The statutory minimum period of notice does not displace the common law term of reasonable notice

In the recent decision of McAlister v Yara Australia Pty Ltd [2021] FCCA 1409, the Federal Circuit Court held that the common law term of reasonable notice, implied by law, is not displaced by the statutory minimum notice period under section 117 of the Fair Work Act 2009 (Cth) (FW Act).

Key issue

Ms Janelle McAlister (Ms McAlister) worked for Yara Australia Pty Ltd (Yara) for almost 19 years before Yara decided to summarily dismiss her for alleged misconduct in 2015.

Following the termination of Ms McAlister’s employment, Ms McAlister commenced proceedings alleging breach of contract and contraventions of the FW Act. The Court held that Yara was not entitled to summarily dismiss Ms McAlister in the circumstances and that by doing so they had breached her employment contract. The Court was then required to decide the period of notice to which Ms McAlister was entitled. A key issue was whether Ms McAlister’s employment contract contained an express term of notice or whether a reasonable notice term should be implied by law.

What did the employment contract say?

Ms McAlister’s employment contract contained the following clause:

“All other details to be according to the rules and regulations set forth by the appropriate Australian government authority(ies) between employer and employee”.

Ms McAlister argued that there was no express provision regarding notice of termination in her employment contract, and as such, a period of reasonable notice should be implied. Yara submitted that the reference to “rules and regulations” meant that Ms McAlister’s employment contract contained an express term that notice was to be paid in accordance with Australian workplace laws or, as an alternative, if the Court found that the employment contract did not contain an express term as to the notice of termination, then the implied term as to reasonable notice is the notice period set out in the National Employment Standards of the FW Act. The minimum period of notice of termination under section 117 of the FW Act is a scale based on the employee’s length of service, with a maximum of five weeks’ notice available for employees over 45 years old and who have more than five years’ service.

Interaction between the implied term of reasonable notice at common law and section 117 of the FW Act

The Court considered authority on the issue of whether section 117 of the FW Act displaces the implied term of reasonable notice, noting there have been differing views from various courts and the position is yet to be determined by a superior court which is binding on the Federal Circuit Court.  

Judge Obradovic referred to the basic principle of statutory construction, being that legislation is presumed not to alter common law doctrines. Her Honour also agreed with the comments made by the courts in McGowen v Direct Mail & Marketing Pty Ltd [2016] FCCA 2227 and Guthrie v News Ltd [2010] VSC 196 that Parliament’s intention was unlikely to be that employees who served vastly different periods would, by the enactment of section 117 of the FW Act, be confined to receiving the exact same notice of termination despite their different factual circumstances.

In reaching her conclusion that Ms McAlister’s employment contract contained an implied term of reasonable notice, Judge Obradovic made the following comments:

• it is important to consider the actual wording of the employment contract. In Ms McAlister’s case, it did not provide any evidence of what the “rules and regulations” might have been when she commenced her employment with Yara. Her Honour stated that “the reference in the contract to rules and regulations is so vague and uncertain that it cannot be read in the way contended for by Yara”
• the evidence established that the parties, at the time the employment contract was executed, intended to comply with the law. There was insufficient evidence to support a finding that the parties intended to include specific reference to future legislation which could impact a party’s rights under the employment contract. The better interpretation is that the employment contract is silent on notice and that it does not contain a clause in respect of notice of termination
• if the reference to “rules and regulations” did mean legislation as applicable at the relevant time, section 117 of the FW Act would be relevant. However, section 117 of the FW Act only refers to the minimum period of notice, and this leaves open a construction of the term that includes the implication of reasonable notice for a longer period than the minimum notice period
• the employment contract did not exclude the implication of both the legislation and the common law rules, which meant there was no conflict between the express terms and the proposed implied term of reasonable notice.

What was the period of reasonable notice?

The Court applied well-established considerations when determining the appropriate period of reasonable notice. This includes having regard to the specific circumstances, including Ms McAlister’s length of service, professional standing, age, qualifications and experience, degree of job mobility, expected period of time for finding alternate employment, the likely period of continued employment but for the dismissal, anything Ms McAlister gave up when commencing employment with Yara and her prospective pension or other rights.

Key factors in this case included Ms McAlister being 54 years old with no formal qualifications, having 19 years’ service, her seniority and the circumstances of her dismissal creating doubt about her integrity.

Under these circumstances, the Court held that nine months’ notice was reasonable notice. The nine months’ reasonable notice was calculated on Ms McAlister’s total remuneration package of $191,200, plus any statutory entitlements she would have earned over that same period.

Key takeaways

The legal position on the interaction between the implied term of reasonable notice and section 117 of the FW Act remains to be determined by an appellate court. However, this decision provides clear guidance on the relevant principles on this issue and is, in our view, a sound judgment.

This case also serves as a timely reminder to employers of the legal risks presented to businesses when employment contracts are deficient and the importance of ensuring employment contracts contain terms that are not only tailored for the relevant employee but also afford adequate business protection. This is important to note as the courts will not set out to rewrite terms of individual employment contracts.

Authors: Louise Rumble & Sladjana Skoric

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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