Shaky ground for ‘maximum term’ contracts? Full Bench paves the way for unfair dismissal claims

Key takeaway

A recent decision by the Full Bench of the Fair Work Commission has opened access to unfair dismissal laws for workers employed on successive, maximum term contracts. Maximum term or ‘outer limit’ contracts are contracts for a specific period of time which may also be terminated before the end of that period by the giving of notice.

The Full Bench in Khayam v Navitas [2017] FWCFB 5162 (Navitas) has determined that, in the context of a dismissal, the Fair Work Commission (FWC) should not simply look at the expiry of the most recent contract, but take into account the employment relationship as a whole. Where, for example, an employee has been engaged on a succession of contracts and is not offered a fresh contract due to performance issues, the termination of employment may now be seen to give access to the unfair dismissal regime.

However, importantly for employers, where the terms of a maximum term contract (written or otherwise) reflect a genuine agreement as to the conclusion of the employment relationship on expiry of the term, the employee will remain precluded from accessing the unfair dismissal jurisdiction.

The pre-Navitas landscape

Maximum term contracts have, until now, precluded employees from accessing unfair dismissal protections. This was because the termination of the employment on expiry of such a contract was not seen as a dismissal at the employer’s initiative, but rather one occurring due to the contract reaching its agreed expiration date. This form of employment and termination had been legitimised in cases such as Department of Justice v Lunn (2006) 158 IR 410) (Lunn).

Lunn concerned an employee of the Attorney-General’s Department who had been employed on five successive maximum term contracts between 1998 and 2005. The employee was told that her final contract would not be renewed or extended. The Full Bench decided that the termination of the employment should be considered only in the context of the last maximum term contract. The Full Bench then held that the employment had simply terminated due to the expiry of the last contract and this precluded the employee from accessing the unfair dismissal regime.

This case legitimised the ability of employers to not continue employment (by extending or renewing a contract), even where performance issues played a role in that decision. It is important to note that the Lunn decision was based on the unfair dismissal provisions of the old Workplace Relations Act 1996, although it has been followed numerous times by the FWC under the new legislation.

The decision of Navitas

The case of Navitas concerned an employee of an education provider engaged on successive, maximum term contracts between April 2012 and May 2016. At the conclusion of the latest employment contract, the employer determined not to provide the worker with further employment due to performance issues. The employee challenged that decision, but the FWC held that the termination was not an unfair dismissal. The employee appealed.

On appeal, the Full Bench considered a number of recent cases which had criticised the approach taken in Lunn and determined that the principles in Lunn where incorrect and did not apply to the Fair Work Act.

Rather than simply viewing the last maximum term employment contract in isolation, the Full Bench held that the proper approach was to view the dismissal in light of the entire employment relationship. That is to say, from when the period of employment with the organisation first commenced.

The primary focus of the FWC will now be whether there was a step or action on the part of the employer that was a principal contributing factor in the termination of the employment relationship.

The Full Bench referenced situations in which an employee is provided successive, maximum term contracts and an understanding arises between the employer and employee that a new contract will be forthcoming unless there is a performance or other issue. Such an example may give rise to an unfair dismissal claim if the employee is not offered a further contract.

Maximum term contracts must reflect a genuine agreement as to the conclusion of the employment contract and the employment relationship if the employer wishes to avoid an unfair dismissal claim.

Deliberate avoidance of the unfair dismissal provisions

The Full Bench also considered the operation of section 386(3) of the Fair Work Act. This anti-avoidance provision states that if an employee has been employed under a contract of employment for a specified period of time and a substantial purpose of that arrangement is to avoid the unfair dismissal regime, then the exemption from an unfair dismissal claim will not apply.

In Navitas the Full Bench agreed with the decision of the Commissioner that this provision had not been contravened by the employer. However, employers should remain wary that employees may also look to utilise this provision if their attempts to bring unfair dismissal claims are frustrated by successive, maximum term contracts.