment contract. 

Col­man DP not­ed that the con­tention in the present appeal was as follows:

[119] The con­tention in Lunn and in the present appeal was not that the employ­ment rela­tion­ship had sur­vived the ter­mi­na­tion of the out­er lim­it con­tract: both Ms Lunn and Mr Khayam were told in advance of their con­tracts’ ter­mi­na­tion that they would not be offered a fur­ther con­tract, and it was acknowl­edged that the con­tract and the employ­ment rela­tion­ship end­ed on the same day. Rather, the con­tention was that while the out­er lim­it con­tract ter­mi­nat­ed in accor­dance with the agree­ment of the par­ties, the employ­ment rela­tion­ship end­ed con­tem­po­ra­ne­ous­ly but at the ini­tia­tive of the employ­er.” (my emphasis)

Col­man DP con­sid­ered that the approach that should be tak­en to inter­pret­ing s. 386 (1) should be the approach that pre­vailed under ear­li­er leg­is­la­tion or in his words:

[128] The cor­rect approach to inter­pret­ing s 386(1) is akin to the one that pre­vailed under the WR Act. In apply­ing s 386(1) to a case involv­ing out­er lim­it con­tracts, all of the cir­cum­stances should be con­sid­ered to deter­mine whether the employ­er ter­mi­nat­ed the employ­ment rela­tion­ship. It is nec­es­sary to con­sid­er the out­er lim­it con­tract (includ­ing whether it is valid or may have been viti­at­ed in some way), the pos­si­ble rel­e­vance of statute and indus­tri­al instru­ments, and promis­es or rep­re­sen­ta­tions that might have been made to the employ­ee by the employ­er dur­ing the employ­ment. In short, there may be more to the employ­ment rela­tion­ship than the out­er lim­it con­tract. How­ev­er, in the absence of oth­er sig­nif­i­cant fac­tors, the employ­ment will have come to an end by the efflux­ion of time in accor­dance with the agree­ment of the par­ties. The High Court’s obser­va­tion in Vic­to­ria v Com­mon­wealth will be appo­site, even if it is not a bind­ing state­ment of law in rela­tion to the inter­pre­ta­tion of s 386(1): as a mat­ter of ordi­nary lan­guage, an employ­er does not ter­mi­nate an employee’s employ­ment when his or her term of employ­ment expires.’”

Col­man DP then went on to con­sid­er the his­to­ry of the employ­ment rela­tion­ship between Mr Khayam and Nav­i­tas and con­sid­ered that the only clear rep­re­sen­ta­tion that had been made by Nav­i­tas to Mr Khayam con­cern­ing the future of the employ­ment rela­tion­ship was that it would end on the expiry of the out­er lim­it con­tract. He con­sid­ered that the evi­dence did not estab­lish that Nav­i­tas had ter­mi­nat­ed the rela­tion­ship but rather it had decid­ed not to enter into a new one. There­fore the thing that brought the rela­tion­ship to an end was the efflux­ion of time that had been agreed to by the par­ties. On this ground alone there­fore, ter­mi­na­tion had not been at the employer’s ini­tia­tive and Mr Khayam could not be said to have been dis­missed. There­fore the appeal failed. 

Whilst he con­sid­ered it not strict­ly nec­es­sary to deter­mine oth­er argu­ments giv­en this pri­ma­ry find­ing, Col­man DP went on to con­sid­er the appli­ca­tion of s. 386 (2)(a).

S. 386 (2)(a) rel­e­vant­ly pro­vides a per­son has not been dis­missed if they are employed under a con­tract of employ­ment for a spec­i­fied peri­od of time… and the employ­ment has ter­mi­nat­ed at the end of the peri­od”.

He con­sid­ered that the cir­cum­stances described in s. 386 (2)(a) con­tem­plate that the employ­ment will ter­mi­nate at the end of the peri­od because the end date has been reached and there is no oth­er rea­son for the employ­ment ending. 

He went on to con­sid­er the rela­tion­ship between s. 386(1) and s. 386(2)(a). He was of the view that the lat­ter was not an excep­tion to the for­mer, rather it con­firmed that s. 386(1) does not apply in cer­tain cir­cum­stances. In his words:

[141]In an ordi­nary case where a con­tract for a spec­i­fied term (or task, or sea­son) ends, and there is noth­ing more to the rela­tion­ship, there will quite clear­ly be no dis­missal’ under s 386(1). The func­tion of s 386(2) is to con­firm that this is the case. This does not make s 386(2) otiose. It would only be otiose if it were intend­ed to be an excep­tion, because an excep­tion is not need­ed. Rather, s 386(2) serves a use­ful func­tion by draw­ing atten­tion to modes of engage­ment that are very com­mon in the Aus­tralian econ­o­my, and putting beyond doubt that these cir­cum­stances (in and of them­selves, and with­out more) do not involve a dismissal.”

Col­man DP then addressed per­haps the most com­plex argu­ment in the appeal. This argu­ment con­cerns the inter­pre­ta­tion of s. 386 (2) (a).

The expres­sion spec­i­fied peri­od of time” (which appears in S386(2)(a)) had acquired an estab­lished mean­ing under deci­sions relat­ing to the inter­pre­ta­tion of pre­vi­ous indus­tri­al rela­tions leg­is­la­tion. That mean­ing was that a con­tract would not be for a spec­i­fied peri­od” if it allowed for ter­mi­na­tion dur­ing its term oth­er than for a breach of con­tract or mis­con­duct. That is to say, if the con­tract con­tained a notice peri­od allow­ing for ter­mi­na­tion, then such con­tract would not be for a spec­i­fied period. 
Col­man DP con­sid­ered that the intro­duc­tion into s. 386 (2)(a) of the Fair Work Act of the words and the employ­ment has ter­mi­nat­ed at the end of the peri­od” gave the words con­tract of employ­ment for a spec­i­fied peri­od” a dif­fer­ent con­text to that which had exist­ed under pre­vi­ous legislation. 

That is to say the empha­sis under s. 386 (2)(a) of the Fair Work Act was now on the con­tem­po­ra­ne­ous expiry of the con­tract and the employ­ment. There was there­fore no rea­son to inter­pret spec­i­fied” in the way it had pre­vi­ous­ly been inter­pret­ed in the nar­row­er sense of fixed” because the words spec­i­fied peri­od” were now aligned with ter­mi­na­tion of employment. 
To con­clude on this point, in his words:

147 An employ­ee who has served out the term of a con­tract for a spec­i­fied peri­od’ con­tain­ing no gen­er­al ter­mi­na­tion pro­vi­sion, and whose employ­ment end­ed on the last day of that peri­od and because the peri­od end­ed, has not been dis­missed under s 386(1). This is also a sit­u­a­tion meet­ing the descrip­tion of s 386(2)(a). If the sce­nario is changed only by includ­ing a gen­er­al ter­mi­na­tion pro­vi­sion in the rel­e­vant con­tract — one that was clear­ly nev­er act­ed upon — the result is the same. In my view, the cir­cum­stances of the present case fall with­in s 386(2)(a).” (my empha­sis)

Col­man DP found that out­er lim­it or max­i­mum term con­tracts (eg con­tracts of employ­ment for a spec­i­fied peri­od” which con­tain a notice pro­vi­sion) which ter­mi­nate due to efflux­ion of time should be treat­ed in the same way (under s 386) as con­tracts for a spec­i­fied term” which lack a notice peri­od. Such out­er lim­it or max­i­mum term con­tracts there­fore fall with­in the descrip­tion in s 386(2)(a).

He con­sid­ered that Com­mis­sion­er Hunt had reached the cor­rect con­clu­sion and hav­ing found that Mr Khayam was not dis­missed for the pur­pos­es of ss 385(a) and 386(1)(a) of the Act, dis­missed the appeal.

Full Bench deci­sion in Nav­i­tas – Major­i­ty Decision

The major­i­ty com­pris­ing Vice Pres­i­dent Hatch­er and Com­mis­sion­er Saun­ders allowed the appeal and referred the mat­ter back to Com­mis­sion­er Hunt for re-deter­mi­na­tion and in par­tic­u­lar to deter­mine whether or not Mr Khayam had been dis­missed by Nav­i­tas with­in the mean­ing s 386(1)(a) of the Act. 

Hav­ing reviewed the author­i­ties and the evo­lu­tion of ear­li­er leg­is­la­tion con­tain­ing sim­i­lar pro­vi­sions they con­sid­ered that s 386(1)(a) of the Act should be inter­pret­ed and applied as follows:

(1) Any analy­sis of whether ter­mi­na­tion had been at the ini­tia­tive of the employ­er” should be con­duct­ed by ref­er­ence to ter­mi­na­tion of the employ­ment rela­tion­ship not by ref­er­ence to the ter­mi­na­tion of the con­tract of employ­ment oper­at­ing imme­di­ate­ly pri­or to ces­sa­tion of the employ­ment. Such analy­sis may, depend­ing on the facts, require con­sid­er­a­tion of the cir­cum­stances of the entire employ­ment rela­tion­ship not mere­ly the terms of the final contract). 
(2) The focus of enquiry is whether an action on the part of the employ­er was the prin­ci­pal con­tribut­ing fac­tor in the termination.
(3) Where there is a time lim­it­ed con­tract but the par­ties have not agreed on the ter­mi­na­tion of the rela­tion­ship, this does not exclude the pos­si­bil­i­ty that ter­mi­na­tion occurred at the ini­tia­tive of the employ­er – that is as a result of a deci­sion or act of the employer. 
(4) Where an oper­a­tive time lim­it­ed con­tract reflects a gen­uine agree­ment that the employ­ment rela­tion­ship will not con­tin­ue beyond a spec­i­fied date and the employ­ment rela­tion­ship comes to an end on that date, then absent a viti­at­ing or oth­er fac­tor of the type which is lat­er referred to, the employ­ment rela­tion­ship will have been ter­mi­nat­ed by rea­son of the agree­ment of the par­ties. That is to say there will be no ter­mi­na­tion at the employer’s ini­tia­tive. How­ev­er if the time lim­it­ed con­tract does not in truth rep­re­sent an agree­ment that the employ­ment rela­tion­ship will end at a par­tic­u­lar time, any deci­sion not to offer a fur­ther con­tract will be one of the fac­tu­al mat­ters to be con­sid­ered in deter­min­ing whether an action on the part of the employ­er was the prin­ci­pal con­tribut­ing fac­tor which results in ter­mi­na­tion of the employment.
(5) Fac­tors which may viti­ate or affect the oper­a­tion of a time lim­it­ed con­tract included:

  • Mis­rep­re­sen­ta­tion or mis­lead­ing con­duct by the employer

  • Employ­ee enter­ing into con­tract as a result of a seri­ous mistake

  • Uncon­scionable con­duct asso­ci­at­ed with the mak­ing of the contract

  • Duress or coercion

  • Lack of legal capac­i­ty on the part of the employ­ee to make the contract

  • The con­tract being a sham and not intend­ed by the par­ties to give legal effect to its appar­ent terms

(6) Oth­er fac­tors included:

  • A time-lim­it­ed con­tract may be ille­gal as con­trary to pub­lic policy

  • Whether the use of time lim­it­ed con­tracts was appro­pri­ate in the rel­e­vant field of employment

  • The con­tract might be var­ied, replaced or aban­doned by a sep­a­rate agreement

  • The employ­ment con­tract may not be lim­it­ed to the terms of the writ­ten doc­u­ment and may be one of a series of stan­dard form con­tracts used for admin­is­tra­tive con­ve­nience which do not rep­re­sent the real­i­ty or total­i­ty of the employ­ment relationship

  • Dur­ing the employ­ment rela­tion­ship the employ­er may have made rep­re­sen­ta­tions that the employ­ment would con­tin­ue beyond a con­trac­tu­al time limit

  • The terms of the time lim­it­ed con­tract might be incon­sis­tent with the terms of an award or enter­prise agree­ment which might pro­hib­it or reg­u­late fixed term employment

Hav­ing list­ed these fac­tors the major­i­ty con­clud­ed that Com­mis­sion­er Hunt had not tak­en into account all of the rel­e­vant cir­cum­stances (being an appeal­able error). It should be not­ed that the approach she had tak­en was informed by her view that she was bound by the deci­sion in Lunn. 

The major­i­ty then con­sid­ered s 386(2)(a) of the Act which rel­e­vant­ly pro­vides that a per­son has not been dis­missed if the per­son was employed under a con­tract of employ­ment for a spec­i­fied time… and the employ­ment has ter­mi­nat­ed at the end of the peri­od”.

At issue was whether an out­er lim­it or max­i­mum term con­tract (being a con­tract for a spec­i­fied term but which con­tains an unqual­i­fied right to ter­mi­nate before the end of the term) fell with­in the exemp­tion in s 386(2)(a). The major­i­ty con­sid­ered that the his­tor­i­cal mean­ing giv­en to the expres­sion con­tract of employ­ment for a spec­i­fied peri­od of time, applied, name­ly that such an expres­sion did not include a max­i­mum or out­er time lim­it employ­ment con­tract. How­ev­er it con­sid­ered that such expres­sion did not nec­es­sar­i­ly exclude con­tracts where there might be a lim­it­ed abil­i­ty to ter­mi­nate for breach.

The major­i­ty reject­ed the argu­ment that the addi­tion of the words and the employ­ment has ter­mi­nat­ed at the end of the peri­od” amounts to recast­ing of the entire pro­vi­sion such that ear­li­er judi­cial inter­pre­ta­tion of the expres­sion con­tract of employ­ment for a spec­i­fied peri­od of time” could be ignored. 

The major­i­ty con­sid­ered that the final con­tract of employ­ment between Mr Khayam and Nav­i­tas which pro­vid­ed for an unqual­i­fied right of ter­mi­na­tion on 4 weeks’ notice meant that the con­tract was not a con­tract for a spec­i­fied peri­od”. There­fore the exclu­sion in s 386(2)(a) did not apply. 

It referred the mat­ter back to Com­mis­sion­er Hunt for her to re-deter­mine whether Mr Khayam had been dis­missed on the employer’s ini­tia­tive” with­in the mean­ing of s 386(1)(a).

Sum­ma­ry

In rela­tion to s 386(1)(a) of the Act, Full Bench was in agree­ment that the ref­er­ence to the person’s employ­ment being ter­mi­nat­ed on the employer’s ini­tia­tive was a ref­er­ence to the employ­ment rela­tion­ship being ter­mi­nat­ed as dis­tinct from the employ­ment con­tract being terminated. 

Both minor­i­ty and major­i­ty judg­ments list­ed the cir­cum­stances which should be con­sid­ered in assess­ing whether the employ­ment rela­tion­ship had been ter­mi­nat­ed at the ini­tia­tive of the employer.

Col­man DP deter­mined that the appeal should be dis­missed as he was sat­is­fied that on the evi­dence before Com­mis­sion­er Hunt, the employ­ment rela­tion­ship had not been ter­mi­nat­ed on the ini­tia­tive of the employer. 

Hatch­er VP and Saun­ders C con­sid­ered that this ques­tion should be resub­mit­ted to Com­mis­sion­er Hunt for rede­ter­mi­na­tion as she had not tak­en account of all the rel­e­vant circumstances. 

Where the minor­i­ty and major­i­ty judg­ments diverged on the law, was in rela­tion to the inter­pre­ta­tion of s. 386 (2)(a). Hatch­er VP and Saun­ders C held that out­er lim­it or max­i­mum term con­tracts are not cap­tured by the exemp­tion in s 386(2)(a). By con­trast, it would appear that Col­man DP found that out­er lim­it or max­i­mum term con­tracts which ter­mi­nate due to efflux­ion of time, should be treat­ed by s386(2)(a) in the same way as con­tracts for a spec­i­fied term” which lack a notice period.

Lessons for employers

The major­i­ty deci­sion in Nav­i­tas means employ­ers can­not afford to be com­pla­cent about reliance on out­er lim­it or max­i­mum term con­tracts as a means to avoid unfair dis­missal claims, when the con­tract is not renewed. 

It is clear the Com­mis­sion may con­duct a detailed analy­sis of all the cir­cum­stances relat­ing to the employ­ment rela­tion­ship in order to come to a view as to whether or not the employ­ment rela­tion­ship has end­ed at the employer’s ini­tia­tive. Fac­tors of the kind out­lined by the Full Bench will be a help­ful guide to employ­ers in con­sid­er­ing whether the employ­ment rela­tion­ship could be said to have end­ed at their initiative. 

Whilst by no means con­clu­sive, the draft­ing of out­er lim­it or max­i­mum term con­tracts which con­tain a pro­vi­sion which makes clear that the employ­ment rela­tion­ship will ter­mi­nate at the end of the spec­i­fied peri­od with­out any act being required to be tak­en by the employ­er for that to occur, may assist in the argu­ment that the rela­tion­ship ter­mi­nat­ed by efflux­ion of time. 

Some com­men­ta­tors have already, ques­tioned whether the deci­sion in Nav­i­tas could have impli­ca­tions for oth­er areas of the Fair Work Act in which the expres­sion employ­ment being ter­mi­nat­ed at the employer’s ini­tia­tive is ref­er­enced. For exam­ple the redun­dan­cy pay pro­vi­sions in the Act.