Reilly v Praxa Ltd [2004] ACTSC 41 (9 June 2004)

Last Updated: 12 July 2004

PHILLIP LAWRENCE REILLY v PRAXA LTD

[2004] ACTSC 41 (9 June 2004)

 

 

EMPLOYMENT LAW - change in responsibilities of employee - whether new contract - implied terms - reasonable notice - termination of contract of employment by employer on payout of one month's notice in lieu - six months notice reasonable in the circumstances.

 

EMPLOYMENT LAW - termination of contract of employment - whether entitlement to redundancy payment to be implied.

 

EMPLOYMENT LAW - calculation of damages for breach - whether voluntary redundancy payment should be taken into account.

 

Quinn v Jack Chia (Australia) Ltd [2000] VSCA 75; [1992] 1 VR 567

Easling v Mahoney Insurance Brokers [2001] SASC 22; (2001) 78 SASR 489

Walker v Andrew [2002] 116 IR 380

Macauslane v Fisher & Paykel Finance Pty Ltd [2002] QCA 282; [2003] 1 Qd R 503

Rankin v Marine Power International Pty Ltd [2001] 107 IR 117

Irons & Merchant Capital Ltd (1994) 116 FLR 204

Reynolds v Southcorp Wines Pty Ltd [2002] FCA 712; (2002) 122 FCR 301

Cerberus Software Ltd v Rowley [2001] EWCA Civ 1210 (unreported, 18 January 2001)

Abrahams v Performing Rights Society Ltd [1995] ICR 1028

Patterson v Middle Harbour Yacht Club (1996) 64 FCR 405

Coles Myer v Sweeting & ors (1993) 47 IR 345

Black v Brimbank City Council (1998) 152 ALR 491

Furey v Civil Service Association (WA) (Inc) (1999) 31 FCR 407

Kirchner v Mayne Nickless Ltd [2000] VSC 459 (unreported, 23 November 2000)

Haley v Public Transport Corporation of Victoria [1998] VSC 132 (unreported, 13 November 1998)

Reynold v Southcorp Wines Pty Ltd [2002] FCA 712; (2002) 122 FCR 301

 

 

Macken, McCarry and Sappideen, Law of Employment (4^th ed, 1997)

Macken, O'Grady, Sappideen and Warburton, Law of Employment (5^th ed, 2002)

 

 

 

 

No SC 267 of 2001

 

Judge: Gray J

Supreme Court of the ACT

Date: 9 June 2004

IN THE SUPREME COURT OF THE )

) No SC 267 of 2001

AUSTRALIAN CAPITAL TERRITORY )

 

BETWEEN: PHILLIP LAWRENCE REILLY

 

Plaintiff

 

AND: PRAXA LTD

 

Defendant

 

 

 

ORDER

 

Judge: Gray J

Date: 9 June 2004

Place: Canberra

 

THE COURT ORDERS THAT:

 

1.                  There be judgment for the plaintiff in the sum of $91,430.12.

 

1.                  The employment of the plaintiff, Phillip Lawrence Reilly, with the defendant, Praxa Ltd, was terminated by the defendant by letter dated 24 July 2000 with effect from 30 July 2000. The plaintiff was informed that the defendant had decided to abolish the role of "General Manager, Federal Government and Defence" in the company structure and this was the position that the plaintiff held. The plaintiff claims that the defendant's termination of the plaintiff's employment was in breach of the contract of employment between them and was wrongful and accordingly claims damages.

Initial employment with the defendant

2.                  By letter dated 24 June 1993 the defendant offered the plaintiff a position as Account Manager with Praxa Limited's Central District based in Canberra. In effect, the position required the plaintiff to act as the defendant's sales person to sell the defendant's products in computer software and hardware solutions to the Federal Government. At that time, the Canberra office consisted of a branch manager, a person who provided technical support, a person who provided administrative support and the plaintiff as the sales person.

3.                  Prior to his employment by the defendant the plaintiff, who had left school in 1973, had had a varied employment history. He had some time as a sales person and credit manager, involvement in a business providing concert equipment and hire, project officer for the Department of Housing & Construction on a specific project, account manager (sales) positions related to computer hardware and software and their combinations in providing information technology solutions. During this time he commenced tertiary studies by correspondence with a university in Norway as a Norwegian company had taken over one of the companies for which he was working at the time. He completed that qualification in the same year that he was employed by the defendant. Much of his employment in this period related to provision of services to the Federal Government. He was approached by a personnel firm to be interviewed by the defendant's branch manager in Canberra and it was as a consequence of this interview that he was offered the position of account manager for this branch office of the defendant.

4.                  The letter offering him employment was as follows -

I am pleased to offer you a position as an account manager with Praxa Limited's Central District, based in Canberra.

Your initial salary package will be $60,000 per annum plus 5% superannuation contribution, plus mobile telephone expenses, plus commission calculated at 10% of gross margin, plus undercover car parking - please see the attached Sales Plan for details of gross margin calculations.

This package will be reviewed after six months. We regard you as a senior staff member and look forward to providing you with a career path as the branch grows.

5.                  The sales incentive plan referred to in the letter could not be provided to me by the plaintiff and I was informed that the defendant did not have a copy. I take it that that plan was a commission agreement related to the sales of the products marketed by the defendant. At the time he was told that the job that he was to undertake as account manager was a sales job involving selling the Praxa suite of products into the Federal Government. He was also told that Praxa had been attempting to market into the Federal Government unsuccessfully for about four years prior to this and that they wanted someone who knew the "ropes".

6.                  It appears that the plaintiff commenced his employment on 12 July 1993, at which time he signed a pro forma "Agreement of Terms & Conditions, Employment for Permanent Employees". That agreement contained what would be expected in a pro forma agreement for an ordinary position in the company. It contained the following provision as clause 2(a) -

In the event that employment is terminated by either Praxa or the Employee, it is agreed that the party giving notice of termination will provide the other party with one calendar month's notice.

In the event that Praxa gives notice and requires that the Employee ceases duties immediately, Praxa will make payment in lieu of notice. If the Employee gives notice and ceases duties during the notice period, the Employee agrees to forfeit any compensation which may be deemed to accumulate following cessation of duties.

7.                  It was the defendant's principal submission that this provision governed the termination of the plaintiff's employment during the whole of the period of time that he was employed by the defendant.

Employment with the defendant as sales manager

8.                  Within two years the plaintiff's position was redesignated as sales manager on the basis that he was to supervise another sales person who had been engaged by the defendant. That entitled him to receive an override commission of 2% on the business brought in by that person.

1. 9.                  As at 1 July 1995, the defendant reviewed the plaintiff's remuneration and arrived at a total package of $73,000.00 including superannuation to be effective from 1 July 1995 and an extra $10,000.00 for leading this team of two.

Employment as branch manager

10.              It appears that in early 1996 the branch manager who had employed him left the organisation. That left the plaintiff to carry out a number of functions in the branch offices. At that stage, the office had three sales representatives with the plaintiff as the sales manager. It had a client services manager with four staff reporting to that person, one administrative support person and two project managers. The plaintiff complained by e-mail to Mr Graeme Thompson, the Managing Director of the defendant, that he now had four major roles in the branch, that of senior account manager, team leader, sales manager and branch manager. He requested a job description that clearly identified his relationship in the organisation and the performance criteria. He, of course, had reason to be concerned if the additional duties were taking him away from his ability to obtain the commission on sales which accounted for a total income in the previous years of around $40,000-$50,000.00 per annum (making a total remuneration of around $100,000-$110,000.00 per annum).

11.              As a consequence of this e-mail expressing his concerns, he had a meeting in Melbourne with Mr Thompson. At the time of that meeting, there was apparently a meeting of the Board of the company and the plaintiff was informed that he was appointed as a branch manager to replace Richard Brand, the branch manager who had left. He did not receive anything in writing to confirm that appointment but the company records in evidence before me recording the plaintiff's pay history, set out alongside an entry of 1 July 1996, the following -

Moved role of Branch Management after departure of George Sutherland. Phil takes on three hats as from July 1, Branch Management, Sales Management and Services Management.

Base remuneration is $110k per annum backdated to 1-Jul-1996. This is an increase of $37k per annum. Back pay for July, August, September = $9,250. An extra $7,700 once off payment is to be made as a catch up amount reflecting responsibilities undertaken at a senior level after GIS became uninvolved with the Canberra branch. Incentive will be earnt as two components:

1. 10% of branch contribution payable monthly on numbers in accounts. Expected amount is $25k.

2. $5k one off amount at end of financial year if the branch contribution exceeds $250k.

12.              That record indicates a very substantial change in the plaintiff's employment. Not only was the plaintiff's base remuneration significantly increased but a completely different incentive scheme for his performance is introduced as well as giving him functions in branch management and services management which were not part of his previous position.

13.              It is difficult to see how it could really be argued that the change in remuneration and duties effected the appointment to the position of branch manager could be seen to be within the scope of the duties envisaged of the plaintiff as accounts manager and even if the position of sales manager could be fairly said to be included in those duties. Both parties referred to the decision of Ashley J in Quinn v Jack Chia (Australia) Ltd [2000] VSCA 75; [1992] 1 VR 567 to support their respective arguments as the effect that this appointment had on the plaintiff's contract of employment. That case proceeded on the basis that it is a question of fact as to whether a change in duties amounts to a termination of the contract of employment with a new contract supplanting the old contract of employment or, alternatively, whether it amounts to a variation of the original contract. In that case, the plaintiff was employed initially as an assistant to the construction manager for the project and subsequently as a general manager construction for the group of construction companies involved in the project. The court held that the change could be characterised as the termination of an existing contract and the commencement of a new one. In that case, Ashley J said (at 576) that -

... where an employer and employee agree to an alteration in the employee's duties and responsibilities which is profound, a court should be more ready to hold (unless the original contract of employment provided for the contingency) that a new contract has replaced the old; or at least the old contract, as varied, contained terms objectively appropriate to the new relationship created.

14.              Mr Mossop, counsel for the defendant, referred to the comments made by Doyle CJ in Easling v Mahoney Insurance Brokers [2001] SASC 22; (2001) 78 SASR 489 at 491 where, after citing Quinn v Jack Chia (Australia) Ltd (supra) and Macken, McCarry and Sappideen's Law of Employment (4^th ed, 1997 at 249) (now 5^th ed, 2002 at 255) said -

To my mind, a court should not too readily assume that a change in working arrangements, or in the duties of an employee, involves either a variation to an existing contract or the making of a new contract. In my respectful opinion, Murray CJ stated the matter too widely when he said in Federated Mutual Insurance Co of Australia Ltd v Sabine [1920] SALR 284 at 292 -

The true view, I think, is that unless the original agreement gave the employer the right to the services of the employee in any capacity he chose to direct from time to time there would be a new employment whenever a change was made in the duties to be performed, and it would be a question of fact in each case what the terms of the new employment were.

In my respectful opinion the issue is whether the original agreement gives the employer the right to make the changes that have been made and if it does, then neither a varied contract nor a new contract arises.

The right to make changes

15.              The real issue that Doyle CJ identifies in Easling v Mahoney Insurance Brokers (supra) is whether the original agreement gives the employer the right to make the changes that have been made. Mr Mossop argued that this was so because of the provision in the pro forma Conditions of Employment that the plaintiff had signed. The provision that he referred to was set out in the pro forma that the plaintiff signed as clause 3(b) -

3. Employees duties

The Employee shall: ...

b. faithfully and diligently perform such duties and exercise such powers consistent with the office to which he is appointed as may from time to time be assigned to or vested in him by the Directors or authorised officers of Praxa; ...

16.              The expression "the office to which he is appointed" must refer to the position contained in the letter of offer as account manager to be "an account manager with Praxa Limited's Central District, based in Canberra". Insofar as there is a requirement to "perform such duties and exercise such powers", it seems to me that that is what is "from time to time [to] be assigned to or vested in [the employee]". The clause does not, as Mr Mossop sought to argue, carry the connotation that an office may be assigned or vested in the employee from time to time by the directors or authorised officers of Praxa. The provision does not permit appointment to whatever office the directors or authorised officers might assign or vest in a person, it is only concerned with such duties and powers that are consistent with the position to which the plaintiff was appointed. Once this is appreciated, there is no support in the contract for what occurred in this case to be considered as a right given to the employer to change the employee's contract as account manager to encompass a position of branch manager. This seems to me to be more than a permitted variation and to indeed be a fundamental variation of his existing contract, a termination of his existing contract and replacement by a new contract of employment. Having regard to the position that the branch manager plays in the organisation, I would expect there to be implied in this new or varied contract of employment a term that the employee should be given reasonable notice if the contract was to be terminated.

The company structure

17.              It is significant that the defendant did not provide any evidence or material evidencing the company structure overall although it is plain that the company had significant operations in Melbourne and Brisbane. Nor did it show the relationship between the executive structure of the company, its middle management or its employees. I am left to speculate on where a branch manager might fit into such a structure but from the limited hierarchy that I am able to glean from the plaintiff's evidence, it is apparent that at least as far as the Canberra office was concerned, the plaintiff was the head of that operation. He may not have been regarded as part of the senior management team, but his position was now clearly in the executive hierarchy.

Employment as General Manager, Federal Business Unit

18.              In April or May 1997, another adjustment was made to the plaintiff's position. He was called the General Manager of the Federal Government Business Unit. That, on limited evidence before me, made him part of the senior management team. The plaintiff described it as a hierarchy consisting of the directors of the company, then the senior management team, then the branch managers. He became responsible for involvement in the strategic direction of the company, the handling on an assignment basis the particular issues that were raised corporately by the company and providing peer to peer mentorship of other general managers. That fact was recognised again in the document held by the company concerning his pay history. As against the notation of 1 July 1997, it was noted that -

Phil Reilly's on target salary package of $160,000 is made up of a base component and a component based upon the performance of his Business Unit against the FY 98 Budget. I have made an error in the split between base and incentive and also have not communicated the fact that the effective date of the change is 1^st July not 1^st September. Could you please backdate to 1^st July a change to Phil Reilly's salary such that it is made up of a base of $140,000 and an incentive component of $20,000.

Variation on appointment as Branch Manager

19.              Whether this further change to the plaintiff's conditions of employment resulted in a variation of whatever contract had been entered into when he was given the branch manager's position or was a completely new contract, it is not necessary to explore. It seems to me that the proper term to have been implied when the plaintiff was given the branch manager's position as far as notice of termination was concerned is a provision that reasonable notice of termination be given. That reasonable notice will fail to be determined in respect of the factors that are set out in Macken, O'Grady, Sappideen and Warburton, Law of Employment (5^th Ed, 2002) at 171-173. The further enhancements that were made to the plaintiff's position culminating in his remuneration package set out in his pay history at 1 July 1998 are relevant as to the high grade of his appointment, the importance of his position, the amount of his salary and the nature of his employment. The plaintiff's pay history notes -

Phil, I propose that your remuneration package from Praxa for financial year 1998/1999 is to be as follows:

1 1               Base salary

Increase to $160,000 effective 1^st July 1998 (including 7% superannuation component)

2 2               Incentive

Incentive component $40,000 pro rata on achievement of budgeted contribution of $0.437 million (before corporate allocation)

3 Over achievement incentives

(a) 4% of contribution for over budget contribution $0.437 million (before Corporate allocation)

(b) Providing Praxa purchases Select Approach you will receive an incentive component of 4% for contribution over the agreed budgeted contribution to be returned to Praxa. Incentives to be paid on a quarterly basis pro rata at 80% of incentive based n actual contribution as published in Praxa's accounts.

20.              In January 2000 there was a further annual review of the plaintiff's package which resulted in an overall package of $170,000.00 with an additional incentive amount of $40,000.00 backdated to 1 November 1999.

Termination of employment

21.              On 24 July 2000, the plaintiff received a faxed letter from the defendant terminating his employment. The letter informed him that it needed to reduce staff levels and had decided to abolish his position as General Manager, Federal Government and Defence in the company structure. The letter enclosed what the company said was his statement of entitlements which appears to provide eight weeks "severance pay", a sum of $24,417.00 (which was later described as "redundancy") and a sum said to represent a "month in lieu". This was the subject of some contention by Mr Crowe, counsel for the plaintiff, who contended that may have been included in the severance pay. However, a separate item in the calculations provides for 4.333 weeks (a month) at the rate of $13,225.88. I think that I must regard this as being payment of the month in lieu in the absence of being satisfied that it was payment for the last month of the plaintiff's employment. The plaintiff also received an annual leave payment involving a significant amount of past annual leave in the sum of $36,072.05. After tax, the sum that the plaintiff was said to be entitled to was $50,494.72. The sums were calculated on a salary of $170,000.00. The plaintiff contends, rightly in my view, that those calculations should have been made on an annual remuneration of $210,000.00 to include the incentive amounts to which the plaintiff would have been entitled. I was referred to Walker v Andrew [2002] 116 IR 380, a decision of the NSW Court of Appeal, to support the proposition that the plaintiff had a right, in terms of the remuneration agreed, to the incentive payment. As it was in that case, I consider that it is plain from the note of the arrangements that it was intended that the plaintiff be paid the incentive not as a matter of discretion but as of right. That being so, all calculations for the amounts in dispute should have been made on the basis of an entitlement to $210,000.00 per annum.

Period of reasonable notice

22.              As I have said, there must be incorporated into the plaintiff's contract of employment a term requiring reasonable notice. I do not consider that it was appropriate for the defendant to only allow one month in lieu of notice in terminating the plaintiff's employment. As to the amount of that notice, that is to be determined having regard to those factors noted in Macken, O'Grady, Sappideen and Warburton, Law of Employment (supra) such as length of service, standing, age, experience, job mobility and prospects of alternative employment among others. I have already referred to the job related factors concerning the importance of the position, its salary and the nature of the employment. The other factors set out at 172 of that text pertaining to the employee are, of course, dependent upon the particular facts of the individual case. At 173 the authors note (footnotes excluded) -

The courts will be reluctant to impose on the parties a requirement in excess of what either of the parties would have considered reasonable when they turned their minds to that topic. A list of factors such as those above is no more helpful than the conventional aphorism that each case in this area will depend on its own facts. But obviously, if one has an "important" and "high grade" appointment carrying a large salary and occupied by a long-serving employee with but a few years to serve until retirement, a generous period of notice will be required, perhaps nine or 12 months. But in the case of a lowly paid person in a routine job a much shorter period will be held reasonable, especially if the employee has not had a lengthy period of service. A week might still be enough in that case.

23.              In Macauslane v Fisher & Paykel Finance Pty Ltd [2002] QCA 282; [2003] 1 Qd R 503, Holmes J in the Queensland Court of Appeal, said at 517 (footnotes excluded) -

The authorities referred to by the respondent seem to support a range for reasonable notice, in the case of a senior executive with a large corporation in anticipated long term employment, of between six and 12 months. Given the respondent's youth and relative mobility I would have been inclined to the lower end of that range.

24.              Amongst the text and cases supporting that proposition, the Court also referred to Rankin v Marine Power International Pty Ltd [2001] 107 IR 117 at 138-139 and Irons & Merchant Capital Ltd (1994) 116 FLR 204 at 208-209. I see no reason not to accept that summary and to apply it in broad terms to the plaintiff's position. If the period of notice is to be considered at the time of appointment for the position, as I think it must, then having regard to the level of the position in the organisation and even the level of the position as it became, that of a general manager, together with the plaintiff's relatively young age, the period of time since his first appointment to a position in the company (some four years) and his prospects for employment in a relatively specialised but Australia-wide industry, I would have thought that the parties would have settled upon a period of notice at the lower end of the scale. Accordingly, I consider a period of six months notice to be reasonable notice in all the circumstances.

Payment in lieu of notice

25.              The plaintiff's pleadings are far from the clear on the aspect of payment in lieu of notice as they allege that the termination was in breach of the contract of employment and was wrongful. However, the "damages" claimed are particularised upon the payment that would have been made in lieu of notice. The term of the contract, which the plaintiff claims was varied, was the term "providing for notice of termination". In the original contract, the provision for notice was coupled with the provision of payment in lieu of notice if the employee was required to cease duties immediately. I do not regard the pleadings as seeking damages for wrongful dismissal but rather payment for sums due under the contract. It is to be noted that the plaintiff's employment was terminated in this case by the defendant electing to make payment in lieu.

Redundancy entitlements

26.              The plaintiff also claimed that he should also be entitled to redundancy payments. That claim I also regard as a claim for a sum due under the contract. It was said that the plaintiff was entitled to a redundancy payment calculated in accordance with a memo that he had obtained and used shortly before his own termination to determine the redundancy entitlements of certain employees that he had identified in a restructure that he had proposed for the purposes of saving money for the company. On the plaintiff's evidence, that took place in January 2000 only a short time before his own employment was terminated. The document was used to calculate the redundancy payments for the employees that the plaintiff had identified, in particular a Marie Stavropoulos who was the plaintiff's Sales Manager in the Federal Government Business Unit. She was apparently also designated as the National Defence Coordinator for the Defence Business Unit. Although these titles, I suspect, put her in a lesser position in the organisation than they indicate, the plaintiff relied upon Ms Stavropoulos' position being nominated in the Executive Share Plan. That document provided for incentives by way of share options to executives of senior managers with a view to the company's intention to achieve public listing.

27.              The question is whether these provisions can be fairly said to be incorporated into the plaintiff's contract of service. Bearing in mind that the plaintiff was completely unaware of them until January 2000, the fact that they were applied in respect of a fellow employee whose position was also named in the Executive Share Plan is not at all determinative of this question. In a similar case relied upon by the plaintiff, Hely J in Reynolds v Southcorp Wines Pty Ltd [2002] FCA 712; (2002) 122 FCR 301 at 313 said -

Little attention was paid in evidence or argument in the present case as to whether the "Termination of Employment" policy of the respondent, or the benefits payable pursuant to that policy, were terms of the applicant's contract of employment. Subject to one matter to which I will shortly refer, the submissions of both parties appeared to proceed on the assumption that this was so. Severance provisions contained in an employer's policies or procedures manual may become incorporated into a contract of employment: [Macken, O'Grady, Sappideen and Warburton, The Law of Employment [2002] page 190]. Whether or not that has occurred is a question of fact. The only relevant facts established in this respect by the evidence in this case are the terms of the policy itself, and that it was available to employees on the intranet. In addition, there is the fact that severance payments were made to the applicant which were consistent with the policy, without any specification that they were made ex gratia. That may amount to an admission (by conduct) of an entitlement.

28.              It was submitted, in effect, that the fact that the defendant made redundancy payments to some of its employees necessarily implied that it was an entitlement to all. This is not a case where there was no document containing the agreement between the parties so that the terms of the agreement might more readily be informed from the existence of provisions in respect of other employees (cf Coles Myer v Sweeting & Ors (1993) 47 IR 345 relied upon by the plaintiff). In the present case, the employment agreement was in writing and although a variation or new contract embodying a change as to the notice provision might be inferred, it is so inferred from the circumstances which placed the plaintiff into the company's executive level of employees. It does not follow that a redundancy term should also be in contemplation when there is no evidence that such a provision was applicable to all of the group which comprised the executive level employees. The plaintiff faces a further difficulty in that in any event, on the plaintiff's case, any redundancy policy did not come into existence until after the changes which I have found affected the contractual provision regarding notice of termination.

29.              In this case, I am satisfied that such a term for which the plaintiff contends cannot be implied into the plaintiff's contract of employment by way of custom or practice, or by the inherent nature of the relationship. In the plaintiff's case, the payment that was in fact made and said to be referable to "severance pay" or "redundancy", cannot be regarded as anything other than a voluntary or ex gratia payment which did not reflect company policy.

30.              It follows that I do not consider that the plaintiff is entitled to anything more than whatever the employer voluntarily determined to allow for "severance pay", whether that was regarded by the employer as a redundancy payment or some other form of additional payment not provided for in the contract of employment.

Mitigation of loss

31.              Mr Mossop submitted that as the plaintiff had not immediately sought other employment, he had failed to mitigate his loss. It was clear from the plaintiff's evidence, which I accept, that in the period immediately after the termination of the contract, the plaintiff could have justified some time off as sick leave although his contract did not expressly provide for that circumstance. The plaintiff, in fact, did not pursue other employment until about three months after the termination. It was submitted that any damages payable by the defendant should be reduced, as had the plaintiff attempted to find alternative employment there was at least a significant chance that he would have obtained it.

32.              In support of this argument, Mr Mossop referred to a decision of the England and Wales Court of Appeal in Cerberus Software Ltd v Rowley [2001] EWCA Civ 1210 (unreported, 18 January 2001). That was a case of wrongful summary dismissal. The damages for breach of contract by wrongful summary dismissal for misconduct in that case were measured by the reasonable notice said to be required on termination. The employer had not exercised his choice to pay or not to make payment in lieu of notice (see Cerberus Software (supra) per Ward LJ at [14]). The case that I am here considering is not one of wrongful dismissal but one of breach of the terms of contract related to the termination. That term extended to the extent of the payment in lieu of reasonable notice. The defendant in this case had elected to terminate on payment in lieu of notice. This case is more akin to Abrahams v Performing Rights Society Ltd [1995] ICR 1028 which the Court distinguished in the Cerberus Software case. If the obligation was to give and to pay six months pay in lieu of notice as I have found, then "the sum was a debt from which no deduction for actual and potential mitigation fell to be made" (see Cerberus Software per Sedley LJ at [21], in dissent, but not on this point). This conclusion is also an answer to the defendant's claim that the plaintiff's entitlement to annual leave should be deducted from any amount awarded on the basis that the employer would have been entitled to expect the employee to exhaust his entitlement to leave during the period of notice.

Taxation

33.              It was also submitted by Mr Mossop that I should have regard to the difference between the tax that would have been paid on salary and the amount that is payable upon damages for wrongful dismissal that I should take this into account in the defendant's favour. It was put that I should not award the plaintiff an "unnecessary windfall". Having regard to the nature of the damages that I am awarding, I cannot say that such an outcome will eventuate. This is not a case like Patterson v Middle Harbour Yacht Club (1996) 64 FCR 405 relied upon by Mr Mossop where the damages for wrongful breach of the employment contract were assessed on the basis of the contract running its full term. In such a case, there may be a justification for discounting the difference in compensation for "grossed up" future earnings compared to receiving an eligible termination payment which is taxable at a lesser rate. That is not the case here. The damages are being awarded on the basis that the plaintiff was entitled on termination to six months salary in lieu of notice. I see no reason to allow for the impact of taxation on that amount to either reduce or increase the amount to be awarded.

Calculation of amount due

34.              I have earlier referred to the letter dated 24 July 2000 where the defendant provided a statement of the plaintiff's entitlements. That statement provided specifically for "Total Weeks Severance pay", "8 weeks" equal to 300 hours at an "hourly rate" of "$81.39" amounting to "$24,417.00". Neither counsel could shed any light on the basis for this amount. In the actual calculations this item is described as "Redundancy taxed" with the gross figure $24,417.00. Tax at 31.5 per cent is calculated on this amount and a net figure provided. Under that item without a title is a calculation -

4.333 162.5 $13,225.88 (gross)

I have taken this item to in fact be the one month's pay in lieu of notice allowed by the defendant. I have regarded the item above it to be an ex gratia payment for severance or redundancy. I consider that both these items should be allowed against the amount payable in lieu of reasonable notice. I would apply the reasoning of Moore J in Black v Brimbank City Council (1998) 152 ALR 491 at 505, where the employment agreement was unlawfully terminated but severance payments had been made (Brimbank was the employer and Mr Black the employee)-

Brimbank's liability for damages arises because, it is to be assumed for present purposes, it breached the contract of employment by terminating it other than in the manner contemplated by the contract itself. This act would expose it to damages which, prima facie, are the benefits Mr Black would have derived while employed for the residue of the contractual term. However, the act which constituted the breach was also the act that founded the entitlement of Mr Black to the payment of severance entitlements under the agreement. Had the contract not been breached by its premature termination and it had run its course and the employment terminated by the effluxion of time, there would have been no payment under the agreement. The purpose of compensatory damages, whether in actions in tort or contract, is to place the injured party in the same position he or she would have been in had the contract been performed or the tort not committed: see Haines v Bendall [1991] HCA 15; (1991) 172 CLR 60; 99 ALR 385, Mason CJ, Dawson, Toohey and Gaudron JJ at 63. In contract, that is the embodiment of the principle in Robinson v Harman (1848) 1 Ex 850: see Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 80; 104 ALR 1 per Mason CJ and Dawson J, at CLR 98 per Dawson J, at CLR 134 per Toohey J, at CLR 148 per Gaudron J and at CLR 161 per McHugh J. The payment of severance entitlements arose directly from the act which constituted the breach for which compensatory damages are now sought. It would, in my opinion, be inconsistent with the purpose for which compensatory damages are awarded to ignore the payment of severance entitlements directly arising from the act which constituted the breach when assessing damages flowing from it. Putting the matter slightly differently the damages are designed to put the party not in default in the same position as he or she would have been in had the contract been performed: see Wenham v Ella (1972) 127 CLR 456 at 460 per Barwick CJ and 471 per Gibbs J.

35.              That reasoning was followed in Furey v Civil Service Association (WA) (Inc) (1999) 31 FCR 407 by Carr J where an ex gratia payment said to be equivalent to pay and paid on termination was treated as part of the payment in lieu of notice that the employer was obliged to make. To a similar effect is the decision of Balmford J in Kirchner v Mayne Nickless Ltd [2000] VSC 459 (unreported, 23 November 2000). Although in Haley v Public Transport Corporation of Victoria [1998] VSC 132 (unreported, 13 November 1998), Ashley J required any benefits paid to a plaintiff to correspond to the possible head of damage rather than arise out of the legal wrong, his decision was not followed by Balmford J. In Reynold v Southcorp Wines Pty Ltd [2002] FCA 712; (2002) 122 FCR 301, unreported, Hely J preferred to follow Moore J's decision in Black. I propose to do the same.

36.              In the present case I have found that there is no payment that would have been payable under the agreement of the notice of a severance or redundancy payment and I see no reason why the defendant should not be entitled to offset the voluntary payment that it made on account of "severance" against the sum that I propose to award as damages for failing to pay the amount required under the contract as payment in lieu of notice.

37.              For the reasons that I have given, the plaintiff should have received six months pay in lieu of notice. I allow that payment at the appropriate rate of $210,000.00 per year - $105,000.00, less the gross amount calculated by the defendant as payable in lieu of notice - $13,225.88 and less the gross amount calculated by the defendant as severance pay - $24,417.00.

38.              There will be judgment for the plaintiff in the sum of $67,357.12, together with interest which I allow at $24,073.00 making a total sum of $91,430.12

I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of his Honour, Justice Gray.

 

 

Associate:

 

Date: 9 June 2004

 

 

 

 

 

 

Counsel for the plaintiff: Mr R Crowe

Solicitor for the plaintiff: Vandenberg Reid

Counsel for the defendant: Mr D Mossop

Solicitor for the defendant: Tetlow Jansen & Doyle

Dates of hearing: 10, 11 June 2003

Date of judgment: 9 June 2004