Non-renewal of employment contract amounts to dismissal

Employers may assume that a decision not to extend a fixed-term contract does not constitute a dismissal.

However, in the recent Fair Work Commission (FWC) decision of Warren George Francis v Volunteer Marine Rescue Assoc Qld Inc [2024] FWC 978, it was held that an employer's decision to provide a fixed-term employee with an early notice of non-renewal amounted to dismissal.

Facts

Mr Francis commenced employment by Volunteer Marine Rescue Association Queensland (VMR) as a State Training Officer in January 2021, following years of service as a volunteer. At the time he commenced employment, Mr Francis was notified that VMR would eventually become part of a new marine rescue body.

Under his employment contract, Mr Francis was employed under a fixed-term for a period of six months until 2 July 2021. Fixed-term contracts were used by VMR as they were reliant on government funding to carry out their operations.

On 23 June 2021, Mr Francis was issued with another employment contract for a 12-month period until 30 June 2022. Mr Francis continued to work for VMR beyond 30 June 2022, and a further letter of employment dated 6 October 2022 provided that Mr Francis was offered an additional term of employment with VMR commencing 1 July 2022 for 12 months.

On 25 January 2023, Mr Francis was told that he would be suspended on full pay, pending an investigation into an allegation against Mr Francis that he had threatened violence against a colleague at VMR. The ultimate decision was that the allegation against Mr Francis was not substantiated, and no further action was taken, but several days later, Mr Francis received an email from VMR, outlining that VMR would not extend his employment contract beyond the expiry of the current term.

Mr Francis commenced proceedings in the FWC under section 365 of the Fair Work Act 2009 (Cth) (FW Act), claiming that he had been dismissed, in breach of his general protections. VMR objected to Mr Francis’ application on the basis that Mr Francis was not dismissed.

Accordingly, the FWC was first required to determine whether Mr Francis was dismissed for the purposes of section 386 of the FW Act.

Decision

Section 386 of the FW Act provides that dismissal can occur in several circumstances, including where employment is terminated ‘at the initiative of the employer’.

Case law sets out the relevant elements to determine whether the termination of employment is indeed at the initiative of the employer.

Firstly, the analysis is to be conducted by reference to the termination of the employment relationship, not by reference to the termination of the employment contract.

The FWC held that an employment relationship had been established between Mr Francis and VMR since 2021.

Next, the FWC considered whether an action on the part of the employer was the ‘principal contributing factor’ resulting in the termination of employment.

Having regard to the employment relationship, Commissioner Hunt held that Mr Francis was reasonably of the belief that he would continue to be offered employment by VMR, until the new body was formed, and that VMR understood this belief. Further, Mr Francis had a reasonable expectation that the employment relationship would continue.

While VMR placed much emphasis on Mr Francis’ employment being tied to funding, his employment was not terminated on the basis of a lack of funding (as VMR sought to appoint someone else to the position) and the employment contracts used by VMR did not directly link Mr Francis’ employment to the receipt of external funding.

Accordingly, Commissioner Hunt was satisfied that VMR deciding not to offer Mr Francis a further employment contract despite having the funding to do so resulted directly in the termination of Mr Francis' employment.

Commissioner Hunt noted that the use of fixed-term contracts where the employment is tied to external funding is appropriate, but on the evidence before the FWC, the parties expected the employment relationship to continue at the end of a fixed term unless funding was not provided for the role.

On this basis, the FWC was satisfied that Mr Francis was dismissed by VMR for the purposes of section 386 of the FW Act. Mr Francis is now able to proceed with his general protections claim.

Take home message

Employers should be careful in bringing an employment relationship to an end by not renewing a fixed-term contract. This is particularly true where there has been some indication, even if minor, that the employment relationship will continue beyond the term of the current contract. The risk of not renewing a fixed-term contract should be assessed on a case-by-case basis.

Further, when engaging employees on a fixed-term basis, employers should ensure the contract is clearly drafted to reflect the intention of the parties in entering into a fixed-term contract.

Employers should also be aware of strict rules regarding the use of fixed-term contracts for national system employers commencing 6 December 2023. Specifically, that fixed-term contracts cannot be longer than two years (including extensions and renewals), the contracts cannot have an option to extend or renew so that the contract lasts longer than two years, and the contracts cannot allow for extensions or renewals more than once. Exceptions to these rules may apply in some circumstances, however the use of ‘anti-avoidance’ provisions will restrict employers from avoiding these rules.

For example, employers cannot end the employment of an employee or refuse to re-engage them in an attempt to avoid the strict rules. Such action may be considered adverse action for the purposes of making a general protections claim. In circumstances where an employer has attempted to avoid the rules regarding the use of fixed-term contracts, the contract may be found to be prohibited and its end date will have no effect (i.e., the employment relationship will continue). This can expose employers to a risk of dispute between themselves and the employee.

For more specific information or advice on any of the material contained in this article, please contact Lincoln Smith on +61 413 581 617 or at lsmith@normans.com.au, or Annabelle Narayan on +61 8 8210 1292 or at anarayan@normans.com.au, or Edward De Luca on +61 447 784 887 or at edeluca@normans.com.au.