Although there is no legal requirement for employers and employees to enter into a written employment contract, it is a certainly a very good idea to do so.
For employees covered by a modern award there are very often legal requirements to set out various matters in relation to the employment in writing at the time employment commences (such as details of the award that applies, the employee’s classification level, their pattern of work if they are a part time employee, etc). The most convenient place to do this is in a written contract.
Aside from requirements in modern awards, one of the chief benefits of having a written contract in place is it creates certainty in the terms that an employee is employed.
Failing to implement a written contract – or failing to include an important term within it – leaves it open to courts or tribunals to “insert” or “imply” terms that they consider are reasonable.
One area where this frequently arises is where there is a failure to include a notice period in the contract (i.e. the period of notice that must be given to terminate employment). When this happens a court or tribunal may imply what period they consider to be “reasonable” in all the circumstances. In a recent decision before the Federal Circuit Court of Australia, a reasonable notice period was determined to be nine months to terminate an employee’s employment. Because the employer had not given this amount of notice to the employee, they then had to pay this in damages.
What do I need a notice period in the contract, aren’t notice periods stated in the Fair Work Act?
Although section 117 of the Fair Work Act 2009 (Cth) includes a sliding scale of notice periods from one to five weeks based on an employee’s length of service and age, read the wording carefully and you will see that this is expressed as a “minimum” notice period to terminate an employee’s employment.
In a number of court and tribunal decisions it has been held that the requirement in legislation to provide a minimum notice period set out in section 117 does not alter the court or tribunal’s obligation to determine what a reasonable notice period would be in circumstances where there is no written contractual term setting out the exact notice period the parties have agreed. In other words, if you don’t have an employment contract in place, or it is silent on the notice period, you run the risk that a court or tribunal will dictate to you what a reasonable notice period would be.
What happened in the case?
In McAlister v Yara Australia Pty Ltd [2021] FCCA 1409 the court considered a claim by a former employee of Yara Australia Pty Ltd.
At the time of her dismissal in October 2015, the employee had been employed with Yara for 19 years, working in a senior role in the management team.
In October 2015 the employee was summarily dismissed (i.e. dismissed without notice) after the managing director formed the opinion the employee had acted dishonestly in failing to disclose a conflict of interest in respect of a longstanding contractual arrangement with a supplier. Only employees engaged in “serious misconduct” can be lawfully dismissed without any notice. It is well established that an employer is able to dismiss for serious misconduct even if there is no notice period provided for in the employee’s contract (or if there is no written contract at all).
The court determined that the employer was not entitled to summarily dismiss the employee, due to the fact that she was a long-standing and loyal employee who, at most, had committed a minor wrongdoing.
One of the questions the court then had to determine was what period of notice the employee was entitled to (given that summary dismissal was not lawful in the circumstances).
Finding the employee’s contract did not contain a term for termination on notice, the court found that the employee was entitled to a “reasonable” period of notice, which in the circumstances of the case (including the employee’s seniority) it determined was nine months. The employer was ordered to pay this amount in damages to the employee.
Had there been a provision in her contract which dealt with notice periods, no such order would have been made.
The employee also pursued other actions in respect of her termination of employment, which we do not comment on for the purposes of this article, but the full decision can be read here.
Need further help?
If you need further help on any of the matters raised in this article please contact EI Legal.
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Disclaimer
The information provided in these blog articles is general in nature and is not intended to substitute for professional/legal advice. If you are unsure about how this information applies to your specific situation we recommend you contact EI Legal for advice.