The proper use of rolling maximum term contracts

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By Samantha Maddern, Partner 

A recent decision of the Fair Work Commission (FWC) confirms it is possible to employ a worker on a series of successive maximum term contracts and avoid an unfair dismissal claim when the final contract is not renewed.[1] However, as a general rule, it remains risky for an employer to adopt this employment strategy unless there are genuine operational reasons to do so and it is made very clear, and the parties have genuinely agreed, that the employment relationship (not just the employment contract) will come to an end on the expiry date of the contract.

Background

  • Mr Nasr was initially employed by a labour hire firm as a casual employee for several years at confectionary manufacturer, Mondelez. Then, over a 30 month period commencing from 2 July 2018, Mr Nasr was directly employed by Mondelez under eight separate and successive maximum term contracts which ranged in duration from one month to 12 months. His final three month contract expired on 31 December 2020 and was not renewed.
  • Mr Nasr lodged an unfair dismissal claim, seeking reinstatement, claiming that by the eighth contract he had a reasonable expectation of ongoing or permanent employment.
  • Mondelez raised a jurisdictional objection to the claim, namely, that there had been no ‘dismissal’ within the meaning of s 386(1)(a) of the Fair Work Act 2009 (Act) because Mr Nasr’s employment had not been terminated at Mondelez’s initiative. Rather, his employment had simply come to an end at the expiry of the term of his final contract.

The decision

The FWC agreed with Mondelez and dismissed the application for want of jurisdiction. At first glance, this might seem a strange result: how could an employee on eight successive contracts not have been dismissed when the employer chose not to offer him a 9th contract? The outcome of course turns on the specific facts and the established general principles.

General principles

The FWC referred to and relied on the leading Full Bench decision in Khayam v Navitas English Pty Ltd (Navitas) which sets outs the general principles in determining whether or not there has been a ‘dismissal’ for the purposes of s 386(1)(a) of the Act when an employment contract reaches its expiry date.[2] These principles may be paraphrased as follows:

  1. Where the employment relationship is made up of a sequence of time-limited (ie fixed term or maximum term) contracts of employment, the critical question is whether the parties genuinely agreed that their employment relationship would come to an end upon the expiry date, not just the employment contract.
  2. Where the parties to a time-limited contract have agreed that their contract will expire on a certain date, but have not agreed on the termination of their employment relationship, the termination of employment upon reaching the expiry date may still be a termination of the employment relationship at the initiative of the employer (in which case an unfair dismissal claim can be pursued).
  3. Where the terms of the time-limited contract reflect a genuine agreement that the employment relationship will not continue after a specified date and it comes to an end on that date, then, absent a vitiating or other factor, the employment relationship is terminated by agreement and not at the initiative of the employer.
  4. Such factors include where:
  • the contract was entered into by the employee as a result of a misrepresentation by the employer, misleading or unconscionable conduct by the employer, or under duress or coercion;
  • the contract was a sham contract, illegal or contrary to public policy;
  • the contract was varied or replaced and the time limit no longer applied;
  • the contract was entered into for administrative convenience only;
  • the employer made representations to the employee that their employment would continue, subject to conduct and performance, notwithstanding the expiry date of the contract;
  • the terms of the contract were inconsistent with the terms of an applicable award or enterprise agreement.

In Mondelez’s case, the FWC found that each of the eight contracts had a clear expiry date and expressly stated that Mr Nasr’s employment would terminate at the end of the relevant period (if not sooner) and that there was no guarantee of further employment beyond the expiry date. The evidence supported findings that Mr Nasr had read and signed each contract and understood that each contract was for a fixed period and there was no guarantee of employment after each expiry date.

The FWC noted that Mr Nasr had been employed under successive maximum term contracts for a ‘greater period than is ordinarily the case’ but accepted there were genuine operational reasons for offering Mr Nasr eight separate contracts.[3] Importantly, Mr Nasr was not working in the same job under each contract. He moved between Departments and was sometimes engaged to work night shift while under other contracts he worked day shift.

Finally, the FWC found there were no vitiating or other factors, as identified by the Full Bench in Navitas, to alter the conclusion that the parties’ employment relationship ended by the effluxion of time in accordance with their genuine agreement. (The FWC rejected Mr Nasr’s evidence that Mondelez had represented to him that he would continue to be offered employment notwithstanding the express terms of his contracts.)

Key takeaways

  • Engaging employees on a fixed term or maximum term contract can be a good strategy to minimise the risk of a claim when the contract ends. In some cases, there may be legitimate business reasons why an employee is placed on successive time limited contracts, for example, due to uncertainty arising from customer volatility or where the employee is replacing other employees who are absent on leave. Whatever the reason, each contract should be carefully drafted so that the employment relationship ends when the contract ends, there is no guarantee of further employment, and the employee understands and agrees to this arrangement.
  • But the more times a contract is renewed, the greater the risk of the strategy being found to be a contrivance or administrative convenience, particularly if the employee is engaged to do the same job in contract after contract. The passage of time might also lead a well-intentioned manager into saying or doing something that amounts to a representation to the employee about ongoing employment. Either way, this could mean that, when the final contract is not renewed, it is a dismissal by the employer (or perhaps even unlawful adverse action) thereby exposing the employer to liability. So, if an employer plans to use successive time limited contracts, be mindful of these potential pitfalls.

Further assistance?

Whether it’s time to refresh your suite of employment contracts, discuss options, or just make sure your contracts are legally compliant and consistent with best practice in your industry, our Workplace Relations Employment and Safety Team can assist you. Please don’t hesitate to contact us.

[1] Michael Nasr v Mondelez Australia Pty Ltd [2021] FWC 2802

[2] [2017] FWCFB 5162

[3] Mondelez led evidence of the inherent difficulties in predicting the volume of work, which was exacerbated by the introduction of a new product line, a new automation project and the impact of COVID-19.

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