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Unfair dismissal at the end of a fixed term contract

Fixed-term employment contracts are common in many workplaces. Understandably, most employers consider they would be protected from an unfair dismissal claim once the term ends. However, in Saeid Khayam v Navitas English Pty Ltd t/a Navitas English (‘Navitas’) [2017] FWCFB 5162 the Full Bench of the Fair Work Commission found that an employee may have rights to pursue unfair dismissal proceedings even though the employment ends at the expiration of a fixed-term contract.

The case emphasises the need for businesses to remain vigilant in their employment practices and stay abreast of current workplace laws and their interpretation.

The case

Mr Khayam was employed by Navitas to perform teaching duties on a casual basis between 2005 and 2012. He was subsequently offered two consecutive fixed-term contracts, the last for the period 1 July 2014 to 30 June 2016 (the expiry date). This contract was entered despite Navita’s initial reluctance to offer a further term due to concerns over Mr Khayam’s unsatisfactory performance of administrative work.

The contract provided for the automatic termination on the expiry date. The enterprise agreement applicable to Navitas at the time both authorised the fixed-term engagement of employees and provided ‘absolute discretion’ as to whether or not Navitas would offer or renew such contracts.

Navitas informed Mr Khayam a few weeks before the last contract was to expire that further employment would not be offered based on his ‘performance and disciplinary record’. Mr Khayam’s employment ended on 30 June 2016 and he made an unfair dismissal claim with the Fair Work Commission.

Navitas argued that it had not dismissed Mr Khayam, rather his contract had simply ended upon expiry. The Commission initially agreed with Navitis and Mr Khayam appealed.

Termination at the ‘initiative of the employer’

Establishing that he was dismissed was key to Mr Khayam’s appeal. The Fair Work Act 2009 (Cth), at s 386 provides:

  1. ‘A person has been dismissed if: 
  • the person’s employment with his or her employer has been terminated on the employer’s initiative…

2. However, a person has not been dismissed if:

  • the person was employed under a contract of employment for a specified period of time, for a specified task, or for the duration of a specified season, and the employment has terminated at the end of the period…’

Upon reading s 386, it may have been plausible that Mr Khayam had not been dismissed however the Full Bench considered that such a decision was ‘artificially constrained and did not take into account all the relevant circumstances’. Consequently, the appeal was upheld.

The Full Bench declined to determine whether Mr Khayam had in fact been dismissed and the matter was referred back to the Commissioner, who had already heard the evidence and would now be equipped with the Full Bench’s reasoning to re-determine the case.

So, what does this mean?

Employers now face uncertainty as to the effectiveness of a fixed-term contract that is not renewed on expiration, for avoiding an unfair dismissal claim.

Rather than relying solely on the employment contract, emphasis must now be placed on the employment relationship in its entirety (in this case comprising a series of contracts over an ongoing and significant period). The Full Bench stated:

‘The analysis of whether there has been a termination at the initiative of the employer…is to be conducted by reference to termination of the employment relationship, not by reference to the termination of the contract of employment….

This distinction is important in the case of an employment relationship made up of a sequence of time-limited contracts of employment…’

If the termination is initiated by the employer and not agreed by the employee:

‘… the focus of the inquiry is whether an action on the part of the employer was the principal contributing factor which results, directly or consequentially, in the termination of the employment.’

Whilst not exhaustive, the Full Bench indicated the following factors that may be relevant and / or determinative in such cases.

The contract itself and whether it may be invalidated or impaired due to:

  • misrepresentation, misleading or unconscionable conduct, duress or coercion on the part of the employer;
  • serious mistake as to the contents or subject matter, or lack of legal capacity on the part of the employee;
  • terms that do not reflect the reality or totality of the terms of employment;
  • terms that are inconsistent with an award or enterprise agreement;
  • a sham arrangement.

Where the actual contract is for a fixed term but the employer, during the period of employment, makes representations to the employee or engages in conduct that misleads the employee into thinking the employment would continue in certain circumstances, such as satisfactory performance.

Key takeaways

  • Employers may not be protected from an unfair dismissal claim once a fixed-term contract ends.
  • Employment contracts should be reviewed to ensure they are enforceable and do not contain voidable terms.
  • Processes should be implemented to manage casual and fixed-term employees to limit exposure to an unfair dismissal claim, particularly when determining whether to renew fixed-term contracts.
  • Managers and supervisors should ensure that their conduct does not mislead or misrepresent to the employee the true nature of the employment arrangement.

If you or someone you know wants more information or needs help or advice, please contact us on 08 9422 8111 or email buslaw@taitlegal.com.au.