When it comes to dismissing workers, most employers are familiar with the notice period table set by the Fair Work legislation.
What many employers do not realise, however, is that much longer notice periods may apply because of the operation of the common law. The good news is that employers can take steps to ensure this does not apply to them.
The legal relationship between all Australian employers and each of their workers is governed by an employment contract. This is the case even if the worker is also covered by a modern award or enterprise agreement, and applies regardless of whether the worker is full-time, part-time, fixed-term or casual. If there is no written contract in place, then the common law will deem an unwritten contract to operate instead.
The terms of that unwritten contract will be set by the facts, and also by some fixed terms that are always implied into employment contracts by the common law.
For example, if Beyonce agrees to be employed as a producer for Roc Nation for $10,000 a week, but a written contract is never prepared, there will be an unwritten employment contract, and one of the terms of the unwritten contract would be that her salary is $520,000 a year. However, there would also be a number of other terms implied by the common law to the unwritten contract – and one of these is the implied term of termination on “reasonable notice”.
This implied term means that if there is no express agreement between the parties about a notice period, then the employer must give the employee “reasonable notice” when they want to terminate the employment.
How Long is Reasonable Notice?
Generally this will happen when there is no written employment contract in place, but it might also occur where there is a written contract but it is silent on termination. So how long is “reasonable notice”? It depends on the exact circumstances of the employment relationship. The most relevant factor will be to ensure sufficient notice is given to the employee to enable them to get another job, so issues of unemployment rates, as well as the employee’s level of experience, age and health will all be factors that need to be taken into consideration. There are no hard-and-fast rules on what reasonable notice should actually end up being, no “scale” like under the Fair Work legislation. However, when the courts have had to decide on periods of “reasonable notice” over the past 30 years, they have generally ended up in the 3 to 12 month range.
Obviously this is much longer than the periods set out in the standard table. There has been some legal conjecture about whether the implied term of “reasonable notice” applies at all if an employer complies with the notice periods set out in that table. This week, however, a judge in the Federal Circuit Court of Australia (in McGowan v Direct mail and Marketing Pty Limited) held that the notice periods in the Fair Work legislation are minimum periods only. So employers must pay at least the periods set out in the table, but if “reasonable notice” is longer (as it almost always will be), then an employer will be bound by the longer notice period set by the common law.
This may seem alarming to employers, and it should be – after all, the length of a “reasonable notice” period is an inexact science and may result in very long periods of notice being given to employees.
There is, however, a very simple solution: employers simply need to ensure they have reviewed their employment contracts and have a written employment contract in place for every single worker they hire, and to make sure it includes a well-drafted termination clause. Doing so will ensure that there is no room for “reasonable notice” to be implied at all.