A Financial Controller for a global shipping company has had her total termination payment increased from approximately $50,000 to over $1 million dollars following a decision by the New South Wales Supreme Court.
In Ma v Expeditors International Pty Ltd, the Financial Controller commenced legal proceedings against her former employer claiming she was entitled to reasonable notice of termination and that her long service leave was calculated incorrectly on the basis that it did not include reference to the substantial bonus payments that she received throughout her employment.
The Financial Controller had been employed for 24 years during which time she had developed a strong relationship with the employer’s Managing Director. In August 2010, the Managing Director retired leading to a change in management.
Up until that point, the Financial Controller had been earning a base salary of $70,000 per year, plus allowances and a significant bonus. The bonus was calculated as a percentage of her branch’s total ‘bonus pool’. This bonus scheme was so significant to the Financial Controller that between 2006 and 2011, her total earnings were between $540,349 and $943,574 gross per year plus an additional $20,000 in allowances.
Three months into the new Managing Director’s tenure, he approached the Financial Controller about varying the terms of her employment. This variation was to include a change to her position description and a 50% reduction of her monthly bonus. Unsurprisingly this was rejected by the Financial Controller. The issue remained unresolved until May 2011 when the new Managing Director set out the terms of a new employment contract for the Financial Controller which contained a number of terms that she had previously rejected. The terms of the new employment contract were discussed but no agreement was reached between the parties.
At a further meeting on 6 June 2011, further discussion about terms took place but again no agreement was reached. Subsequently, on the same day, the Financial Controller’s employment was terminated. She was provided 5 weeks’ notice based on her base salary and paid out her annual leave and long service leave entitlements based on her base salary. No bonus or allowances were taken into account in calculating those leave entitlements.
Reasonable Notice Claim
Importantly, there was never any express term as to termination (or notice of termination) in the Financial Controller’s employment contract. Given the absence of any contractual term as to what notice was payable on termination, the Financial Controller commenced a claim for reasonable notice, alleging that she was entitled to 12 months’ notice. The Financial Controller framed her reasonable notice claim on the basis that she was entitled to be paid her salary, plus allowances and bonuses. The employer subsequently argued that reasonable notice should be limited to 3-6 months, conceding that the bonus and allowance were payable.
Acting Justice Nicholas held that ten months’ notice was reasonable in all the circumstances. He cited the Financial Controller’s age, her 24 years’ of service and the seniority of her position as circumstances supporting a longer period of notice. He also found that her lack of success in finding a new job was also an important consideration, noting that she had low prospects of finding similar employment and remuneration.
Long Service Leave Claim
The Financial Controller claimed that she should have been paid her accrued long service leave at a rate inclusive of her bonus. His Honour considered the relevant long service leave legislation in New South Wales, and noted that the key to determining whether the bonus should be included in a long service leave payment is asking whether the bonus fell within the definition of ‘ordinary pay’ in the Long Service Leave Act 1995.
The employer argued that the Financial Controller’s remuneration package, excluding the bonus, was such that it took her over the ordinary pay threshold set out in the Act, and therefore the bonus could not be included within the meaning of the Financial Controller’s ordinary pay. The employer argued that the Financial Controller’s substantial superannuation contributions should be included in the calculation to show a remuneration package in excess of the $144,000 per annum threshold.
Acting Justice Nicolas rejected this position, and concluded that the employer’s argument that the term ‘ordinary pay’ did not include bonuses ‘had no foundation’. He therefore upheld the Financial Controller’s submission that she paid the balance of long service leave owing to her, being $265,373.44.
Pro Rata Bonus Claim
The Financial Controller was also successful in convincing Acting Justice Nicholas to award her a pro rata bonus payment, to a value of $8,138.87 for the four days that she worked in her final month of employment with the employer.
In awarding that employer pay this pro rata amount to the Financial Controller, His Honour relied upon the wording of the termination letter which informed the Financial Controller of her entitlements upon termination, and said that she would be paid ‘for salary accrued to today…’.
In this respect, His Honour stated:
“The contract provided for a base salary calculated on an annual basis, and for a bonus calculated on a monthly basis. There was no provision as to the regularity with
which payments were to be made. Further, there was no provision to the effect that the Financial Controller was not entitled to receive a proportionate part of the annual salary or the monthly bonus which was due and payable at the time of termination or dismissal. In my opinion, the absence of such provisions supports the inference that it was the contractual intention of the parties that remuneration was linked to performance, with the result that entitlement to payment would accrue in respect of the time worked.
This intention is reflected in the letter. In my opinion it evidences the defendant’s acceptance of the Financial Controller’s contractual entitlement to payment of salary, and other items of remuneration, on an accrued or pro rata basis. In particular, the letter obviously conveyed the defendant’s undertaking or agreement to pay “for salary accrued to today” and for accrued but untaken statutory leave entitlements. There is no justification under the contract for recognising entitlement to a proportionate part of the annual salary but refusing to do so in respect of the monthly bonus. “
Lessons for Employers
Whilst the actual value of the notice period awarded by the Court was left to be assessed and agreed by the parties, it is likely that the total award to the Financial Controller in this case may exceed $1 million dollars, with a significant portion of that award attributable to the 10 months’ notice period. With no express termination clause in any contract of employment with the Financial Controller, the employer left itself exposed to a reasonable notice claim that substantial given the age, service and seniority of the Financial Controller.
Employers need to ensure that they have appropriate contracts of employment drafted for all staff, and in particular, senior level staff. Failure to have proper contracts of employment which provide for the termination and notice process can lead to claims for reasonable notice of termination which may be as much as 12 months’ notice in certain circumstances.
Lisa Aitken, Managing Partner