Australia: Traversing the outer limits: jurisdiction of the Fair Work Commission over the employment relationship

Last Updated: 22 May 2018
Article by Brian Powles

There has always been a distinction between an employment relationship at common law, defined by the terms of the contract of employment, and the employment relationship as defined by the relevant Australian industrial instruments. They co-exist, and at times are synonymous, but not always. The 'gap' between the contractual employment relationship, and the instrumental employment relationship, is generally policed by the Fair Work Commission. In the case of Saeid Khayam v Navitas English Pty Ltd [2017] FWCFB 5162, the FWC have arguably left the door ajar to a potential new range of protections for a certain class of employees.

Unfair Dismissal protection has never been provided for employees who are employed for a 'specified period of time' if their employment terminates at the end of that period of time. Thus, employees on fixed term contracts have generally had no legal recourse if their contract is not renewed, even if this is done 'unfairly' due to performance or conduct issues. On the other hand, if a fixed term contract provides the employer with an unconditional power to end the contract early (known by the FWC as an 'outer limits' contract), then an employee will typically be protected against early termination if it is unfair, but not against termination of the contract at its expiration date due to the effluxion of time.

Many industries rely upon 'outer limits' contracts, particularly those dependent on the public purse, or who derive revenue from periodic tendering for grants and funding. Tertiary and vocational education, as well as the community legal sector, are but two examples. In these industries, it is typical to see employees working for many years in one job, subject to a yearly renewal of their 'outer limits' contract. In the event that the contract is not renewed, this has generally not been regarded as falling into the unfair dismissal jurisdiction by the Fair Work Act. Until now.

The Fair Work Commission in Navitas has suggested that the 'employment relationship', may well in these instances, exist above and beyond the mere contract of employment. And this additional part of the employment relationship may bring them into jurisdiction, even if they are terminated at the end date of their outer limits contract. They have not suggested that it does in every case, just that it might in some cases.

For any gluttons for punishment, or industrial law nerds, the decision can be read here. Otherwise take my word for it and read on.

This is not the first time that the 'Fair Work' system has attempted to 'plug the gap' between formal contractual relationships and substantive fairness. For example, for a 'casual' employee at common law, each individual engagement is a separate period of employment. They are not 'employed' by the employer between the end of one engagement and the beginning of the next. However, the concept of an employee being a 'regular and systematic casual', protected from unfair dismissal, has existed under the Fair Work Act for some time. When it comes to dismissal, one of the most common questions I get from employer clients is "They are a casual, can't we just not ask them back?" The simple answer is 'no'.

A number of industries will continue to rely on 'outer limits' contracts for a range of operational and economic reasons. However, this decision demonstrates that an 'outer limits' contract may not be the 'get out of jail free card' for the unfair dismissal jurisdiction that it once perhaps was.

Employment lawyers will be left scratching their heads over what effect Navitas may have on the employment community, or which class of employees are next in line to be squeezed into the jurisdiction by the FWC. Meanwhile, the best advice I can give to employers is to do whatever possible to treat all of your employees with the principles of fairness, irrespective of their contractual status, and none of the above is likely to be an issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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