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.

General Protections Claims on the Rise

The Fair Work Commission’s latest Annual Report for 2016/2017, released last week, shows that general protections claims are on the rise. There has been a 12.3 per cent increase in general protections claims involving dismissals over the last year.

In 2015/2016 there were 3,270 general protections claims involving dismissals. In 2016/2017 this went up to 3,729 such claims.

What are the reasons for this increase, how many matters resolve at conciliation and is settlement always the best option? These aspects of general protection claims are explored below.

Reasons for the Trend

This trend towards employees favouring general protections claims over other types of legal claims is occurring for a number of reasons, including:

  • General protections applications are cheap to file, costing only $70.60;
  • The application form is easy to prepare and legal advice is not necessarily required;
  • There is little commitment required from individuals lodging an application in the early stages, as the matter goes straight to a telephone conciliation (rather than a face to face conference with a commission members as use to be the case);
  • If an employee cannot bring an unfair dismissal claim (because they earn above the high income threshold of $142,000 and are not covered by a modern award or enterprise agreement) this is often seen as the next best claim to lodge to try to put pressure on an employer to pay the employee some monetary compensation;
  • Pinpointing a workplace right that was exercised or was proposed to be exercised by the former employee is not that hard, it is connecting the workplace right to the dismissal that is more difficult and often overlooked;
  • There is a reverse onus of proof place on employers meaning employees do not have to prove the connection between the adverse action and the dismissal, rather the employer has to disprove this;
  • Unlike discrimination claims in the Australian Human Rights Commission conciliation is compulsory and takes place quickly within a month or two; and
  • It is a non-costs jurisdiction so employees have protection from being ordered to pay costs (except in limited circumstances).

Legislative Operation

Under the Fair Work Act 2009 (Cth), an employer must not take adverse action (including dismissal) against an employee because they exercised or proposed to exercise a workplace right (section 340).

Workplace rights are defined by section 341 of the Fair Work Act as:

  1. An entitlement to a benefit of, or role or responsibility under a workplace law or instrument or order made by an industrial body;
  2. An ability to initiate, or participate in, a process or proceedings under a workplace law or workplace instrument; and
  3. An ability to make a complaint or inquiry.

Some of the most commonly raised workplace rights include employees claiming to have been dismissed for complaining about their managers or colleagues or for seeking to exercise their right to a benefit under the Fair Work Act or a Modern Award such as payment of their salary or overtime.

In addition to the above, employers are also prohibited, under section 351 of the Fair Work Act, from dismissing an employee because of any protected attribute identified in state, territory or commonwealth discrimination law. This includes, but is not limited to, an employee’s race, colour, sex, age, disability, carer’s responsibility and martial status.

A reverse onus of proof rests on employers in general protections cases, to show that they did not dismiss the former employee for a prohibited reason. Accordingly, there is a evidentiary burden on employers to show that the real reason for dismissing an employee had nothing to do with the exercise or proposed exercise of a workplace right or a protected attribute, but was instead for another lawful reason.

Due to this reverse onus it is vital that employers ensure that they have lawful reasons for terminating employees. Notably, even if only one of a few reasons that a person’s employment is terminated is unlawful, the dismissal will still be found to fall foul of the legislative provisions. Clearly documenting what the reasons are, including having an internal paper trail setting this out, is essential. Following a fair process, even though the procedural fairness tests involved in an unfair dismissal case are not relevant here, is an important practice to try to ensure that the lawful reasons for dismissal are properly communicated and not lost in amongst the implementation of the decision to fire an employee.

Resolving Claims or Holding Out 

According to the Fair Work Commission’s Annual Report, of the 3,729 general protections claims involving dismissal, 73 per cent were resolved at conciliation, withdrawn or were refused an extension of time. This means that only 27 per cent may have been pursued to the next stage of potentially filing their claim in the Federal Courts.

77 per cent of the general protections matters involving a dismissal which did end up in conciliation resolved with either a monetary payment or both a monetary payment and some other non-monetary terms of settlement.

These settlement rates are high and show that employers are deciding, for the most part, to resolve these matters early on.

Despite the potential costs of defending a general protections claim involving a dismissal and the reverse onus of proof, employers should be cautious when dealing with dubious general protections claims. Paying a settlement amount for such a claim could lead to more problems. It could create a well trodden path for employees dismissed in the future to also expect a payout if they bring a claim (regardless of the merits).

While bringing a Fair Work Commission claim is relatively easy for former employees, the next stage of the process, taking the matter to the Federal Courts, is tougher and there are a number of disincentives to this process. The time involved to get to hearing, which is likely to be 12 to 18 months at a minimum, the legal costs if the former employee is represented, and the public nature of any decision are significant barriers to many former employees.

If a company is confident that its internal decision maker did not dismiss a former employee for a prohibited reason, and the employee is just trying on a claim to see where it gets them, holding firm and not making an offer to resolve it may be the most sensible strategy to deploy.

Paying the Price: Employee required to pay employer’s legal costs after losing unfair dismissal case

The Fair Work Commission has ordered a former cabin crew supervisor to pay his ex-employer’s legal costs after rejecting settlement offers and then losing his unfair dismissal claim. The case provides a useful illustration of an employer successfully recouping costs under Fair Work Act provisions where an employee has rejected a reasonable offer to settle. Continue reading

Significant and systematic micromanaging valid reason for dismissal

The Fair Work Commission has upheld an employer’s decision to dismiss an employee who engaged in “significant and systematic micromanaging” of his employees.  The employer dismissed the employee following a workplace investigation, on the basis that he had engaged in breaches of relevant workplace policies regarding bullying and harassment.


Several employees working under the supervision of the employee made complaints. A number of complaints related to specific incidents, including that the employee had responded to an employee’s group email publicly with “why did you send this?” and had then spoken to the relevant employee about the email in an aggressive and threatening tone. Other aspects of the employee’s micromanaging included that he had limited employees’ contact with internal and external stakeholders by requiring permission to speak to stakeholders, started attending internal stakeholder meetings with employees (who had previously attended meetings alone), and required employees to complete onerous tracking and other administrative tasks.

Micromanagement had the effect of bullying

The employee did not dispute the contents of the complaints, but rather their characterisation as bullying behaviour.  The employee claimed that the relevant employees had not raised these issues with him directly prior to making a formal complaint and that he had been unaware that his behaviour had an adverse effect.

The Commission found that despite the possibility of the employee being “well-intentioned”, the cumulative effect of his conduct and behaviour was one of significant and systematic micromanaging that breached the employer’s Code of Conduct, and bullying and work, health and safety policies.

The decision indicates that an employee’s intention may not be relevant in considering whether conduct is bullying.  Rather, the Commission will consider the impact of the behaviour in question on affected employees.

see Carroll v Karingal Inc [2016] FWC 3709