Term contracts: lessons learned from Naulty v Shoalhaven City Council

Shoalhaven City Council recently defeated an unfair dismissal application commenced by an Applicant employed under a “fixed” term contract by satisfying the Industrial Relations Commission that the employee was not “dismissed” for the purposes of section 84 of the Industrial Relations Act 1996 (NSW) (Act): Naulty v Shoalhaven City Council [2021] NSWIRComm 1012.

When employment ends as a consequence of the expiry of a term contract, an employee will not be eligible to access the unfair dismissal jurisdiction. However, it is critical to ensure that compliance with clause 34 of the Local Government (State) Award 2017 (Award) headed “Term Contracts” when considering whether a term contract is appropriate in the circumstances.

Fast facts

Shoalhaven City Council employed Ms Naulty (Applicant) as an Accounts and Debt Recovery Officer on a “fixed” term contract to cover a parental leave absence. The contract provided that it would commence on 23 October 2017 and “shall terminate Friday, 26 October 2018 (the “date of expiry”)” (First Contract).

By agreement, and prior to the expiry of the First Contract, the parties entered into a “Variation to Term of Contract” under which the employment would end on 18 January 2019.

In December, and prior to the expiry of the First Contract, the applicant was offered and accepted a new “fixed” term contract to work in a different role – Administrative Officer – for the period 2 January 2019 to 3 May 2019 (Second Contract). The Second Contract was varied by consent to extend the expiry date to 30 July 2019 (Variation).

Similarly to the First Contract, the Second Contract included the following terms:

• the employment was expressed to be non-continuous;
• that it was made in accordance with clause 34 of the Local Government (State) Award 2017 (Award); and
• on the date of expiry, the employment would end unless the parties have entered into a new contract of employment

The Variation to the Second Contract expressly stated “your employment is fixed term and further extensions beyond the date in this letter should not be anticipated or relied upon”.

On 30 July 2019, at the expiry of the nominated term, the employment came to an end. The Applicant filed an unfair dismissal application under section 84 of the Industrial Relations Act 1996 (NSW) alleging the dismissal was harsh, unjust or unreasonable.

Shoalhaven City Council filed a jurisdictional objection, opposing the application on the basis that the Applicant was not “dismissed”.

Legislative framework

Under section 83 of the Industrial Relations Act 1996 (NSW), an employee is exempted from the unfair dismissal jurisdiction on a number of bases. Although sub-section 83(2)(a) expressly refers to “where the employee is engaged under a contract of employment for a specified period of time” the exclusion only operates where it is expressly referred to in the Industrial Relations (General) Regulations 1996 (NSW). Importantly, this exclusion is not dealt with under the Regulations.

For that reason, Shoalhaven City Council approached the jurisdictional objection on a different basis: that there had been no “dismissal” because the Second Contract simply ended by the effluxion of time. The Industrial Relations Commission accepted this to be the case.

The Industrial Relations Commission also gave consideration to whether both the First Contract and Second Contract complied with clause 34 of the Award. Importantly, that provision provides “the employer may only employ a person on a term contract in the following situations…” and provides an exhaustive list. The Industrial Relations Commission accepted that the contracts complied.

Key takeaways

• When employment ends at the expiry of the term of a contract, the employee will not be eligible to access the unfair dismissal jurisdiction. However, it is critical that any term contract is offered in compliance with clause 34 of the Award and only used in legitimate and appropriate circumstances. 
• The terms of a contract for a specified period must reflect a genuine agreement between the employer and employee that the employment relationship will automatically cease after a specified date.
• Employers should avoid making a promise or indication of continued employment beyond the fixed term of an employment contract, or risk demonstrating an intention to continue the employment relationship.
• Employers should ensure term contracts are monitored, with end dates diarised, so that they don’t inadvertently rollover beyond the expiry date

“Fixed term” vs “maximum term”

Although the First Contract and Second Contract were self described as “fixed term”, both contracts actually made clear that they could be terminated prior to the expiry date, for various reasons, including simply by notice in accordance with clause 38 of the Award. This means that the contracts were not, in fact, true “fixed” term contracts, but rather “maximum” term contracts. 

Had the contracts been terminated earlier, prior to the expiry dates, there would have been a dismissal for the purposes of the unfair dismissal jurisdiction. 

Further, in our view, caution should always be exercised in placing an employee on a true “fixed” term contract. This is because in the absence of serious misconduct, termination prior to the expiry date requires paying out the balance of the term. This can make termination very expensive!

For further information on any of the issues raised in this alert, please contact:

• Amber Sharp on +61 2 8241 5608  
• Kerry O’Brien on +61 2 8241 5617  

This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.