15 July 2025
7 min read
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The Federal Court has rejected an employer’s bid to provide the minimum notice period under the Fair Work Act, instead finding that three months’ reasonable notice was implied under the contract in Cropper v Energy Action (Australia) Pty Ltd (No. 2) [2025] FCA 663 (Cropper). This decision confirms that the minimum notice requirements in section 117 of the Fair Work Act do not confer a right of termination. Parties must rely on the termination provisions in the employment contract, whether express or implied.
Ordinarily, an employment contract for an ongoing permanent employee will contain an express termination clause, which provides both parties with the right to terminate the contract provided they comply with the prescribed notice period. Section 117 of the Fair Work Act 2009 (Cth) (FW Act) sets out the minimum notice period that employers must give when terminating an employment contract.
When a contract does not include an express term permitting termination, a term will be implied requiring each party to provide a notice period that is reasonable in the circumstances. What is considered ‘reasonable’ will be determined at the time the notice is given, considering factors such as the employee’s age, length of service, seniority and the expected time it would take for the employee to find alternative employment. An implied reasonable notice period has the potential to be considerably longer than what would otherwise be stipulated in an employment contract. For example, in previous cases, the following notice periods were considered ‘reasonable’:
Up until the decision in Cropper, there had been considerable debate about whether it was still necessary to imply a term permitting termination upon reasonable notice in circumstances where section 117 of the FW Act already prescribes the minimum notice period an employer must give when terminating an employee.
In Cropper, the Court was asked to determine whether a 70-year old IT professional (Applicant), who was first engaged by the company as an independent contractor 19 years earlier, was in fact an employee at the time of his termination and therefore entitled to his unpaid employee entitlements and payment in lieu of reasonable notice.
At the time of termination, the company made a ‘gratuity’ payment to the Applicant as a gesture of good faith. This payment reflected what he would have been entitled to upon termination if he were an employee, being five weeks’ notice, 12 weeks’ long service leave and 12 weeks’ redundancy pay. While the Court agreed that the Applicant was initially engaged as an independent contractor, it found that there was a profound change in the employment relationship in January 2006 which reduced the Applicant’s control over his work, supporting the finding that he was in fact an employee.
Having established that the Applicant was an employee, the Court then considered his entitlement to payment in lieu of notice. Given the contract governing the Applicant’s employment from January 2006 did not include an express termination clause, the Applicant argued that the employer was required to pay an amount in lieu of implied reasonable notice, which he calculated as 12 months. The employer maintained that it was unnecessary to imply a reasonable notice term into the contract as the Applicant’s employment could be terminated under section 117 of the FW Act upon payment in lieu of the minimum statutory notice period.
The Court rejected the employer’s argument on the basis that section 117 of the FW Act does not itself create a right to termination. Rather, it assumes that such a right already exists elsewhere (for example, in an employment contract), and that section 117 merely provides the minimum criteria that must be met when exercising that right. For this reason, the Court held that it was necessary to imply a term requiring reasonable notice into the contract. Considering the Applicant’s age, qualifications, income and length of service, the Court determined that a reasonable notice period in this case was three months.
Importantly, in circumstances where an employee is covered by an award that prescribes a minimum notice period, the outcome in Cropper may not apply.
The decision in Cropper makes clear that in the absence of an express termination clause, employers cannot simply rely on section 117 of the FW Act as the source of the right to terminate non-award covered employees. Rather, in these circumstances, the Court will find that there is an implied right to terminate the employee on reasonable notice.
However, where the employee has committed serious or gross misconduct, this will ordinarily relieve the employer of any notice obligation. Similarly, if the employer engages in conduct that repudiates the contract, the employee can accept this brings the employment contract to an immediate end.
The implications of Cropper are threefold:
1. employees without a written employment contract
Without a written contract, there is a high risk that an employer will be required to provide ‘reasonable’ notice to an employee in the event of termination. To mitigate this risk, employers should ensure that all employees have a written employment contract that includes a valid termination clause.
2. senior employees with outdated employment contracts
If an employee’s duties have changed significantly since their employment contract was first entered into, there is a risk that a Court will consider the original contract to have been ‘replaced’ by a new contract. In these circumstances, a Court will often find it more appropriate to imply a ‘reasonable’ notice clause into the new contract, rather than carry over an existing notice clause that no longer reflects the employee’s seniority or current role.[4]
To avoid the implication of a ‘reasonable’ notice clause, employers should review their existing employment contracts and ensure that all employees’ contracts are updated every few years and/or employees are issued with a new contract before commencing a new role.
3. independent contractors
The issue of reasonable notice arose in Cropper in circumstances where the employee was misclassified as an independent contractor. On 26 August 2024, the FW Act was amended to introduce a new statutory test for determining whether an individual is an employee or an independent contractor. In contrast to the previous approach set out by the High Court which focused on the terms of the written agreement,[5] employers must now have regard to the earlier ‘totality of the relationship’ test and consider how the written agreement is performed in practice.[6] This expanded statutory test increases the risk of an individual being misclassified as an independent contractor when they are in fact an employee.
Businesses should therefore ensure that their independent contractor and employment agreements reflect the true nature of the relationship and include a valid termination clause. In circumstances where the contractor relationship morphs into an employment relationship, this will increase the risk of a reasonable notice clause being implied into the contract.
If you have any questions regarding this article, please contact our Workplace Relations & Safety team below.
Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.
[1] Dick v WH Bowden (Real Estate) Pty Ltd (Supreme Court of Queensland, Kelly SPJ, 1989).
[2] Daigle v SCT Operations Pty Ltd [2022] NSWDC 364.
[3] Rankin v Marine Power International Pty Ltd (2001) 107 IR 117.
[4] Quinn v Jack Chia (Australia) Ltd [1992] 1 VR 567.
[5] Construction, Forestry, Maritime, Mining and Energy Union & Anor v. Personnel Contracting Pty Ltd [2022] HCA 1 and ZG Operations Australia Pty Ltd & Anor v. Jamsek & Ors [2022] HCA 2
[6] FW Act, s 15AA.
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