In the recent case of Saeid Khayam v Navitas English Pty Ltd  FWCFB 5162, the court overturned an earlier decision in Department of Justice v Lunn (2006) 158 IR 410, ruling that the expiry of a fixed term contract will not necessarily avoid an unfair dismissal claim.
Section 386(1) of the Fair Work Act 2009 (Cth) (FWA) defines a dismissal as a termination on the employer’s initiative or if the employee has resigned due to conduct of the employer. The section goes on further to explain that an employee has not been dismissed if they were engaged under a contract for a specified period of time (s386(2)(a)).
The Position before Navitas
Department of Justice v Lunn concerned an application for a remedy concerning termination of the employment of an employee engaged in a series of five consecutive contracts. The Full Bench in this case stated that when a contract for a specified period of time reaches the nominated end date, the contract terminates lawfully through the effluxion of time. This case applied the predecessor of the Fair Work Act; the Workplace Relations Act 1996 (Cth).
The Court’s Key Findings
The Full Bench in Navitas held that the Lunn principle is not applicable to the Fair Work Act. The findings were that:
- For an employee to be considered ‘dismissed’ under section 386, the court must consider:
a) the entire employment relationship and not just the employment contract;
b) whether the fixed term contract is used as a standard-form of contract for administrative convenience rather than for the legal reality;
c) whether the contract is a maximum term employment contract. A maximum term employment contract is one that includes an expiry date, but also provides for general termination. This is distinct from ‘contracts for a specified period of time’ and will not receive s386(2)(a) protection.
- An employee will not be considered ‘dismissed’ under s386 if:
a) the terms of the fixed-term contract reflect a genuine agreement that the relationship will not continue after a specified date (any decision to offer further employment will be considered separate and distinct);
b) An employee has served out the term of a contract for a specified period containing no general termination provision (i.e. not a maximum term contract).
|Maximum Term Contract||Contract for Specified Period of Time|
Recommendations for Employers
For employers wanting to use fixed term employment contracts, it is recommended that they make the contract expiry date clear from the start of the employment relationship and throughout the term.
Fixed term employment contracts should only be sued for a practical legal reason and not for the sake of administrative convenience.
When deciding to extend the employment contract, a new and distinct contract should be created.
If you have any doubt about the obligations associated within current employment arrangements, please contact & Legal and we will assist you to review potentially contentious contract clauses.