Generally, under the Fair Work Act 2009 (Cth) (FWA) an employee can only bring an unfair dismissal claim if their employment has been terminated at the initiative of the employer.

Prior to the decision of the Full Bench of the Fair Work Commission in Saeid Khayam v Navitas English Pty Ltd t/as Navitas English [2017] FWCFB 5162 (Navitas) an employee under a term contract that expired and was not renewed was not considered to have been terminated at the initiative of the employer.

The decision

In Navitas, the employee had been employed on a series of time-limited contracts.  At the expiration of the last of those contracts, Navitas informed the employee that it would not be offering him a further contract due to concerns it had about his performance.

The employee subsequently brought proceedings against Navitas alleging that he had been unfairly dismissed.

In finding that the employee had been terminated at the initiative of the employer, the Full Bench demonstrated a shift in emphasis away from the ‘employment contract’ and towards consideration of the ‘employment relationship’. 

The Full Bench examined the employment relationship between the parties, to determine whether action on the part of Navitas was a principal contributing factor resulting in the termination of the employment relationship.  

The Full Bench in Navitas also made a distinction between “time-limited” contracts and a contract for a “specified period of time”.  A “time-limited” contract is one where the employment can reasonably be expected to continue until its agreed expiry, but where the employer retains the discretion to terminate the contract with notice before the agreed expiry date.  This type of contract is often known as a maximum term or outer-limit contract.  A contract “for a specified period of time” by contrast, cannot be terminated with notice before the agreed expiry date for any reason other than serious misconduct. The latter is a genuine fixed term contract.  

The Full Bench still held the view that genuine contracts for “specified period of time” will likely remain exempt from unfair dismissal legislation.

Key takeaways for employers

As the decision in Navitas has resulted in less certainty for employers using term contracts, we recommend that employers:

  • exercise caution when negotiating and drafting the terms of a new term contract;
  • be careful about the words used when discussing ongoing employment, particularly any representations made about job security or decisions to renew or not renew term contracts, including but not limited to whether performance or conduct matters are relevant to the non-renewal;
  • reconsider the use of term contracts where the work done by the employee has actually become ongoing;
  • consider whether you are prepared to forgo the right to terminate the contract on notice to ensure you have a genuine ‘fixed term’ contract;
  • be on notice for unfair dismissal claims, and consider seeking legal advice when not renewing the employment of an employee who has been engaged on a series of term contracts; and
  • consider the implications that this decision may have on redundancy entitlements for your term contract employees and if necessary, seek legal advice to manage your legal exposure.