Home » Implied Redundancy Terms Come Back to Life

A Full Bench of the Western Australian Industrial Relations Commission (WAIRC) has revisited the issue of implied terms about redundancy and upheld a claim for severance pay made by a retrenched employee.[1]

Where did the entitlement to redundancy come from?

Ms Miller-Smith was employed by Richardson Pacific Ltd (Richardson Pacific) in various sales and management roles from 1988 onwards. During her employment, none of her employment documentation referred to an entitlement to severance pay on redundancy.

However, the Full Bench observed that on several occasions during Ms Miller-Smith's employment, Richardson Pacific had paid managerial and other non-production staff the same severance benefit negotiated for production workers under its certified agreements. There was also evidence that two previous general managers and a senior payroll employee of Richardson Pacific had advised Ms Miller-Smith that she enjoyed the same entitlement.

On this basis, and given that many other express terms of Ms Miller-Smith's employment contract were also unwritten, the Full Bench was able to conclude that it was an express term of her employment contract that she be entitled to severance pay on redundancy. This was not particularly controversial in the circumstances.

Redundancy as an implied term

However, the Full Bench also considered whether the term providing for severance could also have been implied into Ms Miller-Smith's contract of employment – either on the basis of custom and practice or for the reasonable or effective operation of the contract.

The Full Bench noted that for a term to be incorporated into a contract of employment on the basis of custom and practice, the term must be so notorious that all in the industry or trade enter into their contracts on the basis that the term is implied. In this case, the Full Bench found there was no custom or practice in the metal products industry to justify a term requiring severance payments to be made to non-production employees at the same rate as production employees.

The Full Bench then considered whether the term could be implied based on business efficacy.[2] The Full Bench determined that such a clause was necessary for the reasonable or effective operation of Ms Miller-Smith's contract.

Conclusion

In the relatively recent Western Australian decision of Dellys and Elderslie Finance Corporation,[3] the Western Australian Industrial Appeal Court rejected the implication of a term entitling an employee to severance pay on redundancy. In terms of business efficacy, a contract of employment operates reasonably and effectively with a power for either party to terminate on a given period of notice.

The Full Bench distinguished Ms Miller's-Smith's circumstances from those in Dellys, on the basis that the severance payment was not claimed to be implied in every contract of employment, and that the parties in Ms Miller-Smith's case both saw the clause as necessary and obvious.

These are fine distinctions in practice and there must be doubt about the correctness of the Full Bench's approach to the business efficacy test. The likely result is that, to the extent Dellys discouraged severance pay claims unless there was an express term to that effect, implied severance will return to the agenda and again require further consideration to clarify the proper limits.

[1]Richardson Pacific Ltd v Deborah Anne Miller-Smith, 2005 WAIRC 00537.
[2]Applying the test from Byrne and Frew v Australian Airlines Ltd (1994) 120 ALR 274.
[3]Dellys and Elderslie Finance Corporation [2002] WASCA 161.