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Reasonable Notice and The Fair Work Act

When a party seeks to ends an employment contract, then “notice” must be provided unless, in the case of the employer the termination is based on serious misconduct or, in the case of the employee, it is based on repudiation.

This article reviews the doctrine of Reasonable Notice and some of the statutory interventions that have occurred in respect of “notice”.

The doctrine of Reasonable Notice has existed for over 140 years, dating back to Lord Coleridge CJ in the case of Creen v Wright (1876) 1 CPD 591.  The doctrine states that, when an employment contract is silent on the question of notice, the court will imply a term of “reasonable notice” depending on the specific circumstances of the facts at hand.

The doctrine was considered in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 (“Byrne”).  The High Court in that case held that a term of reasonable notice would only be implied if:

… the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined. (per McHugh and Gummow JJ at 450).

Since this decision, the application of the doctrine has been slowly eroded. Relevantly, minimum notice periods are provided for by s 117 of the Fair Work Act 2009 (Cth) (“FW Act”).  Section 117(2) of the FW Act relevantly states

(2)     The employer must not terminate the employee’s employment unless:

(a)       the time between giving the notice and the day of the termination is at least the period (the minimum period of notice ) worked out under subsection (3); or

(b)       the employer has paid to the employee (or to another person on the employee’s behalf) payment in lieu of notice of at least the amount the employer would have been liable to pay to the employee (or to another person on the employee’s behalf) at the full rate of pay for the hours the employee would have worked had the employment continued until the end of the minimum period of notice.

[Emphasis added]

Section 117(2) applies all employees in Australia (even those who are Award-free) unless they are covered by more beneficial entitlements under a common law contract or a State or Territory law.

As can be seen, the phrase “at least” means that there is still room for the doctrine of Reasonable Notice, but it will only apply if there is a gap in the employment relationship that requires filling to prevent the contract from being “rendered nugatory”.  In this respect, it is unclear whether s 117 of the FW Act has filled this hypothetical gap already.

There are two main schools of thought on this issue:

  1. Those in favour of reasonable notice: Section 117(2)’s minimum requirement could still permit the doctrine of Reasonable Notice to apply on the facts of the matter. For example, when the employee has held a very senior, extremely specialised, position for a long time in an environment where it is difficult to find new work on short notice; and
  2. Those against reasonable notice: Section 117(2) provides for a period of notice that can be exceeded by an express contractual term (as opposed to the doctrine of Reasonable Notice). By phrasing it “at least”, s.117 does not exclude the possibility of longer notice periods but there is no necessity to imply a term to that effect.

This question has yet to be determined by the Full Bench of the Federal Court or the High Court and as such there is ongoing debate as to which approach is correct.

A recent case decided by the Full Bench of the Western Australian Industrial Relations Commission lends weight to the argument that the FW Act has negated the application of the doctrine.

The Facts

In Mark Darren Richards v Gb & G Nicoletti [2016] WAIRC 00941 (December 2016), the Appellant was a former stockman on the Respondent’s property.

He had been employed for approximately three weeks until his employment was terminated without notice on the grounds that he was incompetent and unable to perform the work.

At first hearing, the matter was heard before Chief Commissioner Beech who found that the dismissal was harsh and unfair. He awarded three weeks’ pay as compensation, being the one weeks’ pay in lieu he was entitled to as well as two weeks’ pay due to the harsh and unfair manner in which the dismissal occurred.

Despite the unfairness, Beech CC found that given the personalities of the parties, the employment was only likely to continue anther two weeks. Beech CC also awarded $1,000 compensation for the injury caused by the dismissal.

This included the cost of relocating on the express wishes of the Respondent to a house on the property that the Appellant was then required to vacate with no notice.

Furthermore, the Appellant also suffered considerable distress at how he was treated.

There were two matters on appeal, being the question of quantum for the compensation for injury suffered and whether Beech CC had erred in not implying a term of Reasonable Notice.

The Appeal Decision

It was held by Smith AP, Scott CC and Kenner ASC that the compensation for injury suffered was insufficient and Beech CC failed to consider a number of relevant factors.

There was a 2:1 split however, in relation to the question of Reasonable Notice.

Scott CC and Kenner ASC held, in separate judgments, that there was no need to imply a term of reasonable notice while Smith AP provided a lengthy dissent.

The Commissioners relied upon the argument that there was no gap to be filled and hence it is not necessary to imply a term of reasonable notice.

Scott CC quoted, amongst other authorities, the minority judgement in Byrne (at 450) stating that the implied terms such as reasonable notice “only apply in the absence of an expression of contrary intent”.  The Chief Commissioner found that despite using language that suggest it is only a minimum standard, this was sufficient to remove the need for reasonable notice.

Kenner ASC used similar logic in determining the it was not necessary to imply a term of reasonable notice into the contract. The Acting Senior Commissioner’s judgment relied on the most recent High Court articulation of the principle of necessity by French CJ, Bell and Keane JJ in Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 (“Barker”).

In Barker, the High Court considered when it was necessary to imply terms into a contract. It was held that “implications which might be thought reasonable are not, on that account only, necessary” underlying the extreme recourse of implying terms into contracts which are “a species of judicial law-making and are not to be made lightly” (Barker at [29]).

As such, Kenner ASC agreed with Scott CC in finding no need to for reasonable notice to be implied into the contract. The Acting Senior Commissioner did however state that the law did allow employers the “liberty to provide a greater period of notice if it chooses to do so” (at [180]).

In her detailed dissent, Smith AP outlined a litany of cases that had found in favour of implying reasonable notice. Smith AP argued that the cases show a preference towards the implication. The Acting President preferred the obiter remarks of McNab J in McGowan v Direct Mail and Marketing Pty Ltd [2016] FCCA 2227 and the judgement of Kaye J in Guthrie v News Ltd (2010) 27 VR 196 to Clayton J’s judgement in Kuczmarski v Ascot Administration Pty Ltd [2016] SADC 65. Smith AP held:

… the minimum periods prescribed in s 117 simply prescribe minimum periods and do not prescribe periods of notice that could be characterised as satisfying a claim for reasonable notice for all classes of employees when the contract of employment is silent on notice.

Message for Employers

As can be seen from the conflicting case law discussed in the decision above, the question of whether the doctrine of Reasonable Notice remains in effect is unanswered.

Without clarification from the Full Bench of the Federal Court or the High Court, this issue will not be settled.

As with all unsettled areas of law, the doctrine of Reasonable Notice creates uncertainty and risk when terminating the employment of employees which can lead to legal liability.

Fortunately, with proper drafting of the contract of employment, employers can insulate against this risk by including an express term of notice which “fills the gap” at the heart of the Reasonable Notice debate.

Legal advice should be sought to ensure this is done properly to avoid liability. Particular care should be taken with high level employees such as senior managers, executives and other highly skilled and experienced positions.