Reasonable notice of termination of employment

There is a current legal controversy in the Australian courts about whether or not an implied term should be inserted into contracts of employment for the purpose of interpreting and applying them to the effect that if the parties have not expressly addressed and agreed the issue, an employer must give “reasonable” notice of termination of contract; as must the employee who is resigning.

This has been the traditional approach to the issue by the common law for many decades and the only room during that time for argument was what length of time was appropriate as “reasonable”. The courts developed a body of case law for the tests which were to be used to determine a reasonable length of time.

In the past several years starkly opposing schools of thought have emerged in the courts about the issue. Some courts have held that since the coming into force of the Fair Work Act on 1 January 20120 the common law no longer allows for the implication of a term requiring reasonable notice because of the sliding statutory scale in sec 117 of the Act which prescribed the minimum length of notice (or pay in lieu) which must be provided by an employee when termination an employee’s employment.

I acknowledge the law firm Herbert Smith Freehills which wrote the following in a recent blog about a significant case in Western Australia.

“In the recent decision of Richards v Nicoletti [2016] WAIRC 00941, the WAIRC Full Bench has determined that there is no scope to imply a term of reasonable notice of termination in employment contracts.

The applicant, Mr Richards, was a stockman whose employment was terminated without notice for alleged incompetence. Mr Richards brought a number of claims against his former employer, including in the WAIRC’s denied contractual benefits jurisdiction. Mr Richards alleged that his employer had breached an implied term of his employment contract by failing to provide him with notice of termination. At first instance, Mr Richards’ claim was dismissed by then-Chief Commissioner Beech.

On appeal, Chief Commissioner Scott anIn the recent decision of Richards v Nicoletti [2016] WAIRC 00941, the WAIRC Full Bench has determined that there is no scope to imply a term of reasonable notice of termination in employment contracts.

The applicant, Mr Richards, was a stockman whose employment was terminated without notice for alleged incompetence. Mr Richards brought a number of claims against his former employer, including in the WAIRC’s denied contractual benefits jurisdiction. Mr Richards alleged that his employer had breached an implied term of his employment contract by failing to provide him with notice of termination. At first instance, Mr Richards’ claim was dismissed by then-Chief Commissioner Beech.

On appeal, Chief Commissioner Scott and Acting Senior Commissioner Kenner, in the majority, upheld Beech CC’s decision. They relied on the requirement that, in order to imply a term into a contract, that term must be ‘necessary’, meaning that there must be ‘a gap in the contract which needs to be filled’.  In the case of a proposed implied term of reasonable notice, there is no such gap for the implied term to fill where the NES or another applicable industrial instrument prescribes a period of notice of termination; that is, the contract would not be seriously undermined or rendered ineffective by a failure to imply a term of reasonable notice, as the NES or applicable industrial instrument provides a safety net.

In dissent, Acting President Smith held that the prescriptions in the NES and other industrial instruments merely provide the minimum period of notice an employee must be given – that minimum period may not satisfy a claim for ‘reasonable’ notice for all employees (for example, in the case of a senior employee with a significant length of service), and the statute should not be applied such that it undermines a common law right to reasonable notice without very clear words to that effect.

This decision comes in the wake of a number of recent decisions in other jurisdictions which have considered this issue and come to a similar conclusion (see, for example, Kuczmarski v Ascot Administration Pty Ltd [2016] SADC 65; Brennan v Kangaroo Island Council [2013] SASCFC 151). However, the position is by no means settled. There have been a number of other recent decisions in other jurisdictions in which Courts have found that section 117 of the Fair Work Act does not prevent the implication of a term providing for reasonable notice of termination, using similar reasoning to Smith AP in Richards v Nicoletti (see McGowan v Direct Mail And Marketing Pty Ltd [2016] FCCA 2227 at [85]; Guthrie v News Ltd (2010) 27 VR 196 at [197]).”

I do not agree with the decision of the Full Bench of the Western Australian Industrial Relations Commission, preferring the reasoning and decision of the Acting President. I will publish my reasons for this view in a future blog in the near future,