Fixed term employment contracts – no longer immune from unfair dismissal claims

Posted on Feb 12, 2018 by Dean Frith   |   Categories: Employment Law

Fixed term employment contracts are a common means by which employers employ staff in Australia.

A recent decision of the Full Bench of the Fair Work Commission has now opened the door for employees engaged under fixed term employment contracts to bring unfair dismissal claims at the end of their contract term.

Traditionally fixed term employment contracts have provided employers with the security of a nominated employment expiry date, coalesced with the flexibility of both parties the right to terminate earlier with notice, as stipulated under the terms of the agreement. Accordingly, this has meant that an employee whose employment is not renewed after the expiry date is not dismissed at the initiative of the employer. Rather, in such circumstances, the employment contract has merely ended after a term agreed by the parties. In other words, the use of fixed term contracts has prevented employees from bringing unfair dismissal claims against employers under the Fair Work Act 2009 (‘FW Act’), based on the expiry of the employment contract.

However, the recent decision of Saeid Khayam v Navitas English Pty Ltd [2017] FWCFB 5162 (‘Navitas’) found that it was in the public interest to reconsider the FWC’s approach in determining whether a termination of employment is at the initiative of the employer in relation to employees who have been employed under a series of fixed term contracts.
On appeal, the Full Bench overturned years of common law principle and held that the correct approach for determining whether an expired fixed term contract should be interpreted as a dismissal, is considered by reference to the employment relationship rather than the expiry of the contract.

Consequently, this means that where an employee has been engaged in successive fixed term contracts, consideration of the employment relationship in its entirety will be required. The purpose of this is to determine whether an action on the part of the employer is the fundamental contributing factor resulting in the cessation of the employment relationship. Factors that might be relevant include whether the contract has been varied, replaced or abandoned by way of a separate (written or oral) agreement, such that its supposed time limit is no longer applicable.

However, it is important to note that where a fixed term contract reflects a genuine agreement that the employment relationship will not continue after the date agreed between the parties, there will be no dismissal at the initiative of the employer. Likewise, a decision in such circumstances to not offer or renew another contract of employment will not be relevant to determining the question of whether the employment was terminated at the employers’ initiative.

However, the decision in Navitas has potentially significant consequences for employers who employ workers on fixed term contracts – a common means of employment in Australia. Employers can no longer assume immunity from employees bringing successful unfair dismissal claims based purely on non-renewal of expired fixed term contracts. As such, the FWC’s position casts uncertainty for employers, potentially undermining the safeguards that fixed- term contracts have provided.

Following the change in law from this case any employer who engages workers under fixed term employment contracts and who is intending to commence, renew, vary or end those contracts, should seek legal advice beforehand.