01 Sep 2016

An ominous challenge to the concept of reasonable notice in the employment contract

By Abraham Ash, Andrew McNair

The controversy as to the implied term of reasonable notice remains, yet again, unresolved.

The District Court of South Australia has opted to follow a line of judicial authority, the effect of which is a growing degree of uncertainty as to whether the concept of “reasonable notice” of termination of employment continues to apply.

It is a well-established principle of Australian employment law that an employment contract can be terminated in accordance with an express period of notice or, in the absence of an express term, a reasonable period of notice.[1]

Employment lawyers acting for employees often attempt to argue that their clients are entitled to reasonable notice of termination even if the employee had received the minimum period of notice under the Fair Work Act 2009 (Cth). The argument is that the Fair Work Act notice of termination requirements are only statutory minimum periods and that the employee had a greater contractual entitlement to reasonable notice.

What amounts to “reasonable” is a question for the court to resolve in an objective fashion, having regard to the circumstances of the case. This means that the duration of a reasonable notice period can exceed (significantly, in some cases) what might otherwise be considered to be the norm for an express notice period. The continued application of a line of judicial authority, which originated in South Australia in 2013, might signal the death knell for these arguments.


South Australian authority: cases of Brennan and Wittenberg

In 2013, the Supreme Court of South Australia handed down the judgment of Brennan v Kangaroo Island Council[2] which held that a reasonable notice term will not be implied where it is not necessary to give business efficacy to a contract. The Supreme Court held that the express notice provisions of an applicable award already operated to make the contract effective.

In Brennan, the position of the employee, a Deputy Chief Executive Officer, was made redundant and the employee claimed that the notice of termination she received was insufficient: her contract was silent as to notice and she was given notice in accordance with the notice provisions set out in the South Australian Municipal Salaried Officers Award, which applied to her. The employee’s argument was that the relevant award established “minimum standards for employment that should not preclude the implication of more generous terms into a contract”.

This argument was rejected by the Supreme Court which accepted that the requirement of necessity (that is, the implication of a term must be necessary for the contract to work), as outlined by the High Court in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council[3], was not satisfied.

Consequently, the employee in Brennan applied for special leave to appeal to the High Court of Australia. The application was rejected.[4] The High Court stated that the analysis in Brennan was “consistent” with High Court authority, and the applicant’s prospects of success were not high enough to justify a grant of special leave.

The practical effect of Brennan, however, has been minimal until now. Some of its reasoning was approved in the Federal Court case of Westpac Banking Corp v Wittenberg[5] but this was in relation to whether a term of reasonable notice could be implied when there is already an express term with respect to the notice period.

In Wittenberg, an employee’s contract stipulated a notice period of six months. However the primary judge ruled that the employee had experienced such a magnitude of changes to his duties that an express contractual notice provision “had been discharged and replaced with an implied term for reasonable notice”, which the primary judge then calculated to be 9 months. On appeal, the full court of the Federal Court found that the express notice provision had not become inoperative and, on the facts, there was “no basis to set aside” the express contractual term in favour of an implied term of reasonable notice.

The case of Brennan received little judicial attention apart from Wittenberg, until now, with the recent case of Kuczmarski v Ascot Administration P/L[6].


Kuczmarski: essence of decision

In Kuczmarski there was no award to consider. Rather, Clayton J considered the operation of section 117 of the Fair Work Act. His Honour held that it was not necessary to imply such a term of reasonable notice of termination in an employment contract because section 117 of the Fair Work Act prescribes a minimum notice period and therefore there was no “gap to fill” in the contract.


No gap to fill: Kuczmarski

In Kuczmarski, an employer terminated the employment of an employee on a redundancy basis. The contract of employment did not specify a notice period and so the employer made a payment in lieu of the minimum notice period prescribed by the Fair Work Act.

The plaintiff employee claimed that his contract was silent as to the notice period and, rather than the statutory minimum in the Fair Work Act, he was entitled to reasonable notice of 12 to 18 months.

Unlike Brennan, Kuczmarski specifically considers the minimum notice periods guaranteed under section 117(2) of the Fair Work Act, rather than a specific award. Notice under section 117 is calculated by reference to the employee’s period of continuous service with the employer; ranging from a notice period of 1 week, to a notice period of 5 weeks when an employee aged 45 years or more has served for more than 5 years (with at least 2 years of continuous service).

The arguments in Kuczmarski were substantially similar to those in Brennan. A key argument of the employee in Kuczmarski was that the Fair Work Act notice periods are minimum periods, and therefore the Fair Work Act and the common law addressed different matters — “one provides a minimum while the other articulates that which is reasonable”. Moreover, the employee argued that the indicia of BP Refinery were “not to the point” because in this case there was no award or contrary term.

On the face of it, there is no reason that an implied reasonable notice term would be inconsistent with the statutory provision. Inconsistency, however, was not the issue. Rather, Clayton J applied the reasoning in Brennan, holding that “because section 117 deals with the topic of the notice required to terminate a contract of employment there is no necessity for a term to be implied”.

In essence, it matters not that an employment contract is silent as to notice period. Even when the contract is silent as to notice, by Clayton J’s analysis, following Brennan, there is “no … gap to fill” and therefore there is no justification for the implication of a contractual term. Further, it was accepted that section 117 demonstrated parliament’s recognition of parties’ ability to expressly agree to longer notice periods and, by recognising this, Parliament intended to exclude the implication of reasonable notice terms altogether.


Implications of Kuczmarski

It is uncertain whether this judgment will be followed or approved by other courts. It is not an orthodox decision; whether its approach with respect to the implication of contractual terms is correct is perhaps best left to a more detailed analysis. The orthodox line of authority is that which accords with Quinn v Jack Chia (Australia) Ltd, which applies the well-established principle of implication of a term of reasonable notice.

What is clear is that Kuczmarski does not appear to take into account the consistency with which courts have implied a term of reasonable notice, not only during the existence of the Fair Work Act, but also during the antecedent Workplace Relations Act 1996 (Cth): s 661 of the Workplace Relations Act contained similar language to section 117 of the Fair Work Act.


Cautionary treatment

On the face of it, the judgment in Kuczmarski appears to benefit employers because, if followed, employees who do not have express notice provisions in their contract will only be entitled to the minimum periods prescribed by section 117 of the Fair Work Act.

Employers should be wary, however. It will be very interesting to see how other courts consider this decision. While persuasive, this line of authority is not strictly binding on courts outside South Australia. Technically, courts outside South Australia do not need to follow this case, but in practice they may do so unless it is shown to be “plainly wrong”.[7] Although the Federal Court in Wittenberg approved some of the reasoning in Brennan, it concerned a different factual matrix.

Kuczmarski highlights two important points for employers, in particular, to consider:

  • First, it is imperative that employment relationships are recorded in well-drafted contracts.
  • Second, no matter how well-drafted employment contracts are, they should be reviewed and updated regularly, bearing in mind the development of the law.

A very recent development

In the time after the submission of this article for publication, the Federal Circuit Court delivered the judgment of McGowan v Direct Mail and Marketing Pty Ltd[8], in which McNab J rejected the reasoning of Kuczmarski in favour of the orthodox position, supported by the notion that section 117 “is intended to provide a minimum period only”. His Honour maintained that section 117 does not preclude the implication of a term of reasonable notice when a contract is silent as to the notice period.

In reaching this conclusion, which was contrary to a previous Federal Circuit Court decision[9], consideration was given to Wittenberg which, as noted above, concerned a different type of case. Wittenberg was not regarded by McNab J to have definitively rejected the orthodox approach, thereby leaving it open to the Federal Circuit Court to adopt the orthodox approach which it considered to be “the better view”.

Of course, the Federal Circuit Court is not a superior court (and neither is the District Court of South Australia) and so the controversy as to the implied term of reasonable notice remains, yet again, unresolved.

This article was first published in the Employment Law Bulletin, Vol 22 No 8, September 2016.

[1]See M Pittard and R Naughton Australian Labour and Employment Law, LexisNexis, Australia 2015 pp 306–314 and cases such as Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567.Back to article

[2]Brennan v Kangaroo Island Council (2013) 120 SASR 11; (2013) 239 IR 355; [2013] SASCFC 151.Back to article

[3]BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266.Back to article

[4]Brennan v Kangaroo Island Council [2014] HCASL 153.Back to article

[5]Westpac Banking Corp v Wittenberg (2016) 330 ALR 476; (2016) 256 IR 181; [2016] FCAFC 33.Back to article

[6]Kuczmarski v Ascot Administration P/L [2016] SADC 65.Back to article

[7]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; (2007) 236 ALR 209; [2007] HCA 22 at [135].Back to article

[8]McGowan v Direct Mail and Marketing Pty Ltd [2016] FCCA 2227.Back to article

[9]Elwin v Edwards Motors Pty Ltd [2015] FCCA 334.Back to article

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