I was recently asked if not having a “termination clause” in a written contract of employment matters when the contract identifies the relevant industrial instrument.
Is the implied term of reasonable notice still good law?
Kilminster
The inclusion of a clause specifying a notice period to terminate the contract of employment may be thought as unnecessary where industrial instruments or statutory provisions set out a minimum notice period. However, the High Court in Kilminster v Sun Newspaper Limited (1931) 46 CLR 284 and 289 confirmed that award notice provisions do not confer a right to terminate the employment, and only prescribe a minimum period of notice that must be given by the employer in the event that it exercises its contractual right to terminate the employment.
More recent decisions have cast doubt on whether the position in Kilminster is still correct and it is still appropriate to imply reasonable notice into contracts of employment, where they do not have a specific notice period a termination clause, and in circumstances where industrial instruments and legislation provide minimum notice provisions.
Brennan and Kuczmarski
The Full Court of South Australian Supreme Court refused to imply a term of reasonable notice in the matter of Brennan v Kangaroo Island Council [2013] 120 SASR 11 holding that it was not necessary to imply reasonable notice where the applicable industrial award includes a term about termination. An application for special leave to the High Court in this matter was refused.
Similarly, the South Australian District Court in Kuczmarski v Ascot Administration Pty Ltd [2016] SADC 65 found that it was not necessary to imply a term of reasonable notice where the employee had the benefit of the minimum periods set out in the National Employment Standards.
Industrial instruments (Awards and Enterprise Agreements) set out minimum requirements for termination of employment which can’t be reduced by contract. The termination provision in an industrial instrument will not be sufficient to terminate the employment contract unless the written contract specifically incorporates those provisions into the contract.
Similarly, the National Employment Standards (NES) provide minimum requirements for termination of employment which can’t be reduced by contract. However, even where a general reference is made to the NES in the contract, that will not be sufficient to terminate the contract of employment unless the contract specifically incorporates those NES provisions as the termination clause.
The NES minimum provisions are found in clause 117 of the Fair Work Act 2009 (Cth) and provide:
- An employer must not terminate an employee’s employment unless the employer has given the employee written notice of the day of the termination (which cannot be before the day the notice is given).
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 section (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.
3. Work out the minimum period of notice as follows:
(a) First work the out the period using the following table:
| Period of continuous service with the employer at the end of the day the notice is given | Period | |
| Not more than 1 years: | 1 week | |
| More than 1 year but not more than 3 years: | 2 weeks | |
| More than 3 years but not more than 5 years | 3 weeks | |
| More than 5 years | 4 weeks |
(b) then increase the period by 1 week if the employee is over 45 years old and has completed at least 2 years of continuous service with the employer at the end of the day the notice is given.
McGowan
The two South Australian decisions referred to above turn the concept of reasonable notice on its head and as a result, employers may think they have little or no risk of a claim for reasonable notice as they can rely on provisions in industrial instruments or legislation. However, the decision in McGowan v Direct Mail and Marketing Pty Limited [2016] FCCA 2227 means that the concept of reasonable notice remains part of Australian common law and it does not follow the Kuczmarksi reasoning. There is an ongoing debate and uncertainty surrounding the issue.
In the decision of McGowan v Direct Mail and Marketing Pty Ltd [2016] FCCA 227, His Honour Judge McNab stated [at 85]:
“I think the better view is that s.117 is in that part of the Act dealing with National Employment Standards and is intended to provide a minimum period only. It does not displace a right to reasonable notice when the contract of employment is silent on the question of notice. …”
Despite the South Australian decisions, it should be assumed that an implied term of reasonable notice is part of our law. Therefore, to avoid the risk of the argument being raised, all employment contracts should contain a termination clause specifying the relevant notice period.
The prudent course is to assume that if there is no express termination provision in a contract, common law implies the term of reasonable notice. What constitutes reasonable notice will depend on the circumstances.
When will reasonable notice be implied as a term of a contract of employment?
Where there is no period of notice specified in a contract, it may be implied. Even if the job is said to be a job “for life” there is still likely to be room for the implication of a term as to reasonable notice. However, before a term is implied into the contract (whether it is implied at law or based on the presumed intention of the parties), it must be necessary and must not be inconsistent with any express terms of the contract.
It is a question of construction as to whether the parties intended for an express provision relating to termination to be comprehensive. If so, the intention will prevail and there will be no implication of a right to terminate on reasonable notice. If not, a specific length of notice ascertained by reference to custom or trade practice may be found to exist. Where no termination provision is contained in a contract of employment, the notice given to terminate the contract must be reasonable.
What will be reasonable notice?
Reasonableness is determined at the time the notice to terminate is given, not when the contract is made. As a general rule the longer the period of employment, and the more senior and important the position held by the employee, the greater the period of notice. Other relevant factors include:
- industry practice or custom;
- the employee’s age;
- the employee’s qualifications and experience;
- his or her degree of job mobility;
- the expected period of time it would take the employee to obtain alternative employment;
- the period it was likely apart from the dismissal that the employee would have continued in the employment; and
- what the employee gave up to accept the position being terminated.
The assessment as to what is reasonable notice is determined in light of all the circumstances as at the date the notice is given.
What constitutes reasonable notice for an employee to give is even less unclear. It should not be assumed that reasonable notice to be given to an employee by the employer is the same as reasonable notice that must be given by the employee to an employer.
Even in the absence of this express reservation, an employer would not lose the right to summarily dismiss an employee if warranted by reason only of the clause providing that termination is allowable on specific notice.
Case Example – Rogan-Gardiner v Woolworths Ltd (No 2) [2010] WASC 290
Facts:
The claim alleged a breach of an implied term of reasonable notice. It was alleged that that by reason of the senior nature of the applicant’s employment, level of remuneration, length of service, professional standing, age, qualifications and work experience, reasonable notice was a period of 18 months.
Woolworths argued that reasonable notice was 6 months.
Findings:
The court found: What is reasonable notice depends on the circumstances of the case (at [167]).
…
The purpose of notice is to give employees a reasonable opportunity to reorganise their lives. This means a reasonable period in which to secure alternative employment. A court should not impose a period of notice that is longer than the period of notice that either party would have considered reasonable had they turned their minds to it at the time: Reilly v Praxa Ltd (at [178]).
In the circumstances of that case, 4 months was found to be reasonable notice for a Finance Services Manager who had been working with Woolworths for a period of 5 years and eight months (maternity leave of 20 months not included), and this was reflective of the employee’s position, length of service and prospects of future employment.