27 Oct 2016

Can I terminate a labour hire employee when the client no longer wants them on a project?

By Nathan Moy

A recent decision of the Fair Work Commission supports an employer terminating a labour hire employee when his contract was frustrated.

An employment contract requires the employee to provide their personal service to their employer. So what happens when, through no fault of either party, that isn’t possible?

Enter the concept of frustration, which brings the contract to an end. In the employment context, this has been limited to circumstances where the employee is imprisoned or physically incapable of performing the contract.

The decision of the Fair Work Commission (FWC) in Donald Pettifer v MODEC Management Services Pty Ltd [2016] FWCFB 5243 looked at whether this concept should apply in labour hire situations, and the indications are that it can, depending on the facts.

A series of unfortunate events for Mr Pettifer

Mr Pettifer was employed as a labour hire employee by MODEC.

MODEC had a contract with BHP Billiton Petroleum (BHP) to provide labour to one of its projects, the Pyrenees Venture. Mr Pettifer was employed by MODEC specifically to work on the Pyrenees Venture.

Following an undescribed incident on 30 October 2015, BHP directed MODEC to remove Mr Pettifer from the Pyrenees Venture. BHP had the absolute discretion to do so under its contract with MODEC.

Despite not agreeing with BHP’s characterisation of the incident, MODEC complied with BHP’s request.

MODEC then took steps to find Mr Pettifer alternative employment both in Australia and New Zealand. None of those attempts proved fruitful.

On 25 November 2015, MODEC terminated Mr Pettifer’s employment contract, relying on the instruction from BHP to remove him from the Pyrenees Venture he was employed to work on and the inability to find suitable alternative employment.

Mr Pettifer claimed he was unfairly dismissed.

A frustrated contract

At first instance, Commissioner McKenna found that the dismissal was not unfair. The Commissioner found that, in practical terms, there was nothing MODEC could have done to keep Mr Pettifer’s contract of employment ongoing.

In forming that conclusion, Commissioner McKenna held that MODEC had not relied on Mr Pettifer’s conduct in dismissing him (indeed there was evidence that MODEC was sympathetic to Mr Pettifer). Rather, the Commissioner accepted that MODEC had “no alternative” but to terminate Mr Pettifer’s employment in circumstances where:

  • MODEC had been directed by its client to remove Mr Pettifer from the Pyrenees Venture; and
  • there was no suitable alternative employment for Mr Pettifer to perform.

Or was it?

Mr Pettifer appealed this decision.

The Full Bench dismissed the appeal.

The Full Bench pointed to the specific facts of this case which included:

  • Mr Pettifer had been employed specifically to work on the Pyrenees Venture.
  • MODEC was contractually obliged to remove Mr Pettifer from the Pyrenees Venture when directed to do so by BHP.
  • Having been removed from the Pyrenees Venture, Mr Pettifer was unable to perform the inherent requirements of the job he was employed to do.
  • MODEC only terminated Mr Pettifer’s employment when attempts to find him alternative employment were unsuccessful.

The Full Bench did find, however, that Mr Pettifer’s termination related to his capacity to perform his job—as the removal from the Pyrenees Venture meant he could no longer do what his employment contract required.

The Full Bench characterised Mr Pettifer’s circumstances as akin to Mr Pettifer being unable to perform his role due to the bar or loss of a licence essential to the capacity to perform his work.

Lessons for employers

Mr Pettifer’s case shows willingness from the FWC to expand the basis on which an employment contract might be considered "frustrated" due to the incapacity of the employee to perform their duties.

This is particularly significant in the labour hire context, where employers may find themselves in the unenviable position of having to deal with an employee whom the client no longer wants on their projects.

Mr Pettifer’s case provides us with some guidance about what employers can do in this scenario:

  • It can be a valid reason for employers to terminate in this situation, on the basis that the employee is no longer able to perform the duties of their role.
  • FWC still has the discretion to consider if the termination is unfair, and will look at all the circumstances.
  • Factors that might make the dismissal fair in this scenario include:
    • the contractual arrangements in place, in particular whether the client has a right to direct the employer to remove its employees from projects;
    • whether the client’s direction to remove the employee from their project(s) effectively means they can no longer do what they were employed to do;
    • the steps taken by the employer to find the suitable alternative employment before terminating the employment; and
    • the opportunity given to the employee to respond any suggestion that they can no longer perform their duties.

If you’re an employer in MODEC’s situation, you’ll need to consider these matters carefully before relying on the frustration of the employment contract as a basis for terminating employment.

It remains to be seen whether Mr Pettifer’s case has any broader application outside the labour hire context, and we would recommend some caution in relying on Mr Pettifer’s case in different circumstances.


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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.