Employer obliged to pay
A court decision has helped to clarify what should be included in an employee’s payment in lieu of notice.
Employers who calculate payments in lieu of notice based on salary alone should reconsider their practice following a NSW Court of Appeal decision.
In the case of Peter Willis v Health Communications Network Limited, the court found that the employer was contractually obliged to make a payment to the employee’s superannuation fund when it ended his employment with a payment in lieu of notice. Willis was a chief financial officer whose employment was terminated shortly after another company took over HCN. (Willis also made a claim for a redundancy payment pursuant to a redundancy policy, which failed because the policy was not part of his employment contract.)
The notice of termination clause in a variation to Willis’s employment contract stated: “The notice period for yourself or HCN to terminate your employment has been extended from three to six months. In the case of termination by HCN, HCN may make payment in lieu of all or part of this notice at its discretion”. In a further variation in a letter, his remuneration was varied to a “total remuneration approach for packaging salaries and benefits”.
Willis was entitled to a total fixed remuneration package which expressly included compulsory employer super contributions in accordance with the employer’s obligations. The fixed remuneration package was broken down in the variation letter to include a base salary of $208,980 plus super at 9 per cent of $18,808.
The employer contended that as Willis’s employment contract required HCN to make super contributions to a trustee of a complying fund, the contributions could not be included in a payment in lieu of notice because it was not an amount it was obliged to pay Willis personally. In the appeal court, however, Justice Tobias found that the super contribution paid to the fund was nonetheless made on behalf of the employee for his benefit and noted that Willis had accepted a remuneration package which provided for a super contribution which was nearly twice the minimum amount required under the Superannuation Guarantee legislation. Willis had effectively salary sacrificed by accepting an increased super payment. The judge also noted that if Willis had worked out his notice period, he would have earned six months’ salary plus six months’ super calculated in accordance with his employment contract.
The decision is consistent with the Workplace Relations Act 1996, which provides that compensation paid in lieu of the statutory notice period must equal or exceed the total of all amounts the employer would have been liable for had the employee worked until the end of the notice period. The case indicates that courts will not take a technical approach when considering what constitutes an employee’s ‘pay’ when calculating payments in lieu of notice. If an employee would have received a bonus payment in a notice period, then the employer might be contractually obliged to include it in a payment in lieu.
Whether an employer would be obliged to include the value of providing a motor vehicle for private use in such a payment is yet to be determined authoritatively.
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