A question of notice: employment contract’s implied term of reasonable notice versus the Fair Work Act’s notice provisions

This article was first published in September 2021 by Employment Law Bulletin.

The issue

If an employment contract lacks an express term about notice of termination, is reasonable notice of termination still an implied term of the contract? Where notice of termination is dealt with in statute or an applicable award, that question has been answered in different ways by various courts. It is a question that exercises the minds of employment lawyers because it keeps coming up in claims and judgments.

Cases and the statute

The origins of the question might be traced back to Byrne v Australian Airlines Ltd¹ (Byrne) and Australian National Hotels Pty Ltd v Jager² (Jager). Byrne was a case in which the High Court rejected the proposition that notice of termination in an award became a term of the contract but considered whether notice of termination should be implied (by law) into employment contracts. In Jager, the Full Court of the Tasmanian Supreme Court rejected the implication of such a term where s 47 of the Industrial Relations Act 1984 (Tas) (IR Act) expressly permitted employment to be terminated on specified periods of notice.

Both of those cases predated the Fair Work Act 2009 (Cth) (FWA) and the National Employment Standards (NES). Section 117 of the FWA provides that an employer must not terminate an employee’s employment unless the employer has given written notice of termination or made a payment in lieu of that notice.³ Section 117 (2) and (3) defines the minimum period of notice that must be given.

Can term of reasonable notice be implied into the contract?

Does that mean that there is no longer any basis to imply into employment contracts a term of reasonable notice of termination? The answer is not clear-cut, and the consequence has been conflicting decisions in claims for damages for breach of contract for failing to give reasonable notice of termination.

A recent Federal Circuit Court decision, McAlister v Yara Australia Pty Ltd⁴ (McAlister) has provided a useful summary of the conflicting decisions and added to the weight of cases that supports the proposition that the NES provision does not displace the implication of a term of reasonable notice of termination.

The facts — McAlister

Ms McAlister had been employed by Yara Australia Pty Ltd since December 1996. She was originally approached to take on the role of Operations Manager, establishing a new Australian operation for the parent company based in Norway. Her initial contract of employment was silent on the question of notice of termination other than a statement that:

“All other details to be according to the rules and regulations set forth by the appropriate Australian government authority(ies) between employer and employee.”⁵

The business grew and Ms McAlister retained a senior role until events unfolded in 2015, despite the business beginning to fail in 2013 and 2014. The parent company appointed Ms Magnussen, a long-serving employee, to review the Australian business. After a restructure in early 2015 that left Ms McAlister with very little of her previous responsibilities, Ms Magnussen oversaw a short investigation into allegations of conflict of interest, the outcome of which was that Ms McAlister was summarily dismissed (but paid 5 weeks’ pay in lieu of notice on account of her lengthy service with the company).

Ms McAlister brought a general protections claim alleging that she had been dismissed because of prohibited reasons (her age, forthcoming surgery and complaints she was said to have made about her employment). She also claimed for damages for breach of contract for the failure to give reasonable notice of termination.

The decision

In McAlister, her Honour, Obradovic J, commenced her analysis with the issue of whether Yara Australia Pty was entitled to dismiss Ms McAlister due to serious misconduct, which her Honour rejected.

Her Honour then addressed the question of damages by first considering whether one could assume that the NES ousted the common law position:

“The basic principle of statutory construction is that legislation is presumed not to alter common law doctrines (Bropho v Western Australia [1990] HCA 24 at [18]). Neither s 117 nor the Explanatory Memorandum say anything about that section displacing a common law right.”⁶

Before considering her Honour’s analysis of recent cases in which the NES arose, we should take into account the only case since the NES came into operation that has led to the High Court considering whether a term of reasonable notice can still be implied. Of that case, her Honour wrote:

“Further, in Brennan v Kangaroo Island Council [2014] HCASL 153 [Brennan], the High Court refused a special leave application from a decision of the Full Court of the Supreme Court of South Australia on the basis that there was no need to imply a term of reasonable notice in circumstances where the employee was subject to the terms of an Award which prescribed particular notice periods to apply. The notice period therein was not expressed as a minimum period of notice.”⁷

Both Brennan and Jager were cases in which the period of notice required to be given to terminate the employment was specified — in an award in Brennan and in the IR Act in the Jager case. Both were also cases to which the NES did not apply — because Jager predated the NES and Brennan was not a national system employee so that the NES did not apply to her.

Her Honour Obradovic J then succinctly identified the problem:

“There have been a number of decisions from various Courts across the Australian jurisdictions, although the legal position as to whether s 117 ousts the implied term of reasonable notice, being a term implied at law, is still to be determined by a superior Court which is binding on this Court.”⁸

Relevant cases

Her Honour then set out the cases that were relevant to the issue as follows:

In it [sic] searches, the Court is aware of at least the following decisions specifically dealing with whether s 117 of the FWA displaced the common law term of reasonable notice:

1. 1. Guthrie v News Ltd [2010] VSC 196 (Guthrie) where Kaye J held that s 117 provides only a minimum period of notice and therefore does not cast light on the appropriate period of notice in the factual circumstances of that case.
   2. (b) Kuczmarski v Ascot Administration Pty Ltd [2016] SADC 65 (Kuczmarski) where auxiliary Judge Clayton held that a term that employment may not be terminated except on reasonable notice is not implied into a contract of employment where s 117 applies.
   3. Pappas v P&R Electrical Pty Ltd [2016] SADC 132 (Pappas) where Judge McIntyre held that a term as to reasonable notice was not required to give business efficacy to the plaintiff’s contract of employment because s 117 established his entitlement to notice.
   4. McGowan v Direct Mail and Marketing Pty Ltd [2016] FCCA 2227 (McGowan) where Judge McNab held that s 117 of the FWA does not displace a right to reasonable notice when the contract of employment is silent on the question of notice.
   5. Richards v Nicoletti [2016] WAIRC 941 (Richards) where the Full Bench of the Western Australian Industrial Relations Commission held:
      1. 126. it is apparent that s 117 is not intended to reduce or affect common law rights and obligations other than to augment the common law right to reasonable notice by establishing a floor that if breached constitutes by the employer a breach of the National Employment Standards.
      2. 127. Alternatively, if and when s 117 read as a whole with regard to its object, underlying context, purpose and, in particular, in respect of the latter, its legislative history, it could be said an ambiguity arises as to whether s 117(2) excludes the operation of a common law implied term to give reasonable notice in the absence of an express term. By the use of the words ‘minimum notice’ in s 117 could be said to leave open the question whether the prescribed periods of notice simply provide for a floor or exclude a more beneficial entitlement to a period of notice (except where the parties to a particular contract expressly agree to greater period than specified in s 117).
   6. Heldberg v Rand Transport (1986) Pty Ltd [2018] FCA 1141 (Heldberg) where White J identified that it was at least arguable that Kuczmarski and Pappas, did not have any regard to or at least not insufficient regard to the matters identified by Judge McNab in McGowan at [85]. Ultimately it was not necessary to determine the issue of the application of s 117 vis-à-vis the common law term of implied notice in the instance of that case.
   7. Carrabba v PFP (Aust) Pty Ltd [2019] FCCA 2857 (Carrabba) where Judge Lucev declined to follow McGowan, on the basis that it was wrongly decided, instead following Kuczmarski holding that in the particular circumstances of that case the employees contract was effective and had business efficacy without implying any additional period of what would otherwise be reasonable notice.⁹

Resolving the dilemma

How then did her Honour Obradovic J resolve the dilemma? The court ruled that the implied term was not displaced by s 117 of the FWA:

1. 1. [205] The Court respectfully agrees with the comments in McGowan and Guthrie, that it is doubtful that Parliament intended that employees who served vastly different periods, such as five years as opposed to 20 years, would, by the enactment of s 117(2) be confined to receiving the exact same period of notice of termination, despite their widely different circumstances. (See also for example Stewart v Nickles [1999] FCA 888 where it was held that the then equivalent of s 117 (albeit couched in different terms) did not displace the more generous express contractual provision for termination by notice, nor an implied contractual provision for termination by reasonable notice. The Industrial Relations Court of Australia had expressed a similar view in Westen v Union des Assurances De Paris (1996) 88 IR 259 (Westen) although it had ultimately not decided the matter).
   2. [205] White J’s analysis of this issue in Heldberg at [95]–[106], in particular [105], is with respect, the correct approach to the question of how s 117 ought to be interpreted and the approach which this Court adopts. Respectfully, the Court herein does not agree with the analysis of s 117 in Kuczmarksi for the reasons identified in Heldberg at [105]. The Court respectfully declines to follow Carrabba for similar reasons.
   3. [207] As such, s 117 of the FWA does not displace the common law term of reasonable notice, such term being implied by law.

The court’s ruling

Her Honour found that Ms McAlister was entitled to nine months’ notice of termination, not the statutory notice period, leading to damages in excess of $120,000. Ms McAlister’s other claims were dismissed.

Another issue? Implications of the case

It is well accepted at law that in any normal employment situation two things are in operation simultaneously: the status relationship of employer and employee, and the contract of employment. They are not the same thing from a legal perspective and operate independently of each other.

The High Court addressed the distinction between the termination of an employment contract and the termination of the employment itself in Visscher v Honourable President Justice Giudice¹⁰ (Visscher) as follows:

The reasons of Buchanan J elide the concepts of termination of an employment relationship and the discharge of a contract of employment. The concepts are different. It does not follow from the fact that a wrongful dismissal is effective to bring the employment relationship to an end that it thereby discharges the contract of employment. In Byrne v Australian Airlines Ltd it was said that:

It does not appear to have been doubted in this country that a wrongful dismissal terminates the employment relationship notwithstanding that the contract of employment may continue until the employee accepts the repudiation constituted by the wrongful dismissal and puts an end to the contract. That was accepted by both the majority and minority in Automatic Fire Sprinklers Pty Ltd v Watson.

And in one of the passages from Automatic Fire to which reference was made in Byrne, Latham CJ said:

An employer terminates the employment of a servant when he dismisses him, though, as I say hereafter, such a dismissal does not put an end to the contract between the parties. An argument that a dismissal because wrongful was a nullity was raised and rejected in both Williamson’s Case and Lucy’s Case.

And Dixon J said:

There is nothing in the general law preventing the wrongful dismissal of a servant operating to discharge him from service, notwithstanding that he declines to accept the dismissal as absolving him from further performance but keeps the contract open and remains ready and willing to serve.¹¹

In Byrne, Brennan CJ and Dawson and Toohey JJ noted that:

It is a different question whether a dismissal, if wrongful, otherwise amounts to a breach of contract sounding in damages. In the absence of anything to the contrary and putting to one side the provision in the award for notice, at common law a contract of employment for no set term is to be regarded as containing an implied term that the employer give reasonable notice of termination except in circumstances justifying summary dismissal.¹²

However, as that case was not a claim for damages for breach of contract the question at issue here was not further addressed.

All of the cases decided after the commencement of the NES referred to earlier have been determined without much or any regard being given to whether s 117 of the FWA addresses notice of termination of the employment relationship, termination of the employment contract or termination of both.

In Khayam v Navitas English Pty Ltd (t/as Navitas English)¹³ (Navitas) the Full Bench of the Fair Work Commission addressed the meaning of “dismissed” and “termination of employment at the initiative of the employer” in the context of an unfair dismissal claim by an employee whose employment ended at the end of the last of a series of specified term contracts of employment. The majority (Hatcher VP and Commissioner Saunders, Colman DP dissenting) concluded that the references in the unfair dismissal provisions of the FWA to “dismissed”, and thus termination of employment at the initiative of the employer, are about the termination of the employment relationship, not the contract of employment.

Section 117 of the FWA provides at subs (1):

An employer must not terminate an employee’s employment unless the employer has given the employee written notice of the day of the termination (which cannot be before the day the notice is given).

If a similar approach is taken to the words of s 117 as the Full Bench took in the Navitas case, having regard to the passages from Byrne and Visscher set out above, they add weight to the outcome in McAlister and provide perhaps an additional basis to argue that the NES does not oust the implication of a term of reasonable notice of termination of employment in employment contracts that are silent on that issue.

Further weight might be given to that argument by the approach adopted by the High Court in Workpac Pty Ltd v Rossato.¹⁴ There the court determined the case on the basis that the express terms of the contract of employment are to be given primacy in how one is to construe whether the employment is casual, which in turn impacts on statutory entitlements under the NES.

The court held that:

Three additional points may be made here. First, while mutual undertakings may not always be express, where there are express terms of the contract between the parties, they must be given effect unless they are contrary to statute. Secondly, if the mutual undertakings are said to be implied in what has been agreed, they cannot be inconsistent with the express terms of the contract. Thirdly, if the mutual undertakings are to be inferred from conduct, then they may take effect as contractual variations.¹⁵

If no term is to be implied into the contract of employment that it may be terminated on reasonable notice because the NES statutorily provides for minimum periods of notice of termination of the employment relationship, does that result in a contract that can in effect be terminated at will by the employee? Such an outcome would be unlikely to find favour from the courts, which might be persuaded that it is necessary to imply a term of reasonable notice of termination as a mutual obligation.

Conclusion

Please contact Rigby Cooke’s Workplace Relations team if you wish to have your current contracts of employment reviewed in light of this recent decision.

1. Byrne v Australian Airlines Ltd (1995) 185 CLR 410; 131 ALR 422; BC9506439.
2. Australian National Hotels Pty Ltd v Jager (2000) 9 Tas R 153; [2000] TASSC 43; BC200002349.
3. Section 123 sets out circumstances, including serious misconduct, in which s 117 does not apply.
4. McAlister v Yara Australia Pty Ltd [2021] FCCA 1409; BC202105567.
5. Above, at [190].
6. Above n 4, at [201].
7. Above n 4, at [204].
8. Above n 4, at [202].
9. Above n 4, at [203].
10. Visscher v Honourable President Justice Giudice (2009) 239 CLR 361; 258 ALR 651; [2009] HCA 34; BC200908001.
11. Above, at [53] per Heydon, Crennan, Kiefel and Bell JJ, Gummow J dissenting (references omitted).
12. Above n 1, at [27] (reference omitted).
13. Khayam v Navitas English Pty Ltd (t/as Navitas English) (2017) 273 IR 44; [2017] FWCFB 5162; BC201712462.
14. Workpac Pty Ltd v Rossato [2021] HCA 23; BC202106914.
15. 15. Above, at [65] (reference omitted).