“Rea­son­able Notice” – Sounds innocu­ous but can be expensive

It is a trite propo­si­tion that employ­ment con­tracts are impor­tant. One key ben­e­fit of hav­ing an applic­a­ble employ­ment con­tract in place gov­ern­ing an employ­ment rela­tion­ship is that the notice an employ­er is required to give to the employ­ee to ter­mi­nate employ­ment is, sub­ject to the min­i­mum leg­isla­tive require­ments in the Fair Work Act 2009 (Cth), the peri­od spec­i­fied in that con­tract. As a gen­er­al propo­si­tion, the spec­i­fied peri­ods of notice in employ­ment con­tracts are rarely more than 6 months (usu­al­ly for senior exec­u­tives) and more com­mon­ly between 1 and 3 months.

If a court finds that there is no applic­a­ble employ­ment con­tract in place then the employ­er needs to give ​“rea­son­able notice” to ter­mi­nate the employ­ment rela­tion­ship – while this might sound benign, rea­son­able notice will often far exceed the peri­od that would like­ly have been spec­i­fied in an employ­ment con­tract for the same employee. 

This was illus­trat­ed in the recent NSW Supreme Court deci­sion of Rod­er­ick v Wash­ing­ton H Soul Pat­tin­son & Com­pa­ny Lim­it­ed (No 2) [2020] NSWSC 1224 (Rod­er­ick).

One key issue to be deter­mined in Rod­er­ick was whether there was an applic­a­ble con­tract gov­ern­ing the employ­ment in place. The employ­er con­tend­ed there was (described in the deci­sion as the ​“orig­i­nal con­tract”); the employ­ee assert­ed there wasn’t. 

At para­graph 117 of Rod­er­ick, the pre­sid­ing judge, Jus­tice Cavanagh stated:

“If the par­ties remained bound by the orig­i­nal con­tract then there could be no scope for the impli­ca­tion of a term as to rea­son­able notice. The orig­i­nal con­tract con­tained an express term as to notice and there is no scope for imply­ing a term incon­sis­tent with the express term of the contract.”

His Hon­our con­tin­ued at para­graph 123:

“There is no dis­pute that, if the orig­i­nal con­tract was dis­charged or replaced, then it would be nec­es­sary to imply a term into the new con­tract to the effect that the con­tract is ter­minable upon rea­son­able notice.”

After con­sid­er­ing the evi­dence and applic­a­ble law, Jus­tice Cavanagh con­clud­ed (at para­graph 194):

“In the cir­cum­stances, at the time of her pur­port­ed ter­mi­na­tion, the orig­i­nal con­tract no longer gov­erned the employ­ment rela­tion­ship. As accept­ed by the par­ties, it would thus be nec­es­sary to imply a term as to rea­son­able notice into the employ­ment contract.”

His Hon­our then con­sid­ered what con­sti­tut­ed ​“rea­son­able notice” in the cir­cum­stances. If the sub­mis­sions of the employ­er had been accept­ed, and the ​“orig­i­nal con­tract” gov­erned the employ­ment rela­tion­ship, the notice peri­od stip­u­lat­ed in that con­tract (three months) would apply. 

At para­graph 195, Jus­tice Cavanaugh stated:

“It is accept­ed that deter­mi­na­tion of a rea­son­able peri­od of notice is a ques­tion of fact. The peri­od of rea­son­able notice must be deter­mined as at the date notice should have been giv­en. As observed by Gillard J in Rankin v Marine Pow­er Inter­na­tion­al Pty Ltd, it must be borne in mind that the pri­ma­ry pur­pose of giv­ing a peri­od of notice is to enable the employ­ee to obtain new employ­ment of a sim­i­lar nature. Those at the top of their cho­sen fields have few­er oppor­tu­ni­ties to obtain sim­i­lar employ­ment. In Rankin, it was sug­gest­ed that the peri­od of notice in those cir­cum­stances is usu­al­ly many months to in excess of a year.”

His Hon­our con­tin­ued at para­graph 196:

“There is no restric­tion or lim­i­ta­tion on the cir­cum­stances to be tak­en account of in deter­min­ing the peri­od of rea­son­able notice. Again, in Rankin at [223], Gillard J said:

‘[223] … The fac­tors include the high grade of the appoint­ment, the impor­tance of the posi­tion and the size of the salary. Fur­ther, it is clear that the nature of the employ­ment is a rel­e­vant fac­tor. In addi­tion, fac­tors which per­tain to the par­tic­u­lar employ­ee which are rel­e­vant are the length of ser­vice, his pro­fes­sion­al stand­ing and his age, his qual­i­fi­ca­tions and expe­ri­ence, and the expect­ed peri­od of time it would take for him to find alter­na­tive employment.’ ”

The Plain­tiff, who was the Finance Direc­tor of the Defen­dant (a large com­pa­ny that is cur­rent­ly in the ASX 100), and had been employed from June 2006 until April 2018, con­tend­ed that rea­son­able notice was a peri­od of 24 months. The defen­dant sub­mit­ted that rea­son­able notice should be deter­mined to be in the range of 3 to 6 months.

Jus­tice Cavanagh con­sid­ered the fac­tors rel­e­vant to deter­min­ing rea­son­able notice in this case. At para­graph 200 his Hon­our stated:

“I regard the fol­low­ing mat­ters as rel­e­vant to the con­sid­er­a­tion of the peri­od of rea­son­able notice:

1. The plain­tiff was 49 years old at the time of termination.
2. She had worked for the defen­dant since 2006.
3. She had been appoint­ed Finance Direc­tor in 2014.
4. She was an exec­u­tive direc­tor of a very large pub­lic company.
5. On the basis that the only oth­er exec­u­tive direc­tor was the CEO, she was the sec­ond most senior employ­ee in that very large company.
6. She was a Board member.
7. Her posi­tion was so senior that she report­ed direct­ly to the Board rather than the CEO.
8. She was the only woman on the Board at the time of her termination.
9. Despite being ter­mi­nat­ed with­out notice or warn­ing, there is no evi­dence of any mis­con­duct or improp­er behav­iour on her part which might have jus­ti­fied the man­ner of termination.
10. Indeed, in cir­cum­stances in which I have pre­ferred the plaintiff’s evi­dence as to what she was told at the time of ter­mi­na­tion, she was left very much in the posi­tion of being unable to explain her abrupt ter­mi­na­tion to any future employers.
11. The com­pa­ra­ble posi­tion is thus the posi­tion of being a finance direc­tor and exec­u­tive direc­tor of a large pub­lic company.
12. In my view, it is a mat­ter of com­mon knowl­edge that there are con­sid­er­ably few­er women in such posi­tions than men. It is only nec­es­sary to look at the com­po­si­tion of the Board of the defen­dant to receive con­fir­ma­tion of such ongo­ing imbal­ance. Sta­tis­ti­cal evi­dence relied on tends to sug­gest num­bers increas­ing up to 30%.
13. She would be unlike­ly to receive a ref­er­ence from the defendant.
14. Her fixed salary was high and tak­ing account of enti­tle­ments under the Incen­tive Schemes, her remu­ner­a­tion was very high.
15. On the defendant’s own evi­dence (com­par­isons of her remu­ner­a­tion pack­age with the medi­um pack­age) her pack­age was well above average.”

While each case ulti­mate­ly turns on its own facts, these reflect the types of mat­ters a court would gen­er­al­ly con­sid­er in deter­min­ing rea­son­able notice. 

The defen­dant sub­mit­ted that in deter­min­ing rea­son­able notice for the plain­tiff, the court should have regard to the agreed notice peri­od in the con­tracts of oth­er senior employ­ees, includ­ing the CEO. Jus­tice Cavanagh gave this approach short shrift, stat­ing (at para­graph 202):

“I reject the sub­mis­sion of the defen­dant that ref­er­ence should be made to the agreed peri­od of notice for the CEO or any oth­er employ­ee. I do not con­sid­er that the peri­od the CEO agreed to, pre­sum­ably hav­ing regard to all the oth­er con­di­tions of his employ­ment, is a fac­tor to be con­sid­ered when assess­ing what rea­son­able notice would be. The sub­jec­tive views of the defen­dant or the CEO as to what an appro­pri­ate peri­od of notice might be for the CEO do not bear on what a rea­son­able peri­od of notice might be for the plaintiff.”

One fac­tor giv­en close atten­tion by the judge was the dif­fi­cul­ty the plain­tiff had in secur­ing alter­na­tive employ­ment. This is con­sis­tent with the pri­ma­ry pur­pose of notice being a peri­od to enable the employ­ee to obtain such employ­ment. In this regard, his Hon­our stat­ed (at para­graph 208):

“There is evi­dence from the plain­tiff about her dif­fi­cul­ties obtain­ing alter­na­tive employ­ment. Although the peri­od of notice is to be assessed as at the date on which notice should have been giv­en, evi­dence as to the dif­fi­cul­ties in obtain­ing employ­ment may be tak­en account of as evi­dence of just that i.e. the dif­fi­cul­ties that a per­son in the posi­tion of the plain­tiff might have in obtain­ing alter­na­tive employment.”

After con­sid­er­ing the rel­e­vant fac­tors and var­i­ous author­i­ties on rea­son­able notice (includ­ing one case which was con­sid­ered to be most com­pa­ra­ble, where rea­son­able notice was held to be 10 months), the court deter­mined rea­son­able notice in this case to be a peri­od of 12 months. 

Lessons for Employers 

The case illus­trates why it is impor­tant for employ­ers to have cur­rent, applic­a­ble employ­ment con­tracts in effect. To do this, employ­ers should ensure there is an employ­ment con­tract in place at the start of employ­ment and that the con­trac­tu­al terms are revis­it­ed (either by way of a new con­tract or express con­tin­u­a­tion of exist­ing con­trac­tu­al terms) when the posi­tion of the employ­ee changes, par­tic­u­lar­ly when there is a promotion. 

A fail­ure to do so will mean that an employ­er can only ter­mi­nate on rea­son­able notice, which will, in almost all cas­es, be a peri­od that far exceeds the peri­od of notice that would like­ly have been agreed in the employ­ment con­tract. In some cas­es, it has extend­ed well beyond the 12 months deter­mined in Roderick. 

One of the first ques­tions an employ­ment lawyer will ask an employ­ee client is whether they have a cur­rent employ­ment con­tract, often in the hope they don’t. For employ­ers, the lack of an applic­a­ble employ­ment con­tract can end up, due to the harm­less sound­ing con­cept of rea­son­able notice, being a very expen­sive omission.