Fixed term contracts and the fair work system

It is generally well known that a fixed term contract of employment (ie one which will terminate at an agreed term) will operate so that the employee cannot sue for unfair dismissal if the employer decides not to offer fresh employment or a new contract of employment. That this is the case is perfectly clear from the terms of the Fair Work Act, and the common law.  For example in Victoria v The Commonwealth [1996] HCA 56, the High Court held “as a matter of ordinary language, an employer does not terminate an employee’s employment when his or her term of employment expires. Rather, employment comes to an end by agreement”.

Section 386(1) of the Act provides that a person has been dismissed if “the person’s employment with [their] employer has been terminated on the employer’s initiative”. An exception to that definition includes if “the person was employed under a contract of employment for a specified period of time …, and the employment has terminated at the end of the period…”; see sub-sec s 386(2)(a).

But if a so called fixed term contract of employment contains a provision to the effect that it can be brought to end, generally upon notice before the expiration of the outer limits of the contract, can that constitute a dismissal and thus potentially ground an unfair dismissal case.

The answer appears to be yes.  In Khayam v Navitas English Pty Ltd t/a Navitas English [2017] FWCFB 5162 delivered 8 December 2017 two of the three members of a Full Bench of the Commission decided that although the applicant’s employment came to an end at the expiration of the term, the employer had in fact invoked the termination of his employment by providing him with 4 weeks’ notice in accordance with the contract and that in doing so the employer had “initiated” the termination of the employment relationship even though it occurred on the date of the “outer-limits” of the contract. In doing so, the majority distinguished the position from a  true fixed term contract which ordinarily will not contain a right to bring it to an end before the expiration of its term.

Here is the majority’s reasoning.

“In Cooper v Darwin Rugby League Inc (1994) 57 IR 238 the contract was for a specified period of time, but allowed for the termination on one month’s notice by either party before the expiration of the specified time. In that case the employment was terminated by the unilateral act of the employer and not by the effluxion of the period of time set out in the contract. In these circumstances the Court held that the regulation did not exclude the employee from the termination of employment provisions.

Andersen v Umbakumba Community Council (1994) 126 ALR 121 establishes that a contract for a specified period of time requires some certainty, and must be one where the date of commencement and completion are unambiguously identified by a term of the contract. Where the cessation date merely records the outer limit of the contract and there is an unqualified right for either party to terminate, the contract is not one for a specified period of time. A right to terminate that is conditioned by a breach of a term of the contract would not be an unqualified right to terminate.

Where a series of specified period contracts are entered into merely for administrative convenience then the Court has looked beyond the contract terms to the reality of the employment relationship. In D’Lima v Board of Management, Princess Margaret Hospital of Children (1995-96) 64 IR 19 for example, an employee was engaged on a series of short term contracts, each for a specified period of time. There was no break in the continuity of contracts except for a period of leave. A continuous employment relationship was found to exist, and the employee was not excluded on the basis of being an employee engaged under a contract of employment for a specified period of time.

Where a contract clearly sets out the specified period of the contract and the contract terminates when the specified period expires, the termination is not a termination at the initiative of the employer. In Fisher v Edith Cowan University (unreported decision of Madgwick J, 12 November 1996, No WI 1061 of 1996) a termination was held to be not at the initiative of the employer as the employment terminated as and when it did by reason of the agreement of the parties, made a year earlier, that it should so terminate.

In the Fisher case the employee was employed under three fixed term contracts. Prior to the expiration of the final contract the position was advertised. The applicant applied for the position but was not successful in obtaining it. The particular context of the employment was seen to be relevant in that it was not a case where the use of a fixed term contract had been unreal, unconscientious or oppressive as against an employee of special vulnerability. In reaching this conclusion it was relevant that the use of fixed term contracts was accepted and regulated in the award provisions covering the employment of the employee at the university.”

 

[85] The discussion of Cooper in the Explanatory Statement is notable because it expressly refers directly to the passage in the decision quoted in paragraph [80] above in which the Court expressed the view that reg 30B(1)(a) did not apply to a termination of employment caused by a unilateral act of the employer rather than by the effluxion of time – that is, it did not apply to a termination which occurred prior to the expiry of a contract for a specified period. The maker of the statutory rule therefore evinced an intention that reg 30B(1)(a) be interpreted in a manner consistent with Cooper in that respect. (The references to the decision in D’Lima and Fisher are also noteworthy having regard to our earlier consideration concerning s 386(1)(a).)

[86] As a result of the Workplace Relations Amendment (Fair Termination) Act 2003, the exclusion that had been contained in reg 30B(1)(a) became part of the WR Act, as s.170CBA(1)(a). There was no change to the language used in the exclusion. The note which had previously accompanied reg 30B(1)(a) now followed s 170CBA(1)(a), and remained in the WR Act until the enactment of the FW Act.

[87] When, after 1996 the unfair dismissal jurisdiction was transferred from the Industrial Relations Court to the AIRC as a result of the Workplace Relations and Other Legislation Amendment Act 1996, the AIRC consistently applied the approach taken in Andersen and Cooper that the expression “contract of employment for a specified period of time” as it appeared in s 170CBA(1)(a) did not encompass a time-limited contract which conferred an unqualified right of termination prior to its expiry.[89] To that extent the expression therefore had a judicially-determined, well-settled interpretation at the time the FW Act was enacted. However, notwithstanding the note that followed reg 30B(1)(a) and subsequently s 170CBA(1)(a), there were divided views as to whether to follow the view expressed in Cooper that the exclusion was not to be understood as applicable when the termination of employment occurred by the unilateral act of the employer before the end of the “specified period of time”.[90]

[88] It was against that background that s 386(2) was enacted. In respect of time-limited contracts, s 386(2)(a) contains two requirements that must be met in order for the exclusion to apply. The first is that the person must have been employed under a “contract of employment for a specified period of time”. This expression is of course identical to that used in the former reg 30B(1)(a) and then s 170CBA(1)(a) (later renumbered as s 386). The second requirement, which was not contained in the preceding legislation, provides that the exclusion only applies where the employment has terminated at the end of the specified period.

[89] Navitas’ submission that the addition of the second requirement amounts to a recasting of the entire provision, such that the earlier judicial interpretation of the expression “contract of employment for a specified period of time” can be ignored, finds little support in the text of the provision. The obvious inference to be drawn from retention of an expression with such a well-settled interpretation is that the legislature intended it to have the same meaning, namely that it did not include an employment contract which had a maximum or outer time limit but contained an unqualified right to terminate the employment beforehand. If the legislature intended to change the meaning, it would reasonably be expected that a different expression would have been used. The text of the second requirement in s 386(2)(a) is certainly new, but it only makes express the implication drawn from reg 30B(1)(a) in Cooper, and as earlier discussed apparently adopted in the subsequent statutory note, that the exclusion was not to apply where the employment was terminated by the unilateral act of the employer before the end of the specified period. There is nothing in the text of the second requirement which can be read as effecting an alteration in the meaning of the language used to express the first requirement, and Navitas’ submissions (nor those of the Ai Group or the ACCI) did not explain how any contrary textual conclusion could be reached.

[90] Navitas’ submission in substance is founded on the proposition that the deletion of the statutory note and paragraph 1532 of the Explanatory Memorandum should dictate a reinterpretation of the expression “contract of employment for a specified period of time” in s.386(2)(a) and a departure from Andersen and Cooper. That submission cannot be accepted.

[91] Section 13(1) of the Acts Interpretation Act 1901, which currently provides that all material in an Act from and including the first section to the end of the last section or schedule is part of the Act, was added by the Acts Interpretation Amendment Act 2011 and took effect on 27 December 2011. Prior to that amendment, s 13(3) of the Acts Interpretation Act relevantly provided: “No marginal note, footnote or endnote to an Act, and no heading to a section of an Act, shall be taken to be part of the Act”. The statutory note that was contained in the WR Act therefore did not actually form part of the text of that Act. Nor did the statutory notes contained in the FW Act form part of the text of that Act at the time of its enactment, and because of s 40A of the FW Act that remains the case today.[91]Accordingly the non-inclusion of the previous note in the FW Act cannot be characterised as a non re-enactment of it. A note not forming part of an Act may legitimately be used as an aid to the construction of a “doubtful or ambiguous” provision of an Act, but it cannot govern the interpretation of an Act or be used to contradict its text.[92] There is no authority that we are aware of which suggests that the omission of a note in relation to the re-enactment of a statutory provision can be used to infer an intention to change the meaning of an otherwise unchanged expression which has a well-settled meaning. In any event, we do not consider that the inference sought to be drawn from the omission by Navitas necessarily arises. Alternative inferences are available – for example, that, at least as far as the decision in Cooper is concerned, the addition of the words “and the employment has terminated at the end of the period, on completion of the task, or at the end of the season” made the note unnecessary.

[92] The passage from the Explanatory Memorandum relied upon by Navitas reads as follows (emphasis added):
“1532. Paragraph 386(2)(a) reflects the common law position that termination in these circumstances would not be a dismissal. The fact that an employment contract may allow for earlier termination would not alter the application of this provision as the employment has terminated at the end of the period, task or season. However, if a person engaged on this sort of contract is terminated prior to the end time specified in the contract, they may seek an unfair dismissal remedy if they satisfy the other requirements.”

 

[93] It may be accepted that the emphasised sentence in the above passage may, on one reading, be understood as meaning that s 386(2)(a) is intended to apply notwithstanding that a time-limited contract of employment allows for a right of termination exercisable prior to the expiry of the time limit. However the passage does not demonstrate any unambiguous intention to widen the scope of the exclusion as compared to the preceding legislative exclusion upon which it is so clearly based, nor does make it clear whether it is merely maintaining the previous position whereby the capacity to terminate a time-limited contract early for breach did not take the contract outside the scope of the exclusion or whether it was intended to extend the exclusion to encompass time-limited contracts with an unqualified right of early termination.

[94] In any event, Navitas (and the peak councils which supported its position) have not demonstrated a proper basis upon which this passage in the Explanatory Memorandum can be used to instruct the proper interpretation of s 386(2)(a). Under s 15AB(1) of the Acts Interpretation Act 1901, consideration may be given to an explanatory memorandum for the following purposes:
(a) to confirm that the meaning of the provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act; or
(b) to determine the meaning of the provision when:

(i) the provision is ambiguous or obscure; or

(ii) the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purpose or object underlying the Act leads to a result that is manifestly absurd or is unreasonable.

 

[95] Navitas seeks to use the Explanatory Memorandum to guide the meaning of the expression “contract of employment for a specified period of time” in s 386(2)(a). We do not consider that this expression is ambiguous or obscure. It has a well-established meaning, determined in judicial decisions, that has been derived from the ordinary meaning of the language used. Navitas does not seek to confirm that ordinary meaning, but to overturn it. It was not submitted, and we do not otherwise consider it to be the case, that the established ordinary meaning leads to a result that is manifestly absurd or unreasonable. It reflects the position which prevailed under the IR Act and the WR Act without any identifiable difficulty. In substance, Navitas seeks, impermissibly, to use the passage from the Explanatory Memorandum to displace the actual words used in the statute. As was stated by Mason CJ and Wilson and Dawson JJ in the High Court decision in Re Bolton; Ex parte Bean[93], even where there is legitimate recourse under s 15AB to the use of extrinsic material (in that case, a second reading speech) to aid the interpretation of a statute, “The words of a Minister must not be substituted for the text of the law… The function of the Court is to give effect to the will of Parliament as expressed in the law.”[94]

[96] The final contract of employment between Mr Khayam and Navitas, embodied in the letter of offer set out in paragraph [5] above, provided for an unqualified right for either party to terminate the contract on four weeks’ written notice or for Navitas to terminate on the provision of four weeks’ pay in lieu of notice. The contract was therefore not a contract of employment for a specified period, and the exclusion in s 386(2)(a) did not apply.”

The following principles emerge from the majority’s reasoning.

  1. Has the entire employment relationship (and not just the term contract) ended?
  2. If the employee has not voluntarily left the employment relationship, has an action by the employer been the principal contributing factor that has resulted, directly or consequentially, in the termination of the employment? One of the matters to be considered in this regard is any decision by the employer not to offer a further contract.
  3. Have the parties to the contract agreed on both the contract ending at the expiry of its term as well as the employment relationship terminating? Even if the parties have agreed in advance to terminate the employment on expiry of the contractual term, that agreement does not exclude the possibility that the termination of the employment relationship was at the initiative of the employer.
  4. Is there a genuine contractual agreement that the employment relationship will end on a specified date and has the employment come to an end on that date? If it has, then the employment relationship will have terminated as a consequence of the agreement between the parties and there will be no termination at the initiative of the employer.
  5. Are there any other relevant factors that need to be considered beyond the terms of the contract? For example, are there any vitiating factors (like unconscionable conduct or duress), is the contract illegal or contrary to public policy (such as the contract being entered to avoid the FW Act protections against unfair dismissal), has the contract been superseded by another agreement between the parties or are there other terms which supplement the written terms of the contract, have any representations been made to the employee during the term of the contract, is the contract inconsistent with an applicable award or enterprise agreement?