The Case

Navitas English Pty Ltd (Navitas) employed Mr Khayam as a teacher, firstly as a casual employee between 2005 and 2012 and then on a number of maximum term contracts between 2012 and 2016. There was no discernible break in Mr Khayam’s employment with Navitas, with each maximum term contract commencing soon or immediately after the expiry of the previous maximum term contract.

A maximum term contract is one in which the employer and employee enter into an employment relationship for an expressed period of time, but which contains an early termination provision.

In early 2016, Navitas investigated Mr Khayam’s use of inappropriate materials that Navitas alleged promoted Scientology. A disciplinary process ensued about this matter as well as the issue of Mr Khayam’s punctuality.

In May 2016, Navitas advised Mr Khayam that when his contract expired on 30 June 2016, his employment would not be renewed.

Mr Khayam commenced unfair dismissal proceedings against Navitas.

The Verdict

Commissioner Hunt of the Fair Work Commission (FWC) at first instance held there had been no dismissal by Navitas because Mr Khayam’s contract had expired.

Mr Khayam appealed the ruling to the Full Bench of the FWC.

The Full Bench allowed the appeal, finding that the expiry of a maximum term contract does not exempt an employer from an unfair dismissal claim.

The Full Bench held the correct approach for determining whether the expiry of a maximum term contract amounts to a dismissal is not determined by the passing of time, but by reference to an examination of the entire employment relationship and how it ended.

The Full Bench held that only in the following cases would an employer be exempted for an unfair dismissal claim where there is a maximum term contract:

1. the employment relationship has ceased as opposed to the particular maximum term employment contract;

2. the termination was not agreed to by the employee, but the employer was not the principal contributing factor resulting in the termination of the employment;

3. the expiry of the contract is agreed but not the termination of the employment relationship and the termination of the employment relationship did not occur at the initiative of the employer; and

4. the terms of a maximum term contract reflect a genuine agreement between the employer and employee that the employment relationship will not continue after the specified date, so that the employment relationship will have terminated by the agreement of the parties and not at the initiative of the employer.

The Full Bench held that an employee will still be able to bring an unfair dismissal claim, despite the existence of a maximum term contract, where:

1. the maximum term in the contract is negated by one of the recognised categories by which the law excuses parties from performance of a contract, namely, the employee entered into the contract as a result of:

a. misrepresentation or misleading conduct by the employer;

b. a serious mistake about its contents or subject matter;

c. unconscionable conduct engaged in by the employer, such as taking advantage of a disability affecting the employee such as lack of education, lack of information, lack of independent advice or illiteracy;

d. duress or coercion;

e. the employee lacking the legal capacity to make the contract; or

f. the contract being a sham in the sense that it was not intended by the parties to give legal effect to its apparent terms;

2. the maximum term contract is illegal or contrary to public policy (for example, it was entered into for the purposes of avoiding the unfair dismissal laws);

3. the maximum term contract was varied, replaced or abandoned by another oral or written agreement such that the time limit no longer applies;

4. the maximum term contract does not contain all the terms of the employment relationship between the parties;

5. during the employment relationship, the employer has engaged in conduct or said something (for example, representing to the employee that the employment will continue subject to conduct and performance regardless of the maximum contractual time limit on employment) that would prevent the employer from relying on the terms of the maximum term contract as to whether the employment relationship has been terminated;

6. the maximum term contract is inconsistent with provisions of an award or enterprise agreement that regulate the employment relationship, in which case, the terms of the award or enterprise agreement would prevail over the terms of the maximum term contract; and

7. the maximum term contract is one of a series of standard-form contracts operated for administrative convenience and does not represent the reality or totality of the terms of the employment relationship.

The Full Bench of the FWC upheld the appeal and referred the matter back to Commissioner Hunt to determine whether Navitas dismissed Mr Khayam.

The Lessons

Employers can no longer rely on the expiry of a maximum term employment contract to terminate the employment relationship. The employment relationship will be examined in its entirety to determine whether the relationship ended by the agreement of the parties or at the initiative of the employer.

Conversations with employees when offering a maximum term contract and deciding whether to offer a new contract upon the expiry of the prior maximum term contract, will be important and subject to scrutiny.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.