Termination of employment — other than by notice

Analysis

Termination of employment — other than by notice

The relevant employment laws regarding termination of employment are consistent subjects of inquiry. This article considers the less common ways a contract of employment may be terminated.

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The relevant employment laws regarding termination of employment are consistent subjects of inquiry. This article considers the less common ways a contract of employment may be terminated.

The Fair Work Act 2009 imposes minimum obligations on an employer in relation to the minimum period of notice of termination, as well as the right of an employee to apply for unfair dismissal or general protections (unlawful) dismissal before Fair Work Australia (FWA).

The applicable modern award or enterprise agreement may require an employee to provide the same period of notice of termination as applies to the employer under the Act.

While the most common method of terminating a contract of employment is by one party giving notice to terminate the contract to the other party, a contract of employment may be terminated in other ways. This article summarises some of the less common ways in which a contract of employment may still be terminated.

Lawfully terminating employment
 
A contract of employment may be lawfully terminated in a number of ways. The most common ways in which employment may be lawfully terminated include:
  • termination by operation of law (eg if an employee dies)
  • completion of the contract — an employment contract for a fixed-term, or for the completion of a certain task/project, ends automatically at the end of the period of time, or the completion of the specified task/project (eg the successful completion of an apprenticeship or traineeship)
  • termination by notice — either party may terminate a contract of employment by giving the proper period of notice of termination. The period of notice may be subject to the National Employment Standards (NES) under the Fair Work Act (in the case of notice by the employer to the employee), the applicable modern award or enterprise agreement, or the employee’s contract of employment.
  • termination by breach of contract — a party may terminate a contract of employment in some circumstances if the other party breaches the contract of employment. Not every breach of a contract will justify terminating the contract. Whether a particular breach justifies termination will depend on the nature of the breach and the particular circumstances of the case. Examples of a breach of contract that may justify dismissal in certain circumstances include frustration, repudiation or abandonment of employment.
Potential loss of termination pay
 
Lawful termination is important because it can be crucial in determining the right of an employee to access unfair dismissal or general protections (unlawful) dismissal laws, or employment entitlements, such as pro rata annual leave or long service leave. For example, under the SA Long Service Leave Act 1987, an employee who completes seven years of continuous service with the employer is entitled to payment of pro rata long service leave, unless the contract of service is ‘unlawfully terminated by the worker’. This means the employee must give the employer the appropriate period of notice of termination, and work out the period of notice, to be entitled to pro rata long service leave on termination.

The applicable modern award or enterprise agreement may also require an employee to give lawful notice, otherwise certain entitlements that are usually payable on termination may be forfeited. 
Example
 
Clause 22.2 of the Manufacturing and Associated Industries and Occupations Award 2010 states that if an employee fails to give the required notice the employer may withhold any monies due to the employee on termination under this Award or the NES, an amount not exceeding the amount the employee would have been paid under this Award in respect of the period of notice, less any period actually given by the employee. This means the employee can forfeit monies due on termination, such as their accrued annual leave, depending on the amount to be forfeited by the employee.
Termination by breach of contract
 
The principles that apply to termination by breach of contract are generally governed by common law. This means that such matters can be legally complex and relate to the specific circumstances of each case.

The following are the most common circumstances that may be regarded as a breach of an employment contract:

Frustration
 
Sometimes, contractual terms or obligations cannot be fulfilled due to the intervention of unforeseen circumstances. Generally, the doctrine of ‘frustration’ will be applied where the impossibility of performance is caused by an event not contemplated by the parties and to which neither contributed. For example, the destruction of the employer’s plant and equipment may totally frustrate the purpose for which the employees were engaged, because the employer may be unable to utilise their services. Even in this circumstance, Courts are unwilling to find frustration except in the limited circumstances where the employee is unable to find alternative useful employment for the affected employees in other areas of the business and the situation is likely to prevail for a substantial period of time.

It would also be difficult for an employer to successfully argue before a Court that the contract has been frustrated because of an employee’s illness or injury. This is particularly the case where the Court is dealing with an indefinitely continuing relationship, and not the performance of a specific task. A court is more likely to find that the employment contract has been frustrated in the case of a short-term engagement than in the case of a long-serving employee. A short-term contract is easily frustrated by even a relatively minor incapacitation of the employee, whereas, in the case of a long-term employee, a Court is not likely to find frustration unless the incapacity is either permanent or clearly long term.

Repudiation
 
The term repudiation is used in different senses. Firstly, it may refer to conduct of a party which indicates an intention that he or she no longer wants to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations. Secondly, it may refer to any breach of contract that justifies termination by the other party. In any matter relating to repudiation, actions speak louder than words. The conduct of the party has to be such as to convey to a reasonable person, in the situation of the other party, repudiation or disavowal either of the contract as a whole or of a fundamental obligation under it. An employee who repudiates the contract of employment is excluded from an application for unfair dismissal under the Fair Work Act because it is not a dismissal under the meaning of s386 of the Act.

In the context of unfair dismissal law, it is generally held by FWA that serious or wilful misconduct must be conduct by an employee that amounts to a repudiation by that employee of the essential employment contract. Such repudiation entitles an employer to terminate the employment relationship summarily without payment of notice.

Abandonment of employment
 
Abandonment usually arises in circumstances where an employee is absent from work without reasonable excuse for an unreasonable period of time, without having communicated to the employer any reason for the absence. Where abandonment has occurred, the employer must assume the employee’s employment ended on the date the employee last attended for work.
Example
 
An employee who did not return from annual leave but subsequently returned some seven weeks later, who was previously advised that failure to return from leave would result is the employee’s dismissal, was deemed by FWA to have abandoned his employment.
Some modern awards contain a provision regarding abandonment of employment. This usually regards an absence of more than three consecutive working days without the employer’s consent and no notification to the employer. A further 14-day period of absence without satisfying the employer there is a reasonable cause would result in the employee being deemed to have abandoned his/her employment. An example of such a provision is cl 21 of the Manufacturing and Associated Industries and Occupations Award 2010.
 
Constructive dismissal
 
This refers to a situation where the employee resigns because of actions by the employer and is, in fact, deemed by FWA to be a dismissal. In determining whether a termination was at the initiative of the employer an objective analysis of the employer’s conduct is required to determine whether it was of such a nature that resignation was the probable result or that the applicant had no effective or real choice but to resign.

The concept here is that there is implied in a contract of employment a term that the employer will not, without reasonable and proper cause, conduct itself in a manner calculated or highly likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. Breach of that implied term may will entitle the employee to treat him or herself as wrongfully dismissed.

FWA has determined in a number of unfair dismissal applications that the employee was, in fact, constructively dismissed by the employer, despite the employee having tendered their resignation to the employer. An example was an employee, who was falsely accused of theft, was found to have been constructively dismissed. Likewise, there are several instances where a single incident of verbal abuse gave rise to a successful claim of constructive dismissal.

Source: Paul Munro, IR Consultant.
 
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