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Shifting Sand: Expired Fixed-Term Contracts and the Law

It is a common practice for employees to be engaged under an employment contract for a fixed period. However, problems may arise where an employee has been employed on a series of fixed-term contracts or has continued to work despite the expiry of their fixed-term contract. This article explores some of the common misunderstandings and risks.   

Fixed-Term Contract vs Maximum-Term Contract
The use of the term “fixed-term” is often confused with “maximum-term”. Despite these phrases often being used inter-changeably, there is a significant difference between these types of contract.

A fixed-term employment contract is one where the worker has been engaged for a defined period or task.  A fixed-term contract cannot be terminated at will unless there has been a serious breach of the contract e.g. serious misconduct by the worker. If the employer seeks to terminate the contract prior to the expiry of the term, the employer is at risk of a breach of contract and may liable for damages, including liable to pay out the remainder of the fixed term period.

In contrast, a maximum-term contract is for a defined period or task but can be terminated at an earlier time by either party providing notice or payment in lieu of notice.

Expired Fixed-Term Contracts
Where an employee has been engaged under a fixed-term or a maximum-term contract and  continues in their employment beyond the specified period without a new employment contract being executed, the parties are inferred to have entered into a new informal contract[1] of indefinite duration, terminable on reasonable notice[2]and the terms of the contract will reflect the terms of the expired contract – save for the fixed term.[3]  Termination of such a contract would only be possible where a party is in serious breach of the contract amounting to repudiation or by giving ‘reasonable notice’.  

If a contract does not have an express notice period (as in the case where work continues beyond a fixed-erm or maximum-term contract) and the employee is not covered by an award or certified agreement, the common law implies a period of reasonable notice. In considering what is reasonable notice, a court will take into account factors such as the employee’s age, length of service, qualifications, nature of their responsibilities and standards of the industry.  The general rules is that the longer employee worked for the employer, the more senior the position, the more importance attached to the position occupied, the longer the entitlement.[4]   

Unfair dismissal
Generally, where an employee’s employment ends because a fixed-term or maximum-term contract has expired, they will not be eligible to make an unfair dismissal claim. However, where the employee was engaged on a fixed-term contract and continued their employment past its expiry date or where the employee has been employed on a number of maximum-term contracts which are continuously renewed, in such circumstances where the employment is terminated there is a risk that the employee may have access to the unfair dismissal jurisdiction.  

In the case of Navitas,[5] the employee was employed from 2005 to 2012 as a casual employee and from 2012 to 2016 on several maximum term contracts. The employer refused to renew the contract in 2016 due to performance and disciplinary issues. In the first instance the Fair Work Commission (FWC) found that the maximum term contract had concluded because the contract had reached its expiry date, so there was no termination at the initiative of the employer. However, the Full Bench of the FWC found that where the terms of time-limited contract do not reflect a ‘genuine agreement’ that the employment relationship itself will terminate with the contract, the decision not to offer a further contract will be a factual matter relevant to considering whether the employer’s reasons for deciding whether or not to continue the employment.

In the case of Lindquist[6] at the Queensland Industrial Relations Commission (QIRC) the interpretation of multiple fixed term contracts differed. The case was regarding the expiry of Ms Lindquist’s last fixed term contract who was employed by a series of fixed term contracts between 19 November 2012 and 31 December 2017. Ms Lindquist’s contract was not renewed as a colleague was being put into a permanent full-time role which replaced position. Black IC found that there was no unfair dismissal because the claimant was engaged for a specific period of time and that termination thereafter followed the terms of the contract.

Lessons for Employers
A period or task-limited contract (once expired) continues to be in effect until such time it is terminated. This can be done by giving the employee reasonable notice. There is a risk of potential unfair dismissal claims in this instance, especially where the employment relationship is not reflective of the initial period or task-limited contract.  

The Full Bench in the case of Navitas made it clear that:

  1. The totality of the employment relationship must be considered, not merely the terms of the contract;
  2. Whether the series of fixed term contracts were created for convenience rather than reflecting the employment relationship; and
  3. Whether the employer engaged in conduct that would prevent them from relying on the terms of the contract by which it was terminated.

We recommend that prior to terminating a period of task-limited contract or deciding not to renew a contract, employers should seek legal advice to avoid the risk of an unfair dismissal claim.
We can assist you if you have an issue with your fixed-term or maximum-term contracts or for any other legal issues. For further information please contact us on (07) 3000 2148, or alternatively send us an email at peaklegal@wearepeak.com.au.
 
 
[1] Abbott v Women’s and Children’s Hospital Inc (2003) 86 SASR 1, [35].
[2] Brambles Ltd v Wall (2002) 5 VR 169, [57].
[3] Energy World Corporation Ltd v Maurice Hayes & Associates Pty Ltd (2007) 239 ALR 457.
[4] Macauslane v Fisher & Paykel Finance Pty Ltd [2003] 1 Qd R 503
[5] Khayam v Navitas English Pty Ltd [2017] FWCFB 5162.
[6] Lindquist v Redland City Council [2018] QIRC 141.