I have often been asked whether an employer can terminate an employee’s employment for serious misconduct, if the employee has either resigned and is working out their notice, or they have been given notice of termination, and are working out the notice.
The answer to this question depends on whether the contract of employment comes to an end when notice is given or when the notice period expires. The obvious answer to that issue, is that the employment comes to an end on the expiry of the notice period. As such, depending on the drafting of the particular contractual provision, and employer may be able to terminate an employee’s employment immediately for serious misconduct, despite the fact that the employee is completing a period of notice.
However, what if the employer decides to forego the notice period and provide a payment in lieu of notice, but prior to making payment, the employer discovers serious misconduct by the employee. Does the employer still have to make the payment in lieu of notice?
This very question was in issue in the case of Melbourne Stadiums Ltd v Sautner  FCAFC 20. The facts in that case were as follows. Mr Sautner the Director, Commercial Business for Melbourne Stadiums Limited (Melbourne Stadiums). Mr Sautner’s contract of employment contained a termination clause allowing either party to terminate the contract on the giving of 6 months’ notice in writing. Also, Melbourne Stadiums could elect to terminate the contract by providing remuneration in lieu of notice. The contract also provided that Melbourne Stadiums could summarily terminate the contract immediately by notice in writing for cause, without any further payment in lieu of notice.
On 3 June 2013, Melbourne Stadiums purported to terminate the contract immediately due to redundancy but would pay 6 months’ remuneration in lieu of notice. However, on 20 June 2013, Melbourne Stadiums then asserted that due to serious misconduct of Mr Sautner of which they had only become aware after 3 June 2013, they would have been entitled to terminate for serious misconduct and therefore were doing so, and did not need to make the payment in lieu of notice.
The Court examined the principles in this area and the previous authority on the matter and confirmed the principle that if a contract is properly terminated in accordance with its terms, it cannot be revived and re-terminated on another basis. In the current circumstances, if Melbourne Stadiums had properly terminated Mr Sautner’s employment in accordance with the provisions of his contract, then despite his serious misconduct they would be required to pay him the remuneration in lieu of notice.
However, the Court found that Mr Sautner’s contract was not terminated by Melbourne Stadiums on 3 June 2013, as the contract stated “The Company can elect to terminate this Agreement by providing remuneration in lieu of the appropriate term of notice”, and Melbourne Stadiums had not made the payment in lieu of notice and thus there was no termination. As such, the Court found in favour of Melbourne Stadiums and ruled that as the contract of employment had not in fact been terminated by providing notice, or payment in lieu thereof, the company could justify a later termination on the basis of Mr Sautner’s serious misconduct.
This case is illustrative of a number of important employment law principles that is would serve employers well to head.
1. a lawfully terminated contract in accordance with the terms of the contract cannot be re-invigorated and later terminated on an alternative basis;
2. the actual written terms of the contract are paramount. In this case, the Court made the express point that the contract of employment was drafted in such a way that termination required the actual payment of the notice in lieu and notification of the intention to terminate and provide payment was not sufficient to trigger the termination. Therefore, careful attention to the drafting of the contract is vital; and
3. the Court stated that parties could write into their contracts a clause that allowed the employer to recouped as damages, payments made in lieu of notice, if the termination could have been justified on grounds of serious misconduct. There was no such term in the contract in question.
This decision does not address the issue raised by the circumstances where an employee gives extended notice of termination, and the employer wishes to then provide a shorter period of notice.