Major change to fixed term contracts and unfair di...

Major change to fixed term contracts and unfair dismissal

Employers at times hire workers for a specific period of time, say, for six months or 12 months. This is called a fixed term contract. It is a contract that is agreed to end after a specific period of time.

What happens, though, if an employee is terminated after several of these contracts have been performed? What happens if there is only one contract and the employee is not offered a new one at the expiry of the time agreed? Can the employee make an unfair dismissal claim?

In an important decision, the Fair Work Commission has reversed the interpretation of unfair dismissal provisions and how it relates to employees on fixed term contracts and long-term casuals.

Previously, employees in the above situations did not have access to the unfair dismissal provisions. As a result of the decision, when the contract expires with the passage of time, the termination may attract the unfair dismissal provisions because there may be a termination at the ‘initiative’ of the employer.

In this case a teacher had been employed for eleven years on a series of fixed term or outer limit contracts of employment. These contracts were offered by the employer, and accepted by the employee every few years. At the end of the eleventh year, the teacher was not offered a new contract because his administrative work was poor. He filed an unfair dismissal claim. That claim was dismissed at first hearing as the teacher had been on a fixed term contract and so the contract was deemed to have expired at the end of the two years.

In a majority ruling, the Full Bench determined that the established authority in such cases, Department of Justice v Lunn had artificially constrained the commissioner in considering a teacher’s claim against a language school where he worked for 11 years.

After reviewing the legal foundations of the Lunn ruling, made under the unfair dismissal provisions in the predecessor Workplace Relations Act 1996 (Cth), the Commission said:

“… We do not consider that Lunn stated in a correct or complete way the proper approach to the interpretation of the expression ‘termination of employment at the initiative of the employer’ in…the WR Act and its application to the circumstances of an employee employed pursuant to a time-limited contract or contracts. It should not therefore be treated as determinative of the interpretation of s386(1) of the FW Act and its application to the same circumstances. We will therefore consider s 386(1)(a) unencumbered by the reasoning and conclusions in Lunn.”

After tossing out a decade of settled authority, a serious step which the Commission said is rarely taken, the Commission went on to review the unfair dismissal provisions without reference to Lunn.

The Commission shifted the emphasis from the contract of employment to the employment relationship. The employment relationship is the overriding relationship between the parties, and may include several different contracts of employment during an employee’s time with an employer.

So, a termination at the initiative of the employer (meaning an unfair dismissal can be made) is to be looked at with reference to termination of the employment relationship, not by reference to the termination of the contract of employment that applied before the end of employment. The Bench said that the entire relationship should be taken into account, not merely the terms of the final employment contract.

Where the terms of a contract show a genuine agreement on the part of the employer and employee that the employment relationship will not continue after a specified date, and the employment relationship comes to an end on the specified date, then, without something else, the employment relationship will have been terminated by reason of the agreement between the parties and there will be no termination at the initiative of the employer.

In those circumstances, a decision by the employer not to offer any further contract of employment will not be relevant to whether there was a termination of employment at the initiative of the employer. The decision not to offer further employment is separate and distinct from the earlier agreement between the parties to end the employment relationship on a particular date.

However, if the fixed term contract does not in truth represent a genuine agreement that the employment relationship will end at a particular time, the 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 main contributing factor which resulted, in the termination of the employment.

Where termination of employment occurs at the expiry of a fixed term or outer limit contract, in most circumstances the termination will arise from the effluxion of time and not at the initiative of the employer, and thus not attract the unfair dismissal provisions.

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