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.

Mutual Trust and Confidence – Dead and Buried!

In one of the most significant employment law decisions in decades, the High Court of Australia has today decided that a term of mutual trust and confidence should not be implied into all employment contracts.

Background

Stephen Barker was made redundant by the Commonwealth Bank in 2009. Unfortunately, his redeployment process miscarried. He sued the Bank. He argued that the Bank’s failure to comply with its redeployment policy caused him to lose an opportunity to be redeployed. His claim was successful and he was awarded damages of $317,500.

At trial, the Federal Court held that the Bank’s failure to comply with its redeployment policy breached an implied term that parties will not, without reasonable cause, engage in conduct likely to destroy the relationship of trust and confidence that must exist between an employer and employee.

On appeal, a majority of a Full Court of the Federal Court (Jacobsen and Lander JJ, Jessup J dissenting) agreed that a term of mutual trust and confidence was implied by law into Mr Barker’s contract. However, that term was not breached by the Bank’s non-compliance with its redundancy policy. Instead, it was breached by the Bank not taking positive steps to consult with Mr Barker about alternative positions and not giving him an opportunity to apply for those positions.

High Court’s decision

In a unanimous decision (French CJ, Kiefel, Bell, Gageler and Keanne JJ), the High Court upheld the Bank’s appeal. The Court found that the implication of the term was “a step beyond the legitimate law-making function of the courts” and “should not be taken”1. The Court (in three separate judgments) considered the different bases on which terms can be implied in the contracts. All Justices agreed that it was not necessary to imply a term of mutual trust and confidence into Australian employment contracts.

All Justices adopted a cautious approach to the implication of terms and, when doing so, shied away from “complex policy considerations”2. Their Honours felt these considerations made the possible implication of such a term a matter more appropriate for the Parliament, rather than courts, to determine.

Implications

Employees, particularly those that do not have access to the unfair dismissal regime, will feel aggrieved. They may well ask – is it fair that we are subject to a “duty of good faith” to our employers, but they are not subject to a reciprocal duty towards us?

The answer to this question may well be – it’s not fair, but that does not make implication of the term a necessity. On that point, Mr Barker’s landmark case failed. Consequently, most employers will breath a sigh of relief.
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1. French CJ, Bell and Keanne JJ, paragraph 1
2. French CJ, Bell and Keanne JJ, paragraph 40

Anti-bullying laws – preparing for the great unknown

The Fair Work Commission’s (FWC’s) new anti-bullying jurisdiction commences on 1 January 2014. On 20 November 2013, the FWC released a draft anti bullying Case Management Model and a draft Anti-bullying Benchbook for public comment. In this post we step through how the new laws might play out in practice once a complaint is made.

How will the FWC deal with anti-bullying applications?

The FWC is required to deal with an application promptly.  The steps are:

1. Preliminary assessment of the application

Anti-bullying applications will go through a case management process similar to the administrative process for unfair dismissal applications.  This process will involve FWC employees serving the employer with the application, even if the employer is not named as a respondent.  The FWC with also serve the application on all the persons named in the application, which may, for example, be a manager or another worker.

An employer should consider raising any jurisdictional objections in its response to the FWC (for example, that the conduct does not occur within a constitutionally covered business).

FWC staff will conduct a preliminary assessment of the application, much like a triage assessment, and make a recommendation to the Panel Head.  If appropriate, the Panel Head may hear and determine jurisdictional issues.

2. Mediation

In most cases the Panel Head will arrange for the application to be mediated by a FWC mediator.  This process is likely to be similar to unfair dismissal telephone conciliations, and will be conducted in private. 

At no stage will the FWC promote or recommend monetary payments to settle applications.  The FWC’s objective will be to resolve the issues so that constructive and cooperative relationships can be resumed.

While FWC mediation is voluntary, employers may consider that the best approach is to participate in these processes and try to resolve the matter prior to a formal hearing.

3. Allocation to a member

If the matter cannot be resolved, it will then be referred to a FWC member, who will conduct a preliminary conference to identify the issues to be resolved.  The FWC member may then conduct a mediation or list the matter for hearing. 

4. Hearing

At a hearing, the FWC will receive evidence and submissions from the parties.  Hearings will usually be public.

If the FWC makes an order that bullying stop and this order is breached by a party, that party could be exposed to a penalty of up to $10,200 if they are a person, or $51,000 if they are a corporation.

What happens if an application is lodged with the FWC while an internal grievance procedure is ongoing?

If the FWC proposes to make an order to stop bullying, it must take into account an employer’s internal grievance procedure in determining how to deal with the bullying application.  The draft Case Management Model states that information issued by the FWC relating to the anti-bullying jurisdiction will encourage prospective applicants to first raise issues in the workplace.

In practice, it may be that the FWC will try to avoid dealing with an application (whether by mediation or hearing) until the internal grievance procedure comes to an end.  This would be a sensible approach, as it is usually in the interests of all parties to resolve any bullying swiftly and within the workplace.

Trail-blazing on the bullying frontier & past international experience

The FWC’s anti-bullying jurisdiction is unique on the international stage. In the United Kingdom and New Zealand, there are no specific legal provisions protecting employees from bullying. Although, some helpful observations can be made by considering similar grievance regimes in those jurisdictions.

In 2012, Advisory Conciliation and Arbitration Services (ACAS), an independent body in the UK, received approximately 90,000 complaints in which employees alleged the employer had breached specific legal protections, including unfair dismissal and discrimination.  Conciliations and mediations were conducted, on a free and voluntary basis, in these cases.  ACAS also provides training, guidance material and telephone advice to facilitate constructive relationships between employers and employees.

A report analysing the ACAS’ experience was commissioned by the FWC ahead of its anti-bullying jurisdiction (report available here). This report indicated that managers and complainants doubt the ability of mediation to resolve bullying complaints and suggested that agreements reached during mediation were often unsustainable or ineffective.  Managers were hesitant participants in the ACAS process because they considered the discussions focussed on their management behaviour, rather than the complainant’s underlying performance issues.  Complainants doubted that mediation would improve their managers’ behaviours.  The report concluded that mediation was more likely to be effective if used at an early point in the dispute, when the parties did not have entrenched positions.

The UK experience was that telephone conciliations were suited to complaints where financial settlement was an option and where it was not necessary to repair fractured relationships (such as in unfair dismissal cases, where the employment relationship had already ended).  This does not bode well for the FWC’s anti-bullying jurisdiction.

In New Zealand, the Employment Relations Authority deals with personal grievance applications, which include unfair dismissal, redundancy, and disadvantage claims (including bullying).  In 2012, 366 claims proceeded to determination.  The average cost to an employer in defending a grievance claim which had proceeded to determination was $12,445.  Employers were able to recoup about half this amount if they were successful because in NZ, unlike Australia, it is usual for the unsuccessful party to contribute to the legal costs of the other.

The uptake of a jurisdiction that does not involve monetary compensation is yet to be seen: new bullying laws commence on 1 January 2014.