Recent treatment of reasonable notice at common law

10 February 2009 Topics: Workplace relations and safety

In certain circumstances a court can imply into an employment contract a period of “reasonable notice” upon termination. Past cases have shown that this notice period can be as much as 12 months; meaning, in such a case, that the court would order the employer pay the employee 12 months’ salary.

A term of reasonable notice can be implied into a contract of employment where the contract makes no provision for notice or payment in lieu of notice upon termination; or where the contract does make provision for notice or pay in lieu, but, for example, the employer relies on a summary termination clause to terminate the contract without notice or pay in lieu in circumstances where it did not (or where a court concludes it did not) have grounds to do so.

The default rule is that under contracts of employment for an indefinite period, termination may be effected by either party giving the other reasonable notice of their intention. Where there is no express term, a term may be implied. The term of reasonable notice implied by a court is generally determined by reference to circumstances as at the date of termination and what is reasonable will very much depend on the circumstances of each individual case. Despite that, it is possible to glean a number of relevant factors which a court will likely take into account.

The factors a court may consider include the employee’s age and length of service; the nature of his or her responsibilities, remuneration and relative seniority in the organisation; evidence as to industry practice; anything given up by the employee to take on the position; and any expectation as to the duration of the appointment.

Generally speaking, if the employee is in an important position at a higher grade, with a large salary and is long serving, with, for example, only a few years to serve until retirement, the amount of notice implied will likely be high, perhaps in the order of nine or twelve months’ salary. Conversely, an employee in a low paid position in a routine job could expect the award of a much shorter period of notice.

Two recent Queensland decisions bear mention.

In the first one, Macauslane v. Fisher & Paykel Finance Pty Ltd (a 2003 decision of the Court of Appeal), the plaintiff was a financial controller in his mid 30s with less than three years’ service. The court appealed from awarded the plaintiff nine months’ salary. Despite two judges remarking (to the effect) that they believed six months to be closer to the mark, the Court of Appeal affirmed the decision, concluding that no error could be demonstrated in the decision to award nine months. The nine months’ salary awarded in that case has since been criticised by commentators as “somewhat generous” – but it remains the law.

The decision in Macauslane was later relied upon by the Supreme Court in what appears to be the most recent Queensland case directly on point, Taske v Occupational & Medical Innovations Limited [2007], where nine months’ salary was again awarded. In that case, the plaintiff was a chief executive officer in a senior position with remuneration at a high level, having regard to the size of the company, and at the age of 66, with his qualifications and experience, the judge concluded that he “ha[d] limited prospect of obtaining an equivalent position in a company conducting a business of the kind conducted by the defendant”. He had though only been employed with the company for a year.

There are numerous decisions of courts in the other Australian jurisdictions which provide guidance – and sound a warning – about the potential hidden cost to employers. It is abundantly clear that quantifying reasonable notice is not a precise science. Nonetheless, given the effect of a range of cases over a long period of time; the prospect of judgments in the amounts referred, and the cost of litigation, employers should be vigilant about ensuring the quality of termination clauses in their employment contracts.

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