Australia: Ordinary pay and an extraordinary payout

In a recent decision of Acting Justice Nicholas of the Supreme Court of New South Wales, a long-serving employee was awarded damages of more than $1.1 million dollars following the termination of her employment.

Such an award serves as a timely reminder to employers of the potential financial risks associated with dismissing senior management employees in circumstances of dispute or contention.

In addition, the decision provides important guidance for employers (and industrial lawyers) regarding the calculation of an employee's long service leave entitlements and has clarified the meaning of the concept of "ordinary pay" in that context.


The employee had been employed by the Australian subsidiary of an international shipping and logistics company for more thanr 24 years. For much of her employment, she occupied the role of financial controller for the parent company's Asia-Pacific branch.

Although the employee occupied a senior managerial role, her base annual salary had remained at $70,000 for more than 10 years. However, due to a generous monthly bonus scheme, which applied to her as well as other senior managers, the employee earned an average annual income of $750,000 (inclusive of bonuses and other allowances) during the last five years of her employment.

The terms and conditions of the employee's employment were governed by a series of letters of appointment notifying her of increases to her overall remuneration package. The last of these letters was provided to her on 5 August 2002. This letter required the employee to provide the employer with one months notice of resignation, but was otherwise silent as to the amount of notice to be provided by the employer in the event that it wished to terminate her employment.

New contract with reduced terms

In 2011, the employer attempted to re-negotiate the employee's terms and conditions and subsequently provided the employee with a new employment contract which:

  • converted the fixed monthly bonus scheme into a discretionary entitlement
  • halved the maximum value of the bonus scheme
  • permitted the employer to provide the long serving employee with one months notice of termination.

The employee informed the employer that she would not accept the financially disadvantageous terms of the new employment contract. In response, the employer terminated the employee's employment, instead of attempting to engage in any further negotiation.

The employee received salary in lieu of five weeks notice of termination, along with her accrued annual leave and long service leave entitlements. Both the notice payment and the employee's accrued leave benefits were paid out without including the bonus component of the employee's salary in the calculations.

Employee alleges LSL should have been paid at rate including bonuses

In her claim against the employer, the employee alleged that the employer breached her employment contract by failing to provide her with reasonable notice of termination (due to the absence of any express term setting out the period of notice required to be given by the employer).

The employee also alleged that the employer failed to calculate and pay her accrued long service leave by reference to her "ordinary pay" which she asserted ought to have been calculated on the basis of her total income inclusive of bonus.

Employer cross-claims, alleging misconduct, breach of contract

The employer had cross claimed against the employee, alleging misconduct due to a conflict of interest relating to her brother's cleaning business, which had contracted to the employer for many years. It contended the employee was not entitled to notice due to her alleged serious and wilful misconduct. In the alternative, the employer asserted that reasonable notice in the circumstances would be no greater than 4–5 months.

The employer's allegation of misconduct was strenuously denied by the employee.

Claim of reasonable notice

In alleging that the employer breached the employment contract when terminating her employment, the employee relied upon the well-known authorities of Quinn v Jack Chia (Australia) Limited (1992) 1 VR 567 and Rankin v Marine Power International Pty Ltd (2001) 107 IR 117, which establish that a term of reasonable notice is to be implied into a contract of employment in the absence of an express term of notice.

Citing the principles set out in these decisions, the employee asserted that factors such as her age, seniority, considerable length of service, the uniqueness of her position and limited future employment prospects meant that a notice period of 12 months was reasonable in the circumstances.

The employee further asserted that although a term of reasonable notice may be implied into a contract of employment, the law does not imply a term permitting an employer to pay an employee in lieu of providing reasonable notice of termination.

On this basis, the employee claimed damages for the amounts she would have received in the event that she had been permitted to work out a 12-month period of notice (which included her monthly bonuses, allowances and superannuation contributions over that period).

No finding of misconduct; notice of 10 months was reasonable

In his judgment, Nicholas AJ made the finding that the employer's misconduct allegations were without foundation because the cleaning contract had been known to, and accepted by, the employer and its management for several years. On this basis, the judge found that the employee was entitled to reasonable notice of termination of employment.

In determining the amount of reasonable notice, the judge acknowledged that he was required to consider all the factors relevant to the employee and the employment relationship both at the time, and as a result of, the termination of employment.

The judge noted that the employee's age, the seniority of her position, and length of service suggested a significant period of notice was reasonable.

Further, the judge also made note of the abrupt and hostile nature of the employee's termination, which he believed prejudiced the employee's future employment prospects.

The judge found that a notice period of 10 months was reasonable in the circumstances, and ordered the employer to pay the employee damages equivalent to 10 months notice based on the employee's average annual income of $750,000. The employer was also ordered to make superannuation contributions on this period of notice.

Long service leave on "ordinary pay"

The employee also alleged that on termination she was entitled to long service leave calculated on her "ordinary pay" including in that concept her base salary, allowances and monthly bonuses.

The employer resisted this claim by relying on s3(2C) of the Long Service Leave Act 1955 (NSW). This section provides that an employee's "ordinary pay" upon which long service leave entitlements are calculated is inclusive of any bonus payments, unless the employee's ordinary pay exclusive of that bonus exceeds the prescribed amount of $144,000.

The employer contended that the compulsory superannuation contributions made to the employee's superannuation fund in accordance with the requirements of the Superannuation Guarantee system formed part of the employee's ordinary pay, and that when superannuation contributions were added to the employee's base salary and allowances, the total of these amounts exceeded the statutory limit of $144,000.

The employer therefore submitted that the employee's bonuses could not form part of the "ordinary pay" upon which the employee's long service leave entitlements were to be calculated.

In support of this argument, the employer relied on a number of authorities including Jongwaard v Dall (1992) SAIRC 11 and May v Lilyvale Hotel Pty Limited (1995) 68 IR 112, which collectively defined the terms "remuneration" and "ordinary pay" as being inclusive of superannuation.

In response, the employee relied on the decision of Reynolds v Southcorp Wines Pty Limited (2002) 122 FCR 301 in which it was held that superannuation contributions do not constitute "ordinary pay" on the basis that such contributions are paid to a fund rather than the employee, and cannot be accessed and enjoyed by the employee except in the circumstances permitted by the fund.

The employee also submitted that if long service leave included superannuation (which was not admitted), any employee who utilised long service leave would necessarily receive superannuation contributions on leave already inclusive of superannuation contributions, which would be a nonsensical interpretation and application of superannuation legislation.

Ordinary pay did not include superannuation

In finding in favour of the employee, the judge interpreted the Long Service Leave Act 1955 (NSW) in accordance with ordinary principles of statutory interpretation. His Honour observed that the Act defined in detail the various components of ordinary pay, and that these components did not include references to superannuation.

The judge also noted that the authorities relied upon by the employer were helpful, but not determinative, because each authority related to a specific piece of legislation that did not include the NSW Act presently under consideration.

As a consequence, of the judge's findings, the employer was directed to pay the employee a total amount of $1,164 million, plus interest and costs.

Lessons to be learnt

The judgment sets out clearly the various factors that a court will take into account when determining an appropriate period of reasonable notice in the absence of an express term.

In this particular case, the employee's seniority, length of service, and limited employment prospects were all factors that influenced the award of damages for reasonable notice.

These factors can also be highly powerful in favour of senior executives in circumstances of termination of employment. The decision confirms the continued relevance of the principles contained in Quinn v Jack Chia (Australia) Ltd and Rankin v Marine Power International Pty Ltd in modern employment, while providing an extensive summary of both.

Total remuneration packages with superannuation specified separately

But perhaps more significantly, the decision confirms that superannuation contributions paid by an employer does not form part of an employee's "ordinary pay" for the purposes of the Long Service Leave Act 1955.

This decision will be of particular relevance to employees subject to a total remuneration package that includes an express superannuation component. In such a case, these employees will only be entitled to be paid out their accrued long service leave entitlements on the value of their remuneration package exclusive of the superannuation component of that package.

Good faith contract negotiations are important

Finally, the decision illustrates the potential costs to an employer of attempts to vary its employees' employment contracts in a clearly unreasonable way.

Employers should always endeavour to negotiate in good faith when seeking to amend their employees' contract terms, particularly when senior employees are being asked to relinquish favourable employment terms and benefits.

In circumstances where senior employees are not subject to express notice terms, the employer should consider the employee's age, seniority, length of service, and likely prospects of future employment (including from the manner of termination), when considering its obligations to give notice or termination or provide payment in lieu of such notice.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions