Reasonable notice claim costs employer

The recent case of Daigle v SCT Operations Pty Limited [2022] NSWDC 364 (Daigle) has highlighted the importance of ensuring that employees have an agreed, lawful period of notice of termination in their employment contract.

In Daigle, a geotechnical engineer who had been employed for over 16 years was made redundant. Daigle’s contract did not contain a clause for notice. On termination, the employee received five weeks pay in lieu of notice, and 12 weeks of redundancy pay in accordance with the NES. The NSW District Court held that he was instead entitled to eight months’ reasonable notice as well as an amount in respect of a performance bonus.

This article will focus on the concept of ‘reasonable notice’, when it may apply, and what employers can do to reduce the risk of such claims.

Reasonable notice

Where there is no express agreed notice of termination clause in an employee’s contract of employment, courts may imply a term that provides employees with ‘reasonable notice’ of termination.

In determining what a ‘reasonable’ period of notice is, a number of factors are considered such as an employee’s age, length of service, salary, seniority of position, prospective pension,

availability of other employment, and anything the employee sacrificed to commence employment with the employer.

There is lengthy case law on the question of when a term will be implied into a contract of employment (which goes beyond the scope of this article), but in summary courts usually require there to be a gap that needs to be filled, and no express term to the contrary.

No consensus on ‘reasonable notice’

Opinions differ across the states as to whether provisions of an award or legislation (such as section 117 of the Fair Work Act 2009 (Cth) (FW Act) which sets out the minimum period of notice of termination) supplement, limit, or completely exclude the implied term of reasonable notice.

For example, the Full Court of the Supreme Court of Tasmania found that a section of Tasmania’s Industrial Relations Act 1984 (Tas) (that provided for a statutory period of notice) meant that an implied term of reasonable notice was not necessary (see Australian National Hotels Pty Ltd v Jager [2000] TASSC 43).

In contrast in Victoria, the Supreme Court in Quinn v Jack Chia (Australia) Ltd (1992) 1 VR 567 was prepared to imply a reasonable notice period of 12 months for an employee who had been employed for over 13 years. In that case, the court found that the employee’s duties had changed so profoundly over time as to constitute a termination of the employee’s original contract and the creation of a new one (one that did not include an express term providing for notice of termination).

Although both of these cases predated the FW Act, there continues to be a dichotomy of opinion in cases following the commencement of the FW Act.

The decision in Daigle

In Daigle, the employee had originally been employed in 2004 under the terms of a written contract of employment. However that contract was replaced in 2006 when the parties entered into a separate contract providing for the payment of a performance bonus. That subsequent contract was partly oral, partly express, and partly implied, and did not include an express term providing for an agreed period of notice.

The judge in Daigle held that the existence of section 117 of the FW Act does not give employees a right, but rather, it prohibits an employer from terminating the employment unless the minimum stipulated notice is given.  As a result, he found that section 117 of the FW Act does not fill a contractual ‘gap’ where there is no express term in the employment contract that prescribes the agreed period of notice of termination. Where there is no express term, ‘an implied term of reasonable notice is to be found’ (Montgomery DCJ at [64]).

Despite the decision in Daigle, it is important to remember that the notion of ‘reasonable notice’ is contentious and opinions differ across federal, state, and territory courts. Given that Daigle is a NSW District Court decision by a single judge, its application to other states may be limited.

What should employers do?

Employers should ensure their employment contract templates are up to date and include an agreed and lawful notice of termination clause. This should include a review of your fixed and maximum term contracts which will be subject to new legislation limiting the use of such contracts from 6 December 2023.

This is an opportune time for employers to ensure their template contracts are legally compliant following recent (and upcoming) changes made by the Secure Jobs Better Pay amendments to the FW Act.

Notably, it is also important for employers to consider the terms and conditions of employment of their long-serving employees and employees who have had significant pay rises, changes in duties, or who have arguably entered into new contracts of employment as described in Daigle. Ensuring that these employees are signed up to current, detailed terms and conditions of employment will limit the risk of reasonable notice claims (and of disputes relating to other terms and conditions such as incentives).

The Workplace Advisory and Disputes team at Gadens regularly provides advice about employment contracts and notice periods, and is able to assist you with any queries.

Authored by:

George Haros, Partner
Siobhan Mulchay, Partner
Diana Diaz, Special Counsel
Leo Rodrigo, Lawyer