Australia: Contractual arrangements are crucial in unfair dismissal proceedings

A recent decision made by the Full Bench of the Fair Work Commission (FWC) has put labour hire providers' unfair dismissal obligations back in the spotlight.


The decision in Donald Pettifer v MODEC Management Services Pty Ltd (2016) has reaffirmed that the contractual arrangements between a labour hire provider, an employee and a host employer are crucial in determining the rights of an employee in an unfair dismissal proceeding.

Labour hire company MODEC Management Services Pty Ltd (MODEC) employed Mr Pettifer and placed him with BHP Billiton Petroleum Ltd (BHPB), pursuant to a contract between MODEC and BHPB for the provision of labour to a BHPB site. Mr Pettifer enjoyed an "unblemished" employment record until 30 October 2015, when he was involved in an incident. BHPB subsequently decided to exercise its right under the contract to direct MODEC to remove Mr Pettifer from the BHPB site.

Mr Pettifer commenced unfair dismissal proceedings against MODEC, on the basis there was not a valid reason for dismissal, which related to capacity or conduct. He claimed MODEC had not made any finding of wrongdoing in relation to his conduct, and had only relied on the contractual provisions that permitted BHPB to exclude him from the site.

The decision

Commissioner McKenna found that MODEC did not dismiss Mr Pettifer over his conduct (rather, the dismissal was due to the host employer, BHPB, exercising its contractual right) and accordingly, it was not necessary for the FWC to consider whether there was a valid reason for the dismissal.

On appeal, the Full Bench found:

  • MODEC acted lawfully in dismissing Pettifer after BHPB demanded his removal from the BHPB site; and
  • BHPB's contractual right was not sufficient to dismiss him, and it was appropriate to consider whether there was a valid reason for dismissal, which related to the Mr Pettifer's capacity or conduct.

The Full Bench concluded "the BHPB instruction that [the labour hire worker] was not permitted to work on the BHPB site represented a matter which went to [his] capacity to work".

The Full Bench described Mr Pettifer's circumstances as being "akin to a bar or the loss of a form of a licence, essential to his capacity to work". When MODEC was directed by BHPB to exclude Mr Pettifer from the workplace, he was incapable of performing the inherent functions of his role because "he did not have capacity to perform the duties which he was engaged to do".

Importantly, MODEC only terminated Mr Pettifer's employment after it had exhausted all efforts to redeploy him to a suitable position.

What about the Adecco decision?

You may recall that a different decision was reached in the case of Kool v Adecco Industrial Pty Ltd (2016) (Adecco case), which we summarised earlier this year. In both cases, the FWC considered obligations of labour hire companies that dismiss an employee that the host employer, for whatever reason, no longer wishes to engage. In the Adecco case, the FWC found a labour hire company unfairly dismissed its employee after it dismissed the employee at the directive of the host employer.

3 key differences between the Pettifer and Adecco cases

The Pettifer case differs from the Adecco case in three distinct ways:

  1. Adecco did not provide the FWC with any evidence of a signed agreement between it and the applicant, Ms Kool. Such a document would need to clearly state the circumstances in which Adecco could dismiss an employee, including at the behest of its client, Nestlé.
  2. In the Pettifer case, the contract between MODEC and the applicant included a right that MODEC could be directed by BHPB to exclude Mr Pettifer from the workplace. This clause was crucial to the FWC's finding that the termination was not harsh, unjust or unreasonable.
  3. Adecco mistakenly assumed that it could, to an extent, wash its hands of all obligations under unfair dismissal laws by treating the host employer as being the responsible party in all cases. Deputy President Ashbury rejected this contention. He stated that a labour hire company cannot use the contractual relationship to defeat the rights of a dismissed employee.

Understanding the FWC decisions

The FWC will always take into account the broader circumstances of a case, as well as other factors, including whether:

  • procedural fairness was afforded to the employee;
  • any redeployment opportunities were available; and
  • the labour hire company gave genuine consideration to matters raised by the employee.

Remember that the FWC retains discretion to decide whether a dismissal is unfair in all the circumstances.

Lessons for labour hire employers

Consider the following before dismissing an employee:

  • You may have unfair dismissal obligations.
  • Do not hide behind the host employer. If you are directed to dismiss an employee, consider whether there is a valid reason for doing so which relates to capacity or conduct.
  • Provide evidence to support your case. Consider what the contractual arrangements are and how these support your position, and ensure you document the reasons for and the process of dismissal.
  • Document the nature and purpose of the relationship between you and the host employer.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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