Employee contracts - Ramifications of failing to clearly stipulate employment terms – Reasonable notice on termination


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Employee contracts - Ramifications of failing to clearly stipulate employment terms – Reasonable notice on termination

The Supreme Court of New South Wales recently handed down the decision of Susanna Ma v Expeditors International Pty Ltd [2014] NSWSC 859. This decision highlights an employer’s potential liability for surprisingly large payouts upon termination of senior employees. In light of this decision it is advisable that employers ensure they clearly stipulate the terms of employment for all employees.

The Facts

The employee was a long-term employee of the respondent, Expeditors International, having worked for the company for 24 years. She was appointed to the senior position of regional financial controller for the South Pacific region during her second year of employment and maintained this position until the date of her termination. At the time of termination her employment contract stipulated that her base salary was $70,000, including allowances of approximately $20,000. It also specified that payment of 13% of the total South Pacific Branch Bonus, calculated monthly, was part of her salary. The contract did not provide any provisions on termination.

In 2010 the respondent attempted to renegotiate the employee’s employment contract, including a 50% reduction to her bonus. The negotiations failed, after which Expeditors International terminated the employment contract. She was then advised she would receive her salary to the date of termination, five weeks’ pay in lieu of notice as well as any statutory entitlements, which amounted to $54,000.

The employee claimed that due to Expeditors International’s failure to provide a notice period within the employment contract the implied term of reasonable notice considering her position was 12 months. Further she claimed that for the purpose of calculating her entitlements on termination her bonus should have been calculated as a part of her salary.

The Decision

The Supreme Court of New South Wales looked to the considerations in Ranking v Marine Powers International Pty Ltd in order to determine the appropriate notice for Ms Ma’s situation and determined that 10 months was reasonable notice. To make their decision the court considered her age, the seniority of her position, her reputation within the company, the substantial nature of the remuneration package she was receiving prior to her termination and the prospects of her finding another position with similar remuneration and seniority.

Further the court held that on the construction of her employment contract her salary unequivocally included both the base amount and the bonus amount.  The court also held that a lack of any provisions in the contract concerning when the bonus payments were to be made indicated that the bonus was linked to performance.

These conclusions led the court to award 10 months’ pay in lieu of notice, the total amount of her salary up to the date of her termination and the payment of her long service leave on basis that her salary included both the base amount and the bonus amount. This came to a total of close to $1 million.

Outcome

The outcome in the case turned on the construction of the contract of employment between the parties. Due to the employer’s failure to clearly stipulate terms regarding termination in the agreement they were liable for the large sum upon termination. The outcome of this case gives notice to employers generally to ensure that employment contracts unambiguously outline all important provisions, particularly those for situations of termination. Further the case highlights the need for employers to clearly stipulate whether or not bonus schemes are a part of an employee’s salary or distinguished from it and on what basis the payment of bonus schemes are paid.

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