The Fair Work Commission ("FWC") has highlighted some best practice tips for managing employee expectations and legal risks when using a series of maximum term employment contracts.
Appropriately drafted maximum term employment contracts
The FWC found that the terms of the eight (8) contracts were clear, unambiguous and expressly articulated the respective maximum terms of employment. In particular, the maximum term employment contracts provided that:
- the employment was "temporary for the maximum period";
- the employment would terminate at the end of the specified period; and
- the employment was offered "on the basis that there can be no guarantee of further employment beyond that period".
The Applicant was found to have read, signed and understood each of the maximum term employment contracts.
Justification for extending the term of employment
Prior to the expiration date of each of the maximum term employment contracts, the Company met with the Applicant and explained the reasons as to why the Applicant was being offered a further maximum term of employment.
The FWC found that the extensions of the Applicant's employment were based on genuine operational reasons applicable at the relevant times. For example, the Applicant was engaged under the different contracts to work different shifts and for different departments, with the varying periods of engagement dependent on volume and demand requirements.
On each occasion that the employment was extended, the Company reiterated to the Applicant that the employment would cease at the expiration date specified in the contract.
Best practice communication
Between 16 December 2020 and 18 December 2020, the Company met with the Applicant to advise that the Applicant would not be offered a further contract due to the lack of available work.
The FWC considered that it was appropriate and a reflection of best practice for the Company to meet with the Applicant as the eighth contract approached the expiration date and confirm that the employment would end on the specified date in accordance with the terms of the contract.
In consideration of the relevant circumstances, the FWC found that the Applicant did not have an expectation of ongoing employment and that the employment relationship came to an end by reason of the effluxion of time upon the expiry of the eighth maximum term employment contract.
There is a legal distinction between the termination of the contract of employment and the termination of the employment relationship. Notwithstanding that an employee's maximum term employment contract has come to an end, the employee may hold a reasonable expectation of ongoing employment and argue that the employer has terminated the employment relationship by not offering a further contract of employment.
To mitigate against these risks, employers should:
- ensure maximum term employment contracts are appropriately drafted;
- utilise maximum term employment contracts when it is operationally justified and communicate the operational reasons behind any extensions; and
- remind employees of the impending expiration of their employment contracts and proactively confirm if no further offers of employment will be made.
See the full decision here.