Interpreting the Termination of Maximum Term Contracts - More Protection for Employees?

Case Summary: Saeid Khayam v Navitas English Pty Ltd [2017] FWCFB 5162

Background facts

Mr Khayam was employed by Navitas English Pty Ltd ("Navitas") on a series of maximum term contracts, that is, contracts with a fixed end date, but which were terminable earlier in accordance with the provisions of the contract.

At the end of the term of the last of these contracts, Navitas decided not to offer a further contract due to concerns regarding Mr Khayam's performance. Mr Navitas made an unfair dismissal application to the Fair Work Commission ("FWC").

It has, until now, been the generally accepted position that employees employed under fixed term contracts (i.e. those employed under contracts for a specified period) are not permitted to make unfair dismissal claims, as a result of the operation 386(2) of the Fair Work Act 2009 (Cth) ("Act").

In accordance with this position, Mr Khayam's initial application to the FWC was rejected. Mr Khayam appealed this decision.

Does a contract that ends through the effluxion of time result in a dismissal 'at the employer's initiative'?

The key issues on appeal were:

1. Whether Navitas' decision not to offer further work beyond the term of the expired contract constituted 'termination on the employer's initiative" and thereby constituted a dismissal within the meaning of s386(1)(a) of the Act; and
2. Whether the exclusion from the definition of 'dismissal' of workers employed under a "contract of employment for a specific time" pursuant to s386(2)(a) applied to this contract, notwithstanding Navitas' unqualified right to dismiss Mr Khayam at any time before the expiry of the term.

At first instance, the Commissioner followed the earlier Full Bench decision of the FWC in Department of Justice v Lunn, which has for a long time been good authority for the position that "when a contract for a specified period of time reaches the nominated end date, the contract terminates through the effluxion of time and there is no termination of employment at the initiate of the employer."

However, there is a volume of case law that draws the distinction between the termination of an 'employment relationship' and an 'employment contract'. The case law provides that the termination of a contract of employment does not necessarily result in the termination of the employment relationship and a continuous employment relationship is not inconsistent with a series of back-to-back fixed term contracts, such as those Mr Khayam was engaged under. 

Findings of the Full Bench

In the current proceedings, the Full Bench had to take the unusual step of considering a previous Full Bench's decision, that is, the decision from Lunn.

The Bench in this case ultimately concluded that Lunn was decided on the wrong premise, that is, an incorrect analysis of whether Mr Khayam's final employment contract was terminated by Navitas. The Bench found that the correct position to consider was whether the employment relationship was terminated at the initiative of the employer.

In this case, the Full Bench found that Mr Khayam's employment relationship with Navitas had been terminated at Navitas' initiative and Mr Khayam should therefore be able to pursue his unfair dismissal application.

Key take away for employers

This decision is quite a challenging one for employers who may previously have considered, quite justifiably, that any employee whose fixed term contract came to an end as a result of the time limit expiring was prevented from bringing an unfair dismissal application.

Now it is necessary for employers to consider whether their actions are the primary factor in the termination of the employment relationship. So in the case of Mr Khayam, it was Navitas' decision not to offer a new contract as a result of the identified performance issues that was the primary relevant factor in determining the end of the employment relationship. It was not simply as a result of the contract coming to an end.

Employers must ask – does the employment relationship itself extend beyond the individual contract that is coming to an end? If there is no intention for this to occur, then the fact that the contract has reached is nominated end date does not necessarily matter.

Unfortunately there is no clear test that outlines the circumstances in which an employment contract and an employment relationship are distinct, but factors such as employees typically continuing to work after the conclusion of a maximum term contract, but before the signing of a new contract, may be indicative¹.