Federal Court affirms availability of reasonable notice claims

The Federal Court has handed down an important decision in Cropper v Energy Action (Australia) Pty Ltd (No 2) [2025] FCA 663 which reaffirms the availability of ‘reasonable notice’ claims by employees where their employment contracts do not specify a notice period. 

In the decision, the Federal Court confirmed that a term of “reasonable notice” will be implied into employment contracts where the contract does not contain an express term dealing with notice of termination. The Court also resolved conflicting decisions of lower courts by clarifying that a term of reasonable notice will be implied into contracts even where a statutory minimum notice period (such as that found in section 117 of the Fair Work Act 2009 (Cth)) applies. 

This decision is significant as the Federal Court has considered, among other things:

1. reasonable notice;
2. the ability to set off contractual payments against National Employment Standards (NES) entitlements; and 
3. the nature of Mr Cropper’s employment, which has ultimately resulted in the employer engaging in various contraventions of the Fair Work Act (FW Act). 

What was the case about?

Mr Cropper brought a claim against his former employer, Energy Action (Australia) Pty Ltd (Energy Action), seeking both statutory compensation and damages in relation to his engagement between 2005 and 2020. 

Mr Cropper was engaged under an arrangement described as an independent contract engagement. However, Mr Cropper claimed that he was a permanent employee throughout his employment and was therefore entitled to employment protections and benefits under the FW Act. He also alleged that Energy Action failed to make various payments to him, including:

• failing to provide paid public holidays and personal/carer’s leave throughout the period of his engagement; and 
• upon the termination of his engagement, failing to pay him an amount in lieu of “reasonable notice” and an amount in respect of his unused annual leave accrual.

Energy Action disputed those claims and argued that Mr Cropper was an independent contractor (not an employee), and therefore he was not entitled to the alleged benefits. In the alternative, Energy Action argued that Mr Cropper was a casual employee. In relation to the claim for reasonable notice, Energy Action contended that 5 weeks’ notice was reasonable in the circumstances. The company also argued that it was entitled to set off from the amounts actually paid to him any entitlements that he was owed in respect of leave and public holiday pay. 

What was the outcome? 

Justice Snaden of the Federal Court ultimately found that: 

• Mr Cropper was engaged as a permanent employee and was therefore entitled to paid public holidays and paid leave; and 
• on termination of employment, Energy Action was obliged to pay an amount equivalent to the value of his accrued but untaken annual leave and an amount in lieu of “reasonable notice”; and 
• Energy Action was entitled to set-off against its obligation to pay Mr Cropper in lieu of reasonable notice of his dismissal the amount actually paid to him in lieu of notice (but not in respect of other entitlements).

In relation to the issue of reasonable notice, the Court held that “reasonable notice”, in all the circumstances, was a period of three months. Accordingly, the company was ordered to pay the employee three months’ pay. 

What is “reasonable notice”?

For employers whose employees are regulated by the FW Act, it is common for them to assume that the NES and modern awards provide a comprehensive set of terms and conditions of employment such that there is no need to have a comprehensive employment contract as well.  In other words, why would you need a separate detailed employment contract when the NES and modern award collectively set out the relevant terms of employment?

While that is certainly an understandable assumption to make, unfortunately the law is not quite so straightforward. In practice, employees often have two separate sources of entitlements which operate concurrently with each other:

• Entitlements arising from statute (e.g. the FW Act) or statutory instruments (e.g. modern awards, enterprise agreements, etc.); and
• entitlements arising from an employment contract. 

In Australia, the legal position is that every employee has an employment contract, regardless of whether or not is a written document. Where no such document exists, the employment contract will be made up of verbal terms. A contract can also have “express” and “implied” terms. 

Where an employment contract (written or verbal) does not contain an “express” (explicit) term dealing with notice of termination, Courts will imply a term of “reasonable notice”. In other words, Courts have accepted that parties to an employment relationship should be able to terminate the employment contract by either party providing the other party with “reasonable notice” (unless of course the contract contains an explicit notice period, in which case that period will apply). 

This principle has caught a handful of employers out over the years, who (understandably) have assumed that they could just adopt the notice period set out in an award, EA or the NES. However, disgruntled employees have taken advantage of the absence of an express contractual notice period to claim additional payments in respect of “reasonable notice” (these claims are pursued as breach of contract claims). 

The NES does not displace the implied contractual term of “reasonable notice”

Prior to this recent Federal Court decision, there have been conflicting decisions of lower courts as to whether the existence of a minimum notice period in the NES (section 117) displaces the implication of a term of “reasonable notice”. Certain courts have previously ruled that no entitlement to reasonable notice arises, on the basis that it is not necessary to imply such a term into the contract as section 117 provides a mandatory notice period.

However, Justice Snaden has put that uncertainty to rest by determining that courts will continue to imply a term of reasonable notice into employment contracts where the contract does not contain an express term.  Importantly, the existence of statutory minimum notice periods (such as the NES) will not displace this rule. This has logical force, given that there is a distinction between a notice period that is agreed between parties under a contract and a statutory minimum notice period (which cannot be undermined but for which greater periods can be agreed). 

In particular, Justice Snaden held that the NES provisions will not displace the usual principles relating to reasonable notice, as section 117 does not itself confer any right to terminate the employment. Rather, it simply prohibits termination unless the relevant minimum notice is provided. 

And what is reasonable? This will depend on a range of factors such as the employee’s length of service, the seniority of the individual’s position, the person’s age, and the ease with which they might be expected to find suitable employment.

Key takeaways for employers 

This decision reinforces the importance of ensuring that all employment relationships are accompanied by a well-drafted employment contract that contains all the necessary terms, including a specific notice period (which could be as simple as being “as per the NES”). Where no such contract exists, the business will be exposed to opportunistic claims.  As a side note, the decision also reinforces the complexity of our employment law system in Australia. 

Employers should: 

• carefully assess and review the true nature of the engagement (and have regard to the new definitions).
• ensure that there is a written contract in place, although remembering that the new definition of employment makes the contract only one piece of the puzzle.
• review and update all contracts (employment contracts and contracts for services) regularly to ensure that the contract specifies the conditions of employment, notice of termination and to reflect any changes in the employment relationship.

Need more help?

If you have any questions, or if you would like Australian Business Lawyers & Advisors to review your current contracts, get in touch on 1300 565 846 or email our team at info@ablawyers.com.au.  

The decision 

Cropper v Energy Action (Australia) Pty Ltd (No 2) [2025] FCA 663