Rolling in the Deep With Rolling Fixed-Term Contracts
Fixed term contracts are back in the spotlight after a recent decision of the Fair Work Commission in Michael Nasr v Mondelez Australia Pty Ltd [2021] FWC 2802 (Nasr), where the Commission held that an employee engaged over a 30-month period under eight separate and successive fixed term contracts, was not dismissed within the meaning of section 386(1)(a) of the Fair Work Act 2009 (Cth) when his last contract came to an end.
Why is this important? Well, as a general rule, employers need to be very careful when engaging workers on rolling fixed-term contracts, even if there are legitimate business reasons to do so, because there is the risk that such contracts build an expectation that the employment relationship (not just the employment contract) will continue following the expiry of the contract, leading to potential unfair dismissal claims when the final contract is not renewed.
The decision in Nasr sheds some useful light on how employers may still be protected under section 386(2)(a) of the Fair Work Act 2009 (Cth) in circumstances where an employee’s employment is terminated at the end of a fixed term contract.
What Happened?
Following a period of casual engagement as a labour hire worker with confectionery and food giant Mondelez, Mr Nasr was subsequently employed directly by the company over a 30-month period under eight separate and successive fixed term contracts (ranging in duration from one month to 12 months), prior to his final contract expiring on 31 December 2020.
Following the cessation of his employment, Mr Nasr subsequently lodged an unfair dismissal claim and sought to be reinstated in his position on the basis that by his eight contract he had a reasonable expectation of ongoing or permanent employment. Mondelez, on the other hand, claimed that there had been no dismissal within the meaning of s386(1)(a) of the Fair Work Act 2009 (Cth) as Mr Nasr’s employment had not been terminated at the initiative of Mondelez. Instead, his employment came to an end at the expiry of his contract, which is excluded from the meaning of dismissal under section 386(2)(a) of the Fair Work Act 2009 (Cth).
The Decision
The Commission held that Mr Nasr’s application had no jurisdiction to proceed, on the grounds that his employment had not ceased at the initiative of his employer and Mondelez were subsequently protected under section 386(2)(a) of the Fair Work Act 2009 (Cth).
The Commission relied on the decision of Khayam v Navitas English Pty Ltd which confirms the principles in determining whether a dismissal occurred ‘at the initiative of the employer’ when an employment contract reaches its expiry date. Such principles include (inter alia):
- where a series of fixed-term contracts exists, the question is whether the parties genuinely agree that the employment relationship in totality (not just the employment contract) would come to an end at the expiry date of the last contract and importantly;
- where it has been agreed that a contract will end on a particular date the parties have not agreed that the employment relationship would also terminate, it is arguable that there is an expectation of an ongoing employment relationship and therefore the termination of employment at the end of the contract may still constitute termination at the initiative of the employer; and
- where the terms of a fixed-term contract reflect a genuine agreement that the employment relationship is not to continue following the end of the contract, the relationship is terminated by agreement, not at the initiative of the employer.
The Commission found that each of Mr Nasr’s contracts contained a clear expiry date and expressly stated that Mr Nasr’s employment (not just the contract) would terminate at the end of the relevant period, and also that there was no guarantee of further employment beyond the expiry date. It was also important that Mr Nasr was not working in the same position under each of the contracts, moving between departments and in various roles which further supported the Commission’s views that the contracts were necessary based on the genuine operational requirements of the company and that there was a real indication that Mr Nasr’s engagement was limited to the scope of each contract.
While the Commission recognised that Mr Nasr had been employed under successive fixed-term contracts for a “greater period than is ordinarily the case”, the Commission accepted that there were genuine operational reasons for him to be engaged under the rolling fixed term contracts.
Important Message for Employers
It is encouraging to see the Fair Work Commission recognise and uphold the genuine and useful role fixed term contracts have in the workforce, however it is also a very important reminder to employers that fixed term contracts need to be done right or the exposure could be significant. Had Mondelez’s contract not been well drafted, the company would have no doubt been exposed and the Commission has set the bar for what is required in order to be protected under section 386(2)(a) of the Fair Work Act 2009 (Cth).
If you’re wanting to have a chat about whether your current fixed term agreements are up to scratch, or if you would like some guidance on the most appropriate way to engage your employees, contact our dedicated Workplace Relations team today: