Employment law update - unfair contracts claims and injured workers

There have been number of interesting and important decisions concerning unfair contracts claims and managing the termination of employment of injured workers.

Unfair contracts claims in NSW ... tightening the reins?

Last year NSW Parliament placed boundaries around the unfair contracts jurisdiction of the Industrial Relations Commission by imposing a remuneration cap of $200,000, a twelve month time limit on bringing claims and stressing the importance of mitigation. In four cases the Commission has now considered the legislation and the boundaries are not as secure as may have been expected.

12 Month Limitation Period

In one of the first decisions about the new amendments the Commission was of the view that the 12 month limitation did not apply to any substantive rights an employee may have had before the amendments took effect on 24 June 2002 (Kennedy v Contract Transport Solutions Pty Ltd [2003]). In Bowker v Software Engineers (Australia) Pty Limited [2003] Schmidt J reached the same conclusion. Employers need to be aware that any employees whose employment was terminated or who experienced unfairness before 24 June 2002 are still able to bring a claim, at any time, unrestricted by the 12 month limitation period.


Although the legislation specifically required mitigation to be considered, the Full Bench of the Commission is of the view that the amendment does not direct the Commission as to how it should proceed to apply mitigation when assessing compensation. Accordingly, whether to reduce compensation for a failure to mitigate by seeking other employment remains a matter for the Commission's discretion (Brent v Bastian [2003]).

Remuneration Cap

As to the remuneration cap, the Commission has found that an incentive payment paid to an employee in the 12 months before their termination was not to be considered when determining whether the employee's remuneration was over the $200,000 cap. The incentive payment related to the employee's performance in the year before, not for the 12 months before his termination of employment (Kerr v Commander Australia Ltd [2003]).

The Commission's decision in Kerr highlights that the Commission will examine why a payment was made to an employee in the 12 months before the employee's termination of employment. While the Industrial Relations Act provides that an application cannot be made where an employee "is paid or received" a remuneration package in excess of $200,000 in the 12 months before the termination of their employment, the words "paid or received" cannot be read in isolation. Those words must be read in the context of the employee's contract of employment. The test is what the remuneration related to in the last 12 months and not just the amounts paid in that period.

Work in an Industry

The NSW Supreme Court has also had the opportunity to consider whether the Commission has jurisdiction to find a lease of property to be unfair on its terms because it appeared to give rise to an obligation to perform work. The landlord challenged the jurisdiction of the Commission to interfere with what were really commercial matters. (Mitchforce v Industrial Relations Commission & Ors [2003]).

The Supreme Court re-emphasised that the jurisdiction of the Commission is to review contracts or arrangements "whereby a person performs work in an industry". That is, the contract or arrangement must directly lead to the performance of work in an industry. The Supreme Court was of the view that the Commission had gone too far. But for technical reasons to do with the appeal process the Supreme Court was not able to overturn the decision and has instead asked the IRC to reconsider its own decision in the light of the Supreme Court views. That decision is awaited with interest.

Injured workers employed forever

The NSW Industrial Relations Commission held that an employee's contract of employment did not automatically come to end in 1995 even though the Compensation Court had found that she was totally incapacitated for work. In 2000, the employee made demands for accrued annual leave and long service leave entitlements since 1995, despite not working since the Compensation Court decision.

The Commission held that the doctrine of frustration did not automatically apply in cases of illness or injury and the contract of employment would continue until ended. As a result, the employer was liable to pay the employee annual leave and long service leave for the period 1995 to 2000. The Commission held that it was only in 2000 that her employment came to an end when her employer explicitly told her so. The case is an important reminder not to leave employees "on the books" or ignore the issue, but to make a positive decision about employment and then implement it. This is especially relevant to the management of injured workers who are away from work with an uncertain date for return.

The decision is a valuable counterpart to the Federal Court decision in Cosma v Qantas Airways Ltd [2002], an example of a well managed rehabilitation process.

Mr Cosma was injured in 1991 in the course of his employment as a Ramp Porter. From 1992 to 1997 he performed various roles with Qantas while undertaking rehabilitation. Mr Cosma was however dismissed after it was evident he could not return to his pre-injury duties and there were no re-deployment opportunities.

Mr Cosma claimed he had been discriminated against by Qantas based on his disability. Qantas argued that Mr Cosma was unable to perform the inherent requirements of his job as Ramp Porter. Mr Cosma argued in response that he could perform the inherent requirements of the work he was undertaking at the time of his dismissal. The Full Federal Court found in Qantas' favour, finding that Mr Cosma could not carry out the inherent requirements of his actual job of Ramp Porter.

This case illustrates the importance for employers to always make it clear to an injured employee that any duties they perform under rehabilitation are only for the purpose of enabling them to return to their pre-injury duties. Where rehabilitation duties are treated as the employee's actual duties, it will be more difficult to manage the departure of an injured employee.

Note: Remuneration Caps for Unfair Dismissal Claims

The unfair dismissal provisions also have a remuneration cap which is amended annually. From 1 July 2003, the new remuneration ceiling for unfair dismissal claims by non-award employees, both federal and state, has increased from $81,500 to $85,400.