Circular No 2000/1 : Workplace Relations Act 1996 - Impact on payments instead of notice of termination

Please note: This document is no longer current and is provided for reference purposes only.

Purpose

The purpose of this brief is to inform agencies about a decision by Carr J of the Federal Court of Australia in Furey v. Civil Service Association of WA (Inc) [1999] FCA 1492 (the Furey case) concerning the inclusion of superannuation payments in the amount of compensation instead of notice of termination under section 170CM of the Workplace Relations Act 1996 (the WR Act).

The PSMPC has sought advice from the Australian Government Solicitor (AGS) on the impact of this decision on the Australian Public Service (APS) and has been advised that amounts paid on account of employer contributions under the Commonwealth Superannuation Scheme (CSS) or the Public Sector Superannuation Scheme (PSS), including the Employer Productivity Superannuation Component (EPSC) are not caught by s.170CM on the reasoning in the Furey case.

Termination and payment in lieu of notice

2. The employment of employees in the APS is subject to the requirements of Part VIA of the WR Act:

paragraph 170CM(1)(b) of that Act provides that except where an employee is guilty of serious misconduct, an employer must not terminate an employee's employment unless the employee has been given the required period of notice or the employee has been paid the required amount of compensation in lieu of notice. Subsections 170CM(4) and (5) of the WR Act set out how the required amount of compensation in lieu of notice is to be calculated;
under s.170CR(4) of the WR Act, a court may, if it is satisfied that an employer has contravened s.170CM, make an order requiring an employer pay to the employee an amount of damages equal to the amount the employee was entitled to under s.170CM.

Earlier advice provided by the PSMPC

3. In December 1997, the Attorney-General's Department (A-G's) advised of the following decisions:

Kenney v Loveland (Ritter JR, decision #960026)
In this matter Judicial Registrar Ritter ruled that annual leave, long service leave and superannuation contributions are not contemplated by subsection 170DB(4) of the Industrial Relations Act 1988 and that amounts on account of these matters would not form part of the amount to be paid under that provision.
Hammond v Moore Business Systems Australia Ltd (Murphy JR, decision #950451)
In this matter Judicial Registrar Murphy ruled that subsection 170DB(4) requires "payment of amounts which would have been paid and only those amounts over the notice period". He went on to say that "annual leave, long service leave and superannuation contributions are not contemplated by these provisions".

4. Given these decisions, A-G's advised that payments instead of notice should only include payments that are typically in an employee's weekly, fortnightly or monthly pay packet. Essentially, this means wages or salary, overtime and shift allowances, and other allowances. It would not include accrual entitlements such as payments on account of pro rata annual leave, long service leave or employer's superannuation contributions that would have accrued had the person remained as an employee during the relevant notice period.

5. In accordance with this advice agencies were advised to include in the amount of compensation payable under s.170CM(4) of the WR Act:

ordinary wages;
anticipated overtime or shift allowances; and
other allowances, such as senior officer allowance, clothing and site allowances.

6. Agencies were given this advice in Circular No. 1998/1 of 10 February 1998. That advice is now included as Attachment C to Public Service Act Advice No.12 of 26 November 1999.

The Furey case

7. The question before the Court in the Furey case was whether the employer contravened s.170CM of the WR Act in relation to the termination of the employee's employment, by failing to include superannuation payments in the amount of compensation instead of notice and, if so, the amount of damages payable to the employee under the WR Act.

8. The parties agreed that the employer was obliged to make a superannuation contribution calculated at 12.5% of the employee's gross salary. The employer argued, however, that the superannuation payment should not, as a matter of law, be included in the required amount of compensation because it was not an amount that it would have been liable to pay to the employee. The employer also submitted that the superannuation payment was an amount that it would have been liable to pay, not to the employee, but to the trustee of the relevant superannuation fund.

9. The Court rejected the employer's submission. Carr J said that the expression 'pay to the employee' in s.170CM(4) should be read as meaning 'pay to or on behalf of the employee'. His Honour held that 'Section 170CM(5) states how the total of the required amount of compensation must be worked out. Section 170CM(5)(c) specifically refers to any other amounts payable under the employee's contract of employment. In my view the superannuation amount would fall within that subparagraph.'

10. His Honour then said 'I think that it is clear that Parliament intended to impose on an employer seeking to pay compensation instead of notice, an obligation to pay either to or for the benefit or on behalf of the employee everything which that employee would have been entitled to have paid had he or she worked out the required period of notice.'

Latest advice from AGS

11. AGS was asked to advise whether the decision and reasoning in the Furey case applies in the APS context and affects the earlier advice given by A-G's.

12. AGS was also asked to advise whether:

the advice that payments on account of pro rata annual leave or long service leave that would have accrued to an employee had they remained in employment during the relevant notice period should not be included in payments in lieu of notice remains correct following the decision in this case; and
the inclusion in agency Certified Agreements (CAs) or Australian Workplace Agreements (AWAs) of provisions that allow an employee to request an earlier termination date rather than serving out their period of notice affects the application of s.170CM of the WR Act. Employer superannuation component

13. AGS has now advised that the decision in the Furey case is not conclusive in determining that an amount attributable to the employer superannuation contribution be included as payment in lieu of notice for the purposes of s.170CM(4) of the WR Act either generally or in relation to the Commonwealth as an employer where the termination of a person's employment is under the Public Service Act 1999 and where superannuation entitlements are governed by the Superannuation Act 1976 or the Superannuation Act 1990.

14. In reaching this view, the AGS noted, amongst other things, that:

the Furey case was decided in a non-APS context and employment in the APS can be distinguished from the situation in the Furey case with respect to employer superannuation contributions;
the decision does not explicitly disagree with or overturn many cases decided under ss.170CM and 170CR(4) of the WR Act (and their predecessors) in which the amount of compensation awarded instead of notice was calculated by reference only to wages or salary and did not include a component for employer superannuation contributions - some of these decisions were made by judges of the Industrial Relations Court or the Federal Court;
superannuation contributions (including the EPSC) payable by APS agencies are not amounts payable under an APS employee's contract of employment and are therefore not caught by paragraph 170CM(5)(c) on the reasoning of Carr J in the Furey case; and
the compensation for lack of notice payable under paragraph 170CM(1)(b) and ss.170CM(4) and (5) of the WR Act should include amounts that are normally paid directly to third parties on behalf of the employee. These amounts would include the employee's superannuation contributions that are usually paid to a superannuation fund on behalf of the employee (but which form part of the employee's salary), plus any other sums that are included in the employee's remuneration that are paid to third parties at the direction of the employee (for example under salary sacrifice arrangements).

Payments on account of accrual entitlements

15. AGS has advised that the advice contained in circular 1998/1 remains correct.

16. While the amounts payable to an employee on termination would include any sums relating to unused long service leave credits and annual leave credits calculated in accordance with relevant legislation, award, CA or AWA, depending on the circumstances, amounts for pro rata annual leave or long service leave that would have accrued had the person remained as an employee during the relevant notice period should not be included in payments in lieu of notice.

Early termination at the request of the employee

17. A number of APS CAs and AWAs pick up the provisions relating to termination that are in the Australian Public Service Award 1998 (the APS Award) and which provide for four weeks' notice for employees aged 45 or under irrespective of their length of service, and five weeks' notice in the case of employees over 45 years of age. A number of CAs and AWAs also mirror the APS Award provision which provides as follows:

'Where the Agency Head directs, or the employee requests, a termination date within the notice period, the employee's employment will terminate on that date. The employee will be paid compensation instead of notice for the unexpired portion of the notice period. The payments an employee would have received in respect of the ordinary time the employee would have worked during the period of notice, had the employment not been terminated, will be used in calculating any payment in lieu of notice.'

18. Under s.170CM of the WR Act, on the other hand, the period of notice an employee is entitled to may differ depending on an employee's length of service and the discretion to pay compensation in lieu of notice rests with the employer.

19. AGS does not consider, however, that the provisions in APS CAs or AWAs which allow an employee to request an earlier termination date rather than serving out their period of notice affects the application of s.170CM. Where an employee exercises the right conferred by such a provision in an agency CA or AWA, it simply means that the payment instead of notice must be worked out in accordance with ss.170CM(4) and (5) in relation to the period of unexpired notice prescribed under the CA or AWA. As discussed above, these amounts do not include amounts paid by employers in relation to superannuation under the CSS or PSS, or amounts calculated by reference to the accrual of annual leave or long service leave credits in the unexpired portion of the notice period.

Further advice

20. Any further enquiries about this circular should be directed to the PSMPC's Helpline on (02) 6202 3859.

Jeff Lamond
Team Leader
Staffing, Structures and Performance Team

27 June 2000

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