Reasonable Notice

27 Sep 2016

Recent decisions revisit the relevance of the law of reasonable notice of termination.

In recent years, there have been a number of important judicial decisions which have considered whether the concept of "reasonable notice" of termination continues to have relevance to Australian employment contracts.

The traditional view is that where an employment contract is either silent on notice of termination or includes an inadequate period of notice of termination (for example, an old employment contract which relates to an employee's former position), then the law implies a term requiring the employer to provide a "reasonable" period of notice of termination.

In considering what constitutes a reasonable period, the Courts have considered factors such as the employee's age, experience, tenure, seniority and likelihood of obtaining alternative employment.  In Australia, it is generally accepted that older and more senior employees with long periods of service may be entitled to notice periods of up to 9 to 12 months where a term of reasonable notice is implied.

However, in recent years, some decisions have cast doubt on whether it is still appropriate to imply reasonable notice in circumstances where the legislation, and industrial instruments, provide for a period of minimum notice.

Firstly, in the decision of Brennan vs Kangaroo Island Council [2013] 120 SASR 11, the Full Court of the South Australian Supreme Court refused to imply a term of reasonable notice where the applicable industrial award included a term about notice of termination. In this case, the relevant employee was covered by a State Award which specified the period of notice the employer was required to provide.  In dismissing the employee's appeal from a first instance decision of the District Court, the Full Court held that it was not necessary to imply a term about reasonable notice where the Award already dealt with notice.  A further application for special leave to appeal the decision in the High Court was refused.

In Kuczmarski vs Ascot Administration Pty Ltd [2016] SADC 65, the South Australian District Court also found that it was not necessary to imply a term requiring reasonable notice in circumstances where the employee had the benefit of the minimum notice periods set out in the National Employment Standards contained in the Fair Work Act 2009 (Cth) (FW Act).  In this case the employee's contract did not include any express term regarding notice of termination and the employee was not covered by any industrial award.  On dismissal, the employee was paid five weeks' notice in accordance with Section 117 of the FW Act.  Even though section 117 refers to the applicable notice periods as being "minimum" periods of notice, the Court held that Parliament had already imposed an obligation on employers to give a period of notice and accordingly the implication of a term requiring reasonable notice was not necessary.

These recent decisions appeared to turn the traditional notion of reasonable notice on its head.  Employers having regard to these decisions could assume there was little risk of a reasonable notice claim given the protection afforded by the FW Act and modern awards.

However, in the 30 August 2016 decision of the Federal Circuit Court of Australia in McGowan vs Direct Mail and Marketing Pty Limited [2016] FCCA 2227, the door has again been left ajar in regards to reasonable notice.  Although this case concerned a claim of "adverse action" by the employer, the judge made some pertinent observations regarding reasonable notice.  Despite the employee in this case being paid 5 weeks' notice under section 117 of the FW Act, the employee argued that he was entitled to reasonable notice (on the basis the FW Act only contained "minimum" notice periods).  Judge McNab indicated that there remained a "genuine controversy" as to whether section 117 precluded the implication of a term of reasonable notice for an employee not covered by an award.  Significantly, the Judge noted that the "better view" was that section 117 only provided a minimum notice period, which did not displace the right to reasonable notice where a contract of employment is silent on the question of notice.

The judge's thoughts are best summarised in the following comparison given in the judgment:

"The position may be tested where the employment of two employees is terminated.  Both are over 45 years of age.  One is in a mid-range role, the other has worked for 25 years and worked her or his way up on a high level role.  Both are employed under contracts that make no provision for notice of termination. I doubt that parliament intended that both would receive the same period of notice of termination by the enactment of s.117(2) of the Act."

The lesson for employers? Assume that the law of reasonable notice is very much alive.  Contracts of employment should always include an express clause dealing with notice of termination.  Further, contracts should be reviewed on a regular basis, particularly for long-standing employees, to ensure that the period of notice of termination is adequate having regard to the role.

For further information please contact noonann [at] kempstrang [dot] com [dot] au (Nick Noonan), Partner.

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