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High Bar to frustrate an employment contract

A recent case before the Fair Work Commission has highlighted the difficulties associated with establishing that an employment contract has been frustrated resulting in the termination of the employment relationship.

Facts

The employee had worked as a Teacher and then Religious Education Coordinator in secondary schools for the Catholic Education Office for over 35 years.

As a result of particular events in or about April 2012 (not described in the decision), the employee was arrested and charged with a number of offences, including sexual assault, on 23 September 2012. The employee pleaded not guilty to the charges and was released on bail.

In October 2012, the employee attended a meeting with his employer with a union official and a barrister. At that meeting, the employee was told that he would be suspended with pay ‘until the determination of the criminal trial’. The employee was also told by the employer that he was ‘… directed at this stage not to engage in tutoring with student [sic] or children from any school system during the period of your suspension from duties’.

In May 2013, the employer then wrote to the employee seeking to suspend him without pay until the criminal matter was resolved.  This was opposed by the employee on the grounds that the employer’s enterprise agreement only allowed suspension without pay for a maximum of 4 weeks’ and that the employee needed to be paid in order to fund his defence.

The correspondence between the parties’ as to suspension without pay and, then later, the employer’s request that the employee take voluntary leave without pay was quite significant and extended well into December 2013.

In the meantime, in June 2013, the Child Protection (Working with Children) Act commenced. This meant that from the date of commencement of the Act, the employee ‘would not have been able to obtain a working with children check clearance and could not, thereby, engage (or be engaged by the CEO) in child-related work because he was – given the pending determination of the criminal charges in question – a “disqualified” person within the meaning of that legislation’.

On 13 December 2013, there was a further meeting held between the employer and the employee (and his solicitor).  The employer requested that the employee voluntarily seek leave without pay. The employer confirmed with the employee that if he ‘was acquitted or all the charges were dismissed or withdrawn, and he were regarded as fit to return to work following an independent investigation, the CEO would be willing to back-pay the [employee] for the relevant period. The CEO’s representative stated that the CEO was of the view the [employee] was not in a position to teach even if he were acquitted and the alternative was that if the [employee] did not wish to agree to leave without pay, his employment would be terminated that day with five weeks’ notice in accordance with the enterprise agreement…”

There was then some general discussion about the employee being able to take his long service leave for the period of his entitlement, without being terminated.  One of the critical reasons for the employee rejecting taking leave without pay was because he said he needed to be paid to fund his defence.  The matter was left on the basis that the employee would need to seek advice from an employment law barrister.

Four days later, the employer wrote to the employee and asked him to show cause as to why his employment should not be terminated.  The employee’s solicitors responded, noting that the show cause process was a different proposition than that had previously been discussed and that they wished to meet to discuss the matter.  They also enclosed a personal letter from the employee, which among other things, stated:

  • “I am innocent and entitled to the “presumption of innocence”. The employer now suggests my employment be terminated. I am not guilty of misconduct. The onus of proof in any such allegation rests with the employer. I have agreed to compromise by being stood down pending proving my innocence in the appropriate jurisdiction. 
  • “I am prepared to consent to an ongoing suspension, but for me to immediately take my long service leave and all accrued holidays. This will take me well into next year.”

The letter also alleged that the change in position by the employer had aggravated a medical condition being suffered by the employee and he enclosed a workers’ compensation claim on that basis.

Following the adjournment of a meeting between the parties, the employer dismissed the employee on 20 December 2013 via a letter.

The Employee commenced an unfair dismissal application in relation to the termination of his employment.

The decision

Relevant to this Employment Update, the employer raised a jurisdictional objection to the employee’s unfair dismissal application on the basis that the employee was not terminated at the employer’s initiative ‘because the [employee’s] employment came to an end by operation of the doctrine of frustration”. The employer argued that once the Child Protection (Working with Children) Act commenced, it became impossible for the employee to do his job and unlawful for the employer to employ him for that job, and therefore the contract was frustrated.

Commissioner McKenna did accept that ‘…the child protection laws in New South Wales plainly can operate to frustrate the contract of employment of an employer and employee coming within the purview of that legislation’.

However, Commissioner McKenna then went onto say:

“Given the [criminal charges], it is clear the [employee] could not lawfully engage in child-related work following the commencement of the Child Protection (Working with Children) Act because he could not obtain a working with children check clearance. Equally, it seems to me, provided the [employee] was not engaged in child-related work that involved direct contact with children, there would appear to have been no legal impediment to the CEO continuing to employ the [employee] from on or after 15 June 2013 (when the legislation commenced) or from on or after 20 December 2013 (when the CEO dismissed the applicant)…”

Ultimately, the Commissioner ruled that the contract of employment in this case had not been frustrated, stating:

“…I would also observe that if the CEO’s submissions were accepted, the contract of employment automatically terminated at the point of alleged frustration – that is, on the date coinciding with the commencement of that statute on 15 June 2013. A contract of employment cannot, however, be terminated twice… Here, termination of the applicant’s employment by operation of the doctrine of frustration cannot have occurred on the commencement of the child protection legislation on 15 June 2013 and then also have terminated on that same basis on 20 December 2013.”

On that basis the jurisdictional objection was dismissed.

Lessons for Employers

This case demonstrates the high threshold for establishing the doctrine of frustration in an employment contract scenario.  The scope is very limited for an employer to claim that a contract of employment has been terminated by frustration.  Obviously, such matters that may lend themselves to arguing frustration of a contract of employment will be necessarily complex and legal advice should be sought before proceeding with such an argument. As is apparent from this case, it is also important that such matters are addressed on a timely basis.

Lisa Aitken, Managing Partner

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