A 5-member Full Bench of the
Effect of demotion on the employment contract
Rejecting DP Saunders' approach (that is, how he arrived at his decision), the Full Bench focused instead on the effect that demotion has on the employment contract. The majority concluded that, where the employer has repudiated the contract by demoting the employee, and the employee accepts this repudiation thereby ending the contract, the demotion amounts to dismissal within the meaning of the FW Act.
This aspect of the decision arguably diminishes the protections offered to employees in relation to demotion. Repudiation of the employment contract requires fundamental changes to the contractual arrangements between the employer and employee and is probably a higher bar than 'significant reductions in remuneration or duties'.
Moreover, where a demotion is authorised under statute or an EBA, it will usually not amount to dismissal, as was ultimately true in
However, this decision has broader significance too.
In reaching this conclusion, the Full Bench affirmed that 'termination of employment' refers to either the termination of the employment contract or the employment relationship. Or both. The 'termination of employment' phrase appears throughout the FW Act in a range of contexts, giving this decision relevance well beyond demotion and even unfair dismissal. In addition,
So, has the Full Bench finally put this issue to bed?
Background and first instance decision
Mr
Pivotal to this decision was the conclusion that the phrase 'termination of employment' means termination of the employment relationship and not termination of the employment contract. Surveying the authorities, DP Saunders revealed the confusion on this issue emerging from a history of disharmonious case law and shifts in legislative authority dating back to the 1980s. The DP ultimately reconciled these differences in favour of Khayam v
For more about this decision, and what it meant at the time, you can read our article "Demotion involving reduction in pay and no change in role constitutes dismissal".
Appeal
On appeal to the Full Bench, the majority (Easton DP dissenting) rejected DP Saunders' interpretation, finding that termination of either the employment contract or the employment relationship (or both) amounts to 'termination of employment'.
This principle was articulated in Charlton v
The majority engaged only minimally with
This omission is doubly curious alongside the dissent of Easton DP, who agreed with Saunders DP that 'termination of employment' means termination of the employment relationship alone. Like
"there is no textual or other basis to read termination of 'employment' in s 386(1) as a reference to termination of the contract of employment".
This passage was not addressed by the majority in Todd James, but it is difficult to reconcile with the position in Charlton.
The majority's silence can perhaps only be explained by the position of the parties, who both accepted the dual meaning of 'termination of employment' that was ultimately adopted by the majority.
The ACTU, which made submissions as a third party, attempted to argue that
'is better understood as suggesting that the termination of a contract will not necessarily lead to a dismissal where the persisting employment relationship remains on foot and unchanged, not that contract termination is irrelevant.'
It is unclear whether this submission was accepted by the majority.
Four members of the FWC, including President
They have endorsed the broader definition of 'termination of employment', which in some ways is a win for employees, as it expands the scope of the unfair dismissal regime. There is a strong argument that this interpretation is also the most coherent, especially in the context of unfair dismissal claims, which contemplate some types of dismissal, such as demotion, that are consistent with a continuing employment relationship.
As even Easton DP concedes in his dissent, the majority interpretation is 'more readily reconcilable' with this aspect of the regime. However, by failing to really tackle
Although their position is clear, the majority has provided little in the way of supporting reasoning. And they have failed to fully and convincingly smooth out the differences in the case law authorities.
DP Colman's criticism of Charlton as lacking 'textual or other basis' might apply equally well to the decision of
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Mr
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