A recent case is a forceful reminder of the problems that arise
when there is no employment contract at all, or there is an old
contract which has not been kept up to date, or there is a contract
but it is silent about the period of notice to be provided or paid
on termination of employment.
In Ma –v- Expeditors International Pty Ltd in the
NSW Supreme Court, Ms Ma had worked for Expeditors for nearly 25
years, in a position of significant seniority, although not in the
highest management group. She had started as Accounts Supervisor in
1989 and by 2011 was the Regional Financial Controller, South
Pacific region, reporting directly to the MD, and having a team of
14 people reporting to her. She had a base salary of $70,000 but
substantial bonus entitlements gave her an income averaging
$700,000pa over the 6 years preceding termination. That was itself
indicative of the high degree of responsibility she had.
In August 2010, the MD with whom she had worked for many years
(and who referred to her as "his watchdog") retired, and
the new MD attempted to renegotiate Ms Ma's salary package, by
reducing the bonus by 50%. When Ms Ma refused to accept the
reduction, the new MD terminated her employment, with 5 weeks pay
in lieu of notice, plus accrued leave entitlements. Long service
leave was calculated as $28,530 on the basis that "ordinary
pay" included base salary plus superannuation, and as that
exceeded $144,000 (the cut-off point for including bonus in the
calculation of accrued long service leave), bonuses could be
Five weeks notice complied with Fair Work Act requirements, so
that should be OK, shouldn't it?
Well, it would have been if there was an operative contract
providing for that or some lesser notice period. But in fact, there
was no contractual notice provision. Ms Ma had been given a letter
of appointment in 1987, and an updating letter in 2002, but neither
dealt with the subject of notice. That meant that the standard term
implied by law – an entitlement to "reasonable
notice" – applied instead, regardless of the statutory
minimum notice period. So Ms Ma sued Expeditors, claiming
"reasonable notice", and she argued that 12 months would
be reasonable in all the circumstances.
Having assessed her level of seniority, length of service and so
forth, the Court didn't quite agree with 12 months, but
assessed 10 months as being reasonable, the main criterion being
the time it would take to find a comparable position (for an
employee with such a high income and effectively only one-company
In addition, the long service leave calculation came unstuck: as
superannuation was not "ordinary pay" (not being received
by the employee and being for a different purpose), "ordinary
pay" was less than $144,000, so bonus had to be included in
the long service leave calculation, which increased the long
service leave entitlement to more than $265,000.
This case is a salutary lesson to ensure that employees have
employment contracts covering critical terms such as notice. This
is particularly an issue where a long serving employee will have
gone through a number of roles in a company, and any old employment
contract will readily be disregarded as being obsolete, if it has
not been kept up to date with changes in position and
responsibility and remuneration. It is also reasonably common for
very long term employees never to have had an employment
contract (because things were not so formal 25 years ago),
resulting in the same exposure.
It is good practice, with each significant change of position,
either to issue a new employment contract, or at least to accompany
the change of position with a letter indicating the changes to
position and remuneration, and anything else relevant, but
otherwise confirming that the existing employment contract terms
continue to apply.
This case also illustrates that some care is needed when
remunerating an employee substantially by bonus rather than base
salary, as there may be significant unforeseen on-cost
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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