Unfair dismissal of fixed-term contracts

Previously, employers would attempt to circumvent the protections pro-offered by the Fair Work Act 2009 (Cth) by engaging employees on rolling fixed-term employment contracts. However, the use of fixed-term and maximum-term employment contracts is now severely restricted under the new regime.

In short, any fixed-term or maximum-term contract with an outer limit exceeding two years will cease to have effect and convert to a permanent agreement. In circumstances where a contract expires at the conclusion of the maximum two-year period, employers have an obligation to remain vigilant, as their business may be exposed to unfair dismissal proceedings notwithstanding the termination occurring by virtue of the contract expiring.

Consecutive fixed-term contracts

In Saeid Kkayam v. Navitas English Pty Ltd t/as Navitas English, [2017] FWCFB 5162, the Applicant was employed to perform teaching duties on a casual basis between 2005 and 2012. The Applicant was offered two consecutive fixed-term contracts, with the latter agreement expiring on 30 June 2016.

The contract provided for the automatic termination of the Applicant on the expiry date. An applicable enterprise agreement authorised the fixed-term engagement of employees and provided Navitas “absolute discretion” to renew such contracts.

Navitas informed the Applicant that his fixed-term contract would not be renewed a few weeks prior to expiry thereof, citing the Applicant’s “underperformance and disciplinary record.” The Applicant filed an unfair dismissal application in the Fair Work Commission. Navitas argued a jurisdictional objection on the basis that the Applicant was not dismissed, but rather his contract expired.

On appeal, the Full Bench referred the matter to be re-determined by the Fair Work Commissioner, stating that in circumstances where there has been a termination initiated by the employer and not agreed to 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 consequently, in the termination of employment.”

Relevant factors for terminations

While not exhaustive, the Full Bench indicated the following factors that may be relevant when determining if there has been a termination at the initiative of the employer (and not by reference to the termination of the contract of employment):

• The contract itself and whether it may invalidated or impaired due to the maximum period exceeding two years.
• Misrepresentation, misleading or unconscionable conduct, duress or coercion on the part of the employer.
• Serious mistake as to the contents or subject matter of the contract.
• Terms that do not reflect the totality of the terms of employment.
• Terms inconsistent with an applicable Modern Award or Enterprise Agreement.
• A sham agreement.
• Representations by the employer that misleads the employee into assuming that the contract will be extended, or permanent employment will be offered due to satisfactory performance or otherwise.

Key takeaways on fixed-term contracts

Employers should not assume that termination at the expiry of a fixed-term contract will reduce their risk of exposure to unfair dismissal proceedings in the Fair Work Commission.

With the introduction of new legislation which requires employers to factor in previous fixed-term contracts issued before 6 December 2023 into the two-year limitation period, employers are now faced with expiring agreements or converting employees to permanent arrangements.

It is therefore important that employers seek advice on how to communicate the expiration of employment contracts in a way that reduces liability to claims and ensures that both parties are afforded procedural fairness.

Chamberlains is a full-service law firm that covers various areas of law from commercial to property, family to insolvency, private wealth to personal injury, and workplace law, with offices in Canberra, Sydney, Newcastle, and Perth