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Contracts, Employment Law

Unfair Dismissal and Maximum Term Contracts

In the case of Khayam v Navitas English Pty Ltd, the Full Bench of the Fair Work Commission (FWC)revisited the issue of unfair dismissal in ‘Outer Limit’ employment contracts, also know as maximum term contracts.

The Fair Work Act 2009 (Cth) FWA provides that a person is only dismissed, and thus capable of bringing an unfair dismissal claim, if their employment is ‘terminated on the employer’s initiative’.  There are some exclusions to this, one is, a person ‘employed under a contract of employment for a specified period of time’ where the employment has been terminated at the end of the period, such as an outer limit contract.

Outer limit contracts are commonly used, most often where the ongoing employment is subject to uncertainty beyond the nominated term, such as where the employment is contingent on ongoing funding or the continuation of a project.

The longstanding authority was that an employee whose employment ended as a result of the expiry of the nominated term in a n outer limit contract was not eligible to bring an unfair dismissal claim because the employment is not ‘terminated on the employer’s initiative’. Instead, the employment ended due to the ‘effluxion of time’.

In the above mentioned case, the FWC opened the door for unfair dismissal actions to be commenced by employees who were subject to an outer limit contract.

After a lengthy analysis of the authorities that drew a distinction between the employment relationship and employment contract, the majority held that assessing whether a dismissal has occurred requires consideration of the employment relationship, not the current employment contract. This distinction becomes important in the context of an employment relationship made up of a series of time-limited contracts.

Therefore, where the contract has a defined term but does not state that the relationship will end when the employment term expires, a decision not to offer a new contract may be a dismissal under the Act.

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