The impli­ca­tions of imply­ing a term of rea­son­able notice

In a deci­sion that demon­strates the need for employ­ment con­tracts to clear­ly spec­i­fy a term for notice of ter­mi­na­tion, Judge Obradovic in the Fed­er­al Cir­cuit Court case, McAl­is­ter v Yara Aus­tralia Pty Ltd [2021] FCCA 1409, has implied a term of 9 months’ notice into an employ­ee’s employ­ment contract.

Back­ground

The appli­cant had worked for her employ­er for almost 19 years before she was sum­mar­i­ly dis­missed for seri­ous mis­con­duct. She was work­ing as Admin­is­tra­tion, HR and Logis­tics Man­ag­er before her respon­si­bil­i­ties were sub­stan­tial­ly redis­trib­uted, and her role reduced, around 6 months before her dismissal. 

At issue in the hear­ing was whether the respon­dent was enti­tled to sum­mar­i­ly dis­miss the appli­cant (an argu­ment that, some­what con­fus­ing­ly, appears to have been run in cir­cum­stances where the appli­cant was paid 5 weeks’ pay in lieu of notice); whether the appli­can­t’s posi­tion had been made redun­dant; whether the appli­can­t’s dis­missal was in breach of the Fair Work Act 2009 (FW Act) gen­er­al pro­tec­tions pro­vi­sions; and, rel­e­vant for the pur­pos­es of this update, the amount of notice of ter­mi­na­tion of employ­ment that the appli­cant was enti­tled to.

Notice of termination

The spe­cif­ic issue to be deter­mined by her Hon­our was whether there was an express peri­od of notice of ter­mi­na­tion in the appli­can­t’s employ­ment con­tract, or whether a peri­od of rea­son­able notice should be implied. An asso­ci­at­ed issue was whether any implied term was dis­placed by sec­tion 117 of the FW Act, a pro­vi­sion that forms part of the Nation­al Employ­ment Stan­dards (NES).

Sec­tion 117 is the statu­to­ry min­i­mum for Aus­tralian employ­ees and rel­e­vant­ly pro­vides an employ­er must not ter­mi­nate an employ­ee’s employ­ment unless they have giv­en writ­ten notice of the day of the ter­mi­na­tion, and that the time between giv­ing the notice and the day of the ter­mi­na­tion must be at least the peri­od pre­scribed in sub­sec­tion 117(3).

The appli­can­t’s con­tract of employ­ment pro­vid­ed that:

All oth­er details to be accord­ing to the rules and reg­u­la­tions set forth by the appro­pri­ate Aus­tralia gov­ern­ment authority(ies) between employ­er and employee.

The respon­dent argued the ref­er­ence to ​“rules and reg­u­la­tions” meant the con­tract express­ly pro­vid­ed the peri­od of notice of ter­mi­na­tion was to be in accor­dance with the FW Act or, as an alter­na­tive, the impli­ca­tion of any term of rea­son­able notice was to be in accor­dance with the NES.

Judge Obradovic set out the gen­er­al prin­ci­ples to be applied when imply­ing a term into a con­tract of employ­ment (that is, it must be nec­es­sary and not incon­sis­tent with an express term of the con­tract) and then sum­marised the cas­es that have dealt specif­i­cal­ly with whether sec­tion 117 can dis­place the com­mon law term of rea­son­able notice (at [203]).

In con­clud­ing that the employ­ment con­tract did not con­tain an express pro­vi­sion with respect to notice of ter­mi­na­tion, and that sec­tion 117 of the FW Act did not dis­place the com­mon law term of rea­son­able notice, her Hon­our observed that:

• It is unlike­ly par­lia­ment would have intend­ed the enact­ment of that sec­tion means an employ­ee who worked for 20 years is enti­tled to the same notice as an employ­ee who worked for 5 years;
• The ref­er­ence to ​“rules and reg­u­la­tions” in the appli­can­t’s employ­ment con­tract was so vague it was unable to be relied on in sup­port of the incor­po­ra­tion of the NES as an express term;
• If the ref­er­ence to ​“rules and reg­u­la­tions” did mean the NES, as that only refers to the ​“min­i­mum peri­od of notice” there was still scope for the impli­ca­tion of a longer peri­od of notice in any event; and
• As there was noth­ing stop­ping the impli­ca­tion of a peri­od of rea­son­able notice into the con­tract, it should be done so as a mat­ter of neces­si­ty giv­en the dif­fer­ence between the pro­tec­tions offered by statute and those at com­mon law.

Hav­ing regard to fac­tors includ­ing the appli­can­t’s length of ser­vice, expe­ri­ence and age, 9 months was con­sid­ered a rea­son­able peri­od of notice. The claims in respect of redun­dan­cy and breach­es of the gen­er­al pro­tec­tions pro­vi­sions were not made out.

Obser­va­tions

This deci­sion is a reminder of the impor­tance of hav­ing an employ­ment con­tract that clear­ly sets out the peri­od of notice an employ­ee will be enti­tled to upon ter­mi­na­tion of their employ­ment. For some employ­ers that will be a restate­ment of the NES, how­ev­er for more senior employ­ees who are per­haps privy to com­mer­cial­ly sen­si­tive infor­ma­tion or who have close con­tacts with cus­tomers, a longer peri­od of notice that pro­tects the employ­er’s busi­ness inter­ests (while also pro­vid­ing the employ­ee with suit­able time to find com­pa­ra­ble employ­ment) may be appropriate. 

It is also rec­om­mend­ed that employ­ment con­tracts have the abil­i­ty for employ­ers to be able to direct the employ­ee not to attend work or per­form duties for all or part of their notice peri­od. This is par­tic­u­lar­ly impor­tant for more senior employ­ees, as direct­ing some­one to stay away from the work­place means they will be unable to access busi­ness infor­ma­tion and con­tact clients while still being under the con­trol of their employ­er and bound by the terms of the employ­ment contract.

Final­ly, when draft­ing an employ­ment con­tract, employ­ers should avoid using vague lan­guage to the effect that the NES will apply in deter­min­ing the peri­od of notice of ter­mi­na­tion as opposed to actu­al­ly insert­ing the table from sec­tion 117 of the FW Act. As was high­light­ed in this deci­sion, as the NES only pro­vides for a min­i­mum peri­od of notice, such a con­tract may con­tain an implied term that pro­vides for a rea­son­able notice of ter­mi­na­tion hav­ing regard to the par­tic­u­lar cir­cum­stances of the employee.