The implications of implying a term of reasonable notice
In a decision that demonstrates the need for employment contracts to clearly specify a term for notice of termination, Judge Obradovic in the Federal Circuit Court case, McAlister v Yara Australia Pty Ltd  FCCA 1409, has implied a term of 9 months’ notice into an employee’s employment contract.
The applicant had worked for her employer for almost 19 years before she was summarily dismissed for serious misconduct. She was working as Administration, HR and Logistics Manager before her responsibilities were substantially redistributed, and her role reduced, around 6 months before her dismissal.
At issue in the hearing was whether the respondent was entitled to summarily dismiss the applicant (an argument that, somewhat confusingly, appears to have been run in circumstances where the applicant was paid 5 weeks’ pay in lieu of notice); whether the applicant’s position had been made redundant; whether the applicant’s dismissal was in breach of the Fair Work Act 2009 (FW Act) general protections provisions; and, relevant for the purposes of this update, the amount of notice of termination of employment that the applicant was entitled to.
Notice of termination
The specific issue to be determined by her Honour was whether there was an express period of notice of termination in the applicant’s employment contract, or whether a period of reasonable notice should be implied. An associated issue was whether any implied term was displaced by section 117 of the FW Act, a provision that forms part of the National Employment Standards (NES).
Section 117 is the statutory minimum for Australian employees and relevantly provides an employer must not terminate an employee’s employment unless they have given written notice of the day of the termination, and that the time between giving the notice and the day of the termination must be at least the period prescribed in subsection 117(3).
The applicant’s contract of employment provided that:
All other details to be according to the rules and regulations set forth by the appropriate Australia government authority(ies) between employer and employee.
The respondent argued the reference to “rules and regulations” meant the contract expressly provided the period of notice of termination was to be in accordance with the FW Act or, as an alternative, the implication of any term of reasonable notice was to be in accordance with the NES.
Judge Obradovic set out the general principles to be applied when implying a term into a contract of employment (that is, it must be necessary and not inconsistent with an express term of the contract) and then summarised the cases that have dealt specifically with whether section 117 can displace the common law term of reasonable notice (at ).
In concluding that the employment contract did not contain an express provision with respect to notice of termination, and that section 117 of the FW Act did not displace the common law term of reasonable notice, her Honour observed that:
- It is unlikely parliament would have intended the enactment of that section means an employee who worked for 20 years is entitled to the same notice as an employee who worked for 5 years;
- The reference to “rules and regulations” in the applicant’s employment contract was so vague it was unable to be relied on in support of the incorporation of the NES as an express term;
- If the reference to “rules and regulations” did mean the NES, as that only refers to the “minimum period of notice” there was still scope for the implication of a longer period of notice in any event; and
- As there was nothing stopping the implication of a period of reasonable notice into the contract, it should be done so as a matter of necessity given the difference between the protections offered by statute and those at common law.
Having regard to factors including the applicant’s length of service, experience and age, 9 months was considered a reasonable period of notice. The claims in respect of redundancy and breaches of the general protections provisions were not made out.
This decision is a reminder of the importance of having an employment contract that clearly sets out the period of notice an employee will be entitled to upon termination of their employment. For some employers that will be a restatement of the NES, however for more senior employees who are perhaps privy to commercially sensitive information or who have close contacts with customers, a longer period of notice that protects the employer’s business interests (while also providing the employee with suitable time to find comparable employment) may be appropriate.
It is also recommended that employment contracts have the ability for employers to be able to direct the employee not to attend work or perform duties for all or part of their notice period. This is particularly important for more senior employees, as directing someone to stay away from the workplace means they will be unable to access business information and contact clients while still being under the control of their employer and bound by the terms of the employment contract.
Finally, when drafting an employment contract, employers should avoid using vague language to the effect that the NES will apply in determining the period of notice of termination as opposed to actually inserting the table from section 117 of the FW Act. As was highlighted in this decision, as the NES only provides for a minimum period of notice, such a contract may contain an implied term that provides for a reasonable notice of termination having regard to the particular circumstances of the employee.