Employment Law Series: Ending Employment – Resignations

The most common form of employment separation is where an employee provides an employer with Notice of their intention to end the employment relationship. This is usually consensual and the key consideration is normally whether sufficient Notice has been provided.

Notice

The required Notice can be set out in an enterprise agreement, employment agreement or fixed by an award. In the absence of an agreement in one form, s117 (2) of the Fair Work Act 2009 (Cth) (FWA) – National Employment Standard (NES) provides a safety net for the minimum period of Notice required.

Employee’s period of continuous service with Employer at the end of the day notice is givenPeriod of notice
Not more than 1 year1 week
More than 1 year but not more than 3 years2 weeks
More than 3 years but not more than 5 years3 weeks
More than 5 years4 weeks

However, there is a varying judicial opinion on this aspect and one needs to be mindful that Courts can consider the NES as providing a minimum period only, still leaving open the possibility that a term of reasonable Notice can be implied.

This was considered in the case of McGowan v Direct Mail and Marketing Pty Ltd[1]. In this case, the employee was a Group General Manager who had been with the company for 16 years.  He claimed that reasonable Notice in his circumstances was 12 months.  His contract entered into 16 years earlier only provided for 4 weeks’ Notice.  He was dismissed on grounds of poor work performance and a pattern of crude behaviour. Having regard to NES the employer paid him 5 weeks’ Notice.  Judge McNab opined that NES intended to provide a minimum Notice period and does not displace a right to reasonable Notice where a contract of employment was silent on the issue.  However, in this case, the employment contract stipulated a Notice period and this provision continued despite the employee’s subsequent promotions. So, in this case, the contract provision prevailed.

It is also important to consider:

  • Once given, Notice can only be withdrawn with the consent of both parties[2].
  • Where an employee terminates the employment contract based on an employer’s breach of duty to act reasonably (repudiation) i.e. failure to pay wages on time or not paying superannuation. In such circumstances, the employee is not required to provide Notice.
  • Where an employer wrongfully and unilaterally varies the contract by transferring an employee to another job or to another location when this is not provided for in the contract, this too can amount to repudiation by the Employer.
  • What the Courts consider as reasonable Notice. In the absence of an express contractual term for senior managers, reasonable Notice can be between 6 to 12 months.
  • Where the employee is over 45 years of age and has completed at least two years’ continuous service with the employer, an additional week’s Notice must be given.
  • If an employee fails to give the required Notice, an employer may be able to withhold an equivalent amount from the employee’s final pay.
  • If parties to an employment agreement agree, Notice can be waived especially in circumstances where the employee receives wages in lieu of Notice.

Other things to think about with resignation.

When an employment relationship ends by way of resignation we also often see other issues arising out of:

  • restraint of trade clauses (or non-compete).
  • non-disclosure clauses, prohibiting the use of confidential information acquired through employment.
  • non-solicitation clauses, prohibiting the solicitation of previous customers.

The impact and effectiveness of these clauses requires much discussion and is often complicated, but briefly at a very high and general level we note:

  1. Non-disclosure clauses will be upheld if a direct loss can be ascertained; and
  2. If an organisation can show that it holds a legitimate commercial interest capable of being protected, the courts will recognise and give effect to reasonable restraint clauses (including non-solicitation clauses) in such circumstances. Reasonableness of the duration though will be further considered.

Particularly in Canberra due to the size and the overlap of the employment market we regularly see restraint clauses either being relied upon by employers to protect their commercial interests (government contracts) or employees having to reconsider further employment choices due to restraints in place under their current contracts.

Thinkstorm Case Study

A good case example that can be applied equally to the Canberra employment market is Thinkstorm Pty Ltd v Farah [2017] NSWSC 11. Thinkstorm was a case where a government agency obtained its IT services through a consulting agency.  The Plaintiff in the case was the consulting agency.  The Defendant was the worker.  The worker had been employed by the consulting agency and placed with the government department for some time.  Later, the worker wanted to be employed directly by the government department.  The consulting agency sued for breach of a restraint of trade clause. The Court said that in the circumstances, the consulting agency – by providing workers for the government department – had a legitimate commercial interest in the commercial goodwill associated with that relationship – it makes its profit by providing workers and taking a cut.  Such commercial goodwill can be protected by a restraint of trade clause.  What can damage the commercial goodwill is workers leaving the consulting agency to work directly for the government department – this cuts out the consulting agency and causes it an economic loss.  The courts call this “disintermediation” – in other words, there is an intermediate actor between the worker and the government agency (the intermediate actor being the consulting agency) and the worker is trying to remove that intermediate actor.

The Courts will further consider the reasonableness of the duration.  12 months is about the maximum that can be defended as reasonable.  12 months was allowed in Thinkstorm.

[1] [2016] FCCA 2227

[2] Birrell v Australian National Airlines Commission (1984) 5 FCR 447 at 457-8

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