“Reasonable notice” ruling adds termination pressure on employers

A recent Federal Court decision has highlighted the risk of relying on the National Employment Standards (the NES) to define the amount of notice required when terminating staff. In a case involving a misbehaving employee, the Court held the NES requirement of 5 weeks’ pay may be insufficient and that additional payment for ‘reasonable notice’ could be an implied requirement, particularly for a senior, long term employee.

Facts

Mr David McGowan commenced with Direct Mail and Marketing in 1999 and progressed through a number of roles until being appointed Group General Manager. Unfortunately, a detailed contract of employment setting out notice requirements for termination by either party was never entered into, neither in 1999 nor in 2009 or 2012 when Mr McGowan was promoted.

Accordingly, when the company became concerned about Mr McGowan’s capacity to perform his senior role as well as the impact of his misbehaviour on clients and employees, they dismissed him with payment of 5 weeks’ notice in accordance with the NES. Apart from initiating an adverse action claim on his employer in the Federal Court, Mr McGowan also claimed an entitlement to payment for a greater period of notice over and above the NES.

Findings

While the Court was willing to reject the claim of adverse action, finding the employer had dismissed Mr McGowan for lawful reasons, Judge McNab commented on the legal uncertainty as to whether compliance with the NES replaced a need to imply a period of reasonable notice on non-award employees. His view was that while payment of the 5 weeks’ notice satisfied the NES obligations of the employer, this action did not necessarily displace an employee’s right to reasonable notice in addition to this amount in circumstances of contracts of employment being silent on the issue of notice. To reinforce this view, His Honour said it was unlikely Parliament had intended an employee with 25 years’ service to be paid the same NES notice period to another with only 5 years’ service pursuant to contracts otherwise silent on the period of notice.

Tips for employers

Mr McGowan’s employer could have simply dealt with this issue by ensuring adequate contracts of employment had been issued at any stage of the employment relationship. The optimal situation would have been for contracts specifying the period of notice payable on termination to be issued at the commencement of employment, and updated on the two occasions when promotions were agreed upon.

For advice and guidance on contracts of employment, contact O’Connell TELS.

McGowan v Direct Mail and Marketing Pty Ltd [2016] FCCA 2227 (30 August 2016)