Australia: The expiry of contracts for a specified term – risk of unfair dismissal

WHO SHOULD READ THIS

  • Any State Government agency and Local Government council who engage employees on contracts for a specified term

THINGS YOU NEED TO KNOW

  • Deciding not offer a new temporary contract or extension, and letting the person's existing contract expire by effluxtion of time, may amount to termination at the initiative of the employer and give rise to unfair dismissal.

WHAT YOU NEED TO DO

  • When considering whether to offer or renew a maximum term contract for an employee, employers should ensure the contract documentation is worded appropriately and reflects a genuine agreement for the employment relationship to end at a particular date.
  • Be aware of the risk factors and seek legal advice if unsure.

In December 2017, the Fair Work Commission (FWC) challenged the inherent protection offered in the Industrial Relations Act 2016 (Qld) when it decided maximum term contracts that expire by effluxion of time may no longer be exempt from unfair dismissal claims. In November 2018, the issue was considered by the Queensland Industrial Relations Commission.

Background

Maximum term contracts of employment, also known as 'outer limit' contracts, are regularly used by State agencies and local governments to temporarily fill positions for a specified period of time. Often, an employee will be engaged on a series of time-limited contracts, either for the same position or another position that may be vacant or require backfilling.

Maximum term contracts differentiate from genuine 'fixed term' contracts in that an employer may lawfully terminate a maximum term contract before the specified end date with notice. The amount of notice required by either party will often be regulated by an applicable modern award or certified agreement. Employees on fixed term contracts are excluded from unfair dismissal protection pursuant to section 315(1)(d) of the Industrial Relations Act 2016 (Qld).

Historically, the Queensland Industrial Relations Commission (and its federal counterpart the FWC) has taken the view that if a maximum term contract or a fixed term contract reach the agreed expiry date, both the employee's employment and their contract will have ended by eflluxion of time, rather than the initiative of the employer.

In December 2017, the FWC changed this long standing legal position (provided for in Department of Justice v Lunn (2006) 158 IR 410).The Full Bench of the FWC held that in circumstances where an employee's contract ends at the expiry of the specified period by effluxion of time, this may amount to termination at the initiative of the employer and the employee is entitled to bring an unfair dismissal claim against their employer: see Khayam v Navitas English Pty Ltd [2017] FWCFB 5162.

In June 2018, the Western Australian Industrial Relations Commission adopted the FWC's reasoning in the case of Alan Jacobs v Commissioner of Police (2018) WAIRC 00375, and found that an employee's employment was terminated by the employer despite the term of the employee's contract expiring.

In November 2018, the Queensland Industrial Relations Commission (QIRC) determined the question of whether the employment of an employee, who was engaged on a series of contracts, ended by the eflluxtion of time or at the initiative of the employer.

QIRC Decision

In Lindquist v Redland City Council [2018] QIRC 141, a replacement Art Gallery Director was employed on a temporary basis to replace an employee taking maternity leave. The employee was employed under two contracts with specified end dates, with subsequent extensions providing for part-time arrangements and varying hours. The Council ultimately decided not to renew the employee's final contract when the substantive position holder returned to full-time hours. The questions for the QIRC were whether:

  • the employee was excluded from unfair dismissal pursuant to section 315(1)(d) of the IR Act because they were engaged for a specified period;
  • the Council had an unqualified right to terminate the contract on notice due to conflicting terms between the contract, certified agreement and underpinning award;
  • the employment arrangement was in fact one of continuous employment; and
  • whether the employee's employment and contract had in fact been terminated at the initiative of the Council giving rise to unfair dismissal protection.

The QIRC found that the applicant's employment had at all times been contingent on the other employee continuing in a part-time capacity until such time as she resumed full-time employment, or the creation of a new position. Commissioner Black held that in these particular circumstances, the employment arrangement was not one of continuous employment, and the applicant's employment and her contract ended on the basis of her being engaged for a specific period such that there had been no unfair dismissal at the expiry of the agreed term.

Summary of facts for the three decisions

Khayam – FWC Lindquist  – QIRC Alan Jacobs – WIRC
  • Teacher
  • Director – Redland Art Gallery
  • Traffic warden
  • Employed total eleven years
  • Employed over five years
  • Employed total nine years
  • Eight years as casual teacher; and
  • Three maximum-term contracts over four years

 

 

  • Employed to replace an employee on maternity leave; and
  • Two maximum-term contracts with three contract extensions, including on part-time hours
  • Eight years casual traffic warden; and
  • One maximum-term contract

 

 

  • Enterprise agreement applied
  •   Fair Work Act 2009 (Cth)

 

  • Certified agreement and relevant award applied
  • Industrial Relations Act 2016 (Qld)
  • Industrial agreement applied 
  • Industrial Relations Act 1979 (WA)
  • No offer to renew maximum term contract at end of period due to employee's unsatisfactory performance
  • No extension of final contract due to substantive position holder returning to full-time duties
  • No offer to renew maximum-term contract despite reasonable expectation of continued employment
  • Held:  Employment terminated at initiative of employer and not expiry of contract
  • Held:  Employment and contract terminated by effluxion of time and not at initiative of employer
  • Held:  Employment terminated at initiative of employer

What this means for state and local government employers

The FWC's decision in Khayam and the QIRC's decision in Lindquist mean that there is a risk for Local and State Government employers in relation to potential claims for unfair dismissal by employees who are engaged on maximum term contracts. Particularly where employees have been engaged on one or more contracts or extensions, and where it is the actions by the employer that are the main factor resulting in the termination of employment e.g. manager decides not to renew or offer a new contract due to performance concerns.

It is important that documentation recording for offers of new contracts and variations/extensions are appropriately worded to reflect the reason for the engagement, that there is no ongoing expectation of employment, and that the employment relationship and the employment contract will end at the end of the term (not just the contract).

What you need to consider

Risk factors for employers that the QIRC will consider to determine whether an unfair dismissal claim exists, include:

  • what is the total length of the person's employment;
  • is the employment relationship made up of a series of contracts and extensions for a specified term;
  • what is the reason(s) for employing a person under a maximum term contract;
  • does the employer have an unqualified right to terminate the contract ie on notice or pay in lieu;
  • if the employee does not agree with ending their employment, whether an action on the part of the employer was the principal contributing factor which resulted in termination of the employment;
  • whether the employment relationship, not just the employment contract, has ended and why;
  • if the terms of the contract are inconsistent with the terms of an award or certified agreement about fixed term employment, the award or agreement will prevail; and
  • whether the correspondence to the employee clearly provides for their employment as well as their contract to end at the expiry of the term, rather than just their contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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