A recent NSW Supreme Court case provides a timely illustration of the importance of having written employment contracts for managerial or executive employees.  Whilst such employees may not have access to the Fair Work Commission unfair dismissal regime (if their remuneration exceeds the jurisdictional threshold of $133,000) such employees may find that contractual claims are far more lucrative if they have no written employment contract or the contract is silent on the question of how much notice of termination has to be given by the employer.  In that situation the Courts take the view that “reasonable notice” has to be given and what constitutes “reasonable notice” in any given situation will only be known once the Court has ruled upon it.  Therefore, the absence of a written employment contract gives a disgruntled ex employee leverage to make a significant a claim against their former employer.

In the case of Susanna Ma v Expeditors International Pty Ltd, the employee was the regional financial controller for an international logistics & shipping  business. Her base salary was around $70,000 but as a result of a bonus arrangement she was earning in the range of $600k-$900k each year.  At the time of her termination she had been employed by the company for 24 years. Whilst there were letters in place specifying her salary and bonus arrangements she did not have any written employment contract dealing with what period of notice would have to be given on termination.

Her employer terminated her by giving five weeks pay in lieu of notice, being the relevant period of notice under the National Employment Standards.  The rate of pay for this period of notice was based upon her salary without any regard to bonuses.

The employee commenced proceedings asserting that the employer was in breach of an implied term of her employment by failing to provide reasonable notice of the termination of her employment.  She argued that, having regard to all the circumstances, a reasonable period of notice was 12 months.

The Court reviewed the relevant case law and listed the following factors which will be generally taken into account in determining what constitutes reasonable notice:

  • the seniority of the position;
  • the level of remuneration;
  • the length of service;
  • the professional standing of the employee
  • the age of the employee;
  • the qualifications of the employee;
  • the expected period of time it would take for the employee to find alternative employment.

 
In this instance, the Court held that the proper period of notice was 10 months having regard to the fact that the employee:

  • was aged 49 and had been a loyal employee for 24 years
  • had held a position of significant seniority within the organisation, reporting to the Managing Director;
  • a team of 14 people reported to her;
  • received a significant remuneration package incorporating the bonuses, which was indicative of the high degree of responsibility bestowed on the employee;
  • since termination she had been unemployed, despite the Court finding that she had taken reasonable measures to obtain new employment.

The Court also ordered that the 10 months pay in lieu of notice be based upon the employee’s average annual income of $750,000, rather than only her salary component.

Lesson from this case

This case demonstrates how critical it is to have written employment contracts for executive and managerial staff.  If the employee in this instance had signed an employment contract specifying that she could have been terminated on five weeks notice then that is the period of notice which would have applied and the question of “reasonable notice” would never have arisen.

Pointon Partners have significant experience in preparing employment contracts for executive and managerial staff.  If you do need any advice or assistance in this area then please do not hesitate to contact Michael Bishop for advice.

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