No implied right to redundancy payments

Published Tuesday, 3 September 2002 by Emma Miller at Allens Arthur Robinson

The traditional view

Before the Court's decision, the Western Australian Industrial Relations Commission (the Commission) had taken a view that employees had an implied right to a reasonable redundancy payment in the absence of an express agreement. This was in contrast with all other states and territories.

The Commission's rationale for implying such a term into contracts of employment was that it was harsh, oppressive or unfair for an employee to be retrenched without receiving a redundancy payment. This is a similar logic to that which implies a right to reasonable notice of termination.

However, a recent case in the Industrial Appeal Court has shown that this is no longer a valid assumption for retrenched employees in WA.

The Industrial Appeal Court's comments

The decision arose from a case relating to the retrenchment of a manager of Elderslie Finance Corporation Limited8 . The manager (Mr Dellys) applied to the Commission claiming unfair dismissal and loss of contractual benefits. The Commission found that Mr Dellys' dismissal was unfair and he was entitled to three months' pay in lieu of notice. However, Mr Dellys appealed, claiming that in addition to the amount awarded by the Commission, he was also entitled to a reasonable redundancy payment.

While the Court was not asked to determine whether an entitlement to a redundancy payment was an implied term of every contract of employment, it did discuss the issue. Although the Court acknowledged the practice of the Commission to imply a term that the employee should be paid reasonable redundancy, the Court stated that it was unlikely that it would accept such a proposition.

The Court pointed out that employers are bound by common law to terminate a contract of employment only upon giving reasonable notice. What is defined as reasonable notice depends, in part, on the employee's length of service. According to the Court, any additional award for length of service is a matter for express agreement.

Implications

The debate about implied redundancy in most states tends to emerge in claims from employees excluded from unfair termination remedies. Out of necessity, arguing an implied contractual right is often the only means of receiving a severance payment. For those employees, this decision is significant as it supports the view that excluded employees may claim notice but no more in the absence of express agreement.