Beware of Unfair Dismissal in Fixed Term Contracts
The decision by the Fair Work Commission Full Bench in Saeid Khayam v Navitas English Pty Ltd t/a Navitas English  FWCFB 5162 (Khayam v Nativas) overturned a well-established legal principle that encouraged the widespread use of fixed term contracts.
Until recently, the expiry of a fixed term contract prevented employees from accessing unfair dismissal laws. As a result of the decision in Khayam v Navitas, this is no longer the case. As such, the days of employers deciding not to renew a fixed term contract without fear of scrutiny under unfair dismissal laws have disappeared. Now there is a great deal of uncertainty around fixed term arrangements.
Prior to Khayam v Navitas
Prior to the decision in Khayam v Navitas, fixed term employment contracts came with the security of a set expiry date. Refusal to renew a fixed term contract did not amount to an employee being dismissed, as the termination was not considered to be at the initiative of the employer. The expiry date of the arrangement was simply considered to be the end of the employment relationship and the prior employee had no recourse under the Fair Work Act 2009 (Cth) (FWA).
Khayam v Navitas
In April 2012, the employer offered the employee a teaching position on a fixed term contract with a set expiry in June 2013. Once the employee had completed the set term, the employer elected to renew the contract for another fixed term until June 2014.
At the expiry of the second term, the employer told the employee that his performance was unsatisfactory and as a result his employment would not be extended. This caused the employee to produce evidence of his positive work performance in the form of staff meeting minutes. In reviewing this evidence, the employer resolved to offer the employee a third fixed term, set to expire in June 2016.
During this third term, the employee was subject to meetings and an “action plan” with respect to punctuality issues and use of unsuitable material. The month prior to expiry of this third term, the employer notified the employee that he would not be offered further employment. This was predominatly due to poor performance and disciplinary measures against him.
In response, the employee lodged an unfair dismissal application with the Fair Work Commission (FWC).
At first instance, the FWC relied on the principle in Department of Justice v Lunn (2006) 158 IR 410 (Lunn) and concluded that there was no dismissal under section 386(1)(a) of the FWA as the termination was not at the “employers initiative”. Thus, as there was no dismissal, there was no jurisdiction for the employee to bring action for unfair dismissal.
The employee successfully appealed to the Full Bench of the FWC.
On appeal, the Full Bench found the Lunn principle to be incorrect. They held that “dismissal at the initiative of the employer” should be assessed with reference to the entire employment relationship, not merely the fixed limits of the agreement. This means that, where an employment relationship is made up of multiple, time-limited contracts, an analysis under section 386 of the FWA requires examination of the entire relationship. The Full Bench held that, in circumstances where there is a fixed term arrangement, what is important is whether the employer executed the dismissal in line with the principles set out in Mohazab v Dick Smith Electronics Pty Ltd  IRCA 625; 62 IR 200 with a focus on whether the actions of the employer was the principal contributing factor of the dismissal.
Importantly, the Full Bench clarified that, if an employer elects not to offer a subsequent fixed term contract where there has been a clear and genuine agreement that an employment relationship would end on a certain date, this will not amount to a termination at the initiative of the employer.
What does this mean for employers?
When it comes to fixed term contracts, the decision in Khayam v Navitas has generated a great deal of uncertainty. Employers who utilise fixed term arrangements should be extremely cautious of the kinds of representations they make about ongoing work.
If you are an employer who engages staff on fixed term arrangements, or if you are planning to use fixed term contracts, make sure you consider the following:
- Review your employment methods to ensure they contain risk management strategies for fixed term contracts.
- Ensure you have a clear and legitimate reason for using fixed term arrangements.
- Make sure fixed term contracts have a clear end date. You might even consider excluding the right to terminate employment before the set term with notice. This would truly make the arrangement fixed term.
- Review business practices to ensure they are consistent with fixed term contracts.
- Seriously consider whether fixed term contracts are the most effective arrangements for your business. It may be that there are other, less-traditional employment arrangements that could better serve your business and your employees.