DECISION NO: 177/96 CATCHWORDS INDUSTRIAL LAW - TERMINATION OF EMPLOYMENT - review - interpretation of s.170DE(2) - whether a general prescription making unlawful terminations which are harsh, unjust or unreasonable - very long period of notice worked out by employee - whether failure to make a severence payment - nature and purpose of notice and severence payment discussed. Matter No. SI 116 of 1994 NEVILLE FRYAR v SYSTEM SERVICES PTY LTD and: Matter No. SI 117 of 1994 GRAEME SIMPSON v SYSTEM SERVICES PTY LTD VON DOUSSA J ADELAIDE 10 MAY 1996 IN THE INDUSTRIAL RELATIONS COURT ) ) OF AUSTRALIA ) ) SOUTH AUSTRALIAN DISTRICT REGISTRY ) No. SI 116 of 1994 BETWEEN: NEVILLE FRYAR Applicant AND: SYSTEM SERVICES PTY LTD Respondent MINUTES OF ORDERS JUDGE MAKING ORDERS : VON DOUSSA J PLACE ORDERS MADE : ADELAIDE DATE ORDERS MADE : 10 MAY 1996 THE COURT: 1. Declares that the termination of the applicant's employment was in contravention of s.170DE(2) of the Industrial Relations Act 1988. 2. Orders that the award of compensation made by the Judicial Registrar on 17 October 1995 be set aside. 3. Orders that the respondent pay to the applicant the sum of $18,292.40. Note: Settlement and entry of orders is dealt with in Order 36 of the Industrial Court Rules IN THE INDUSTRIAL RELATIONS COURT ) ) OF AUSTRALIA ) ) SOUTH AUSTRALIAN DISTRICT REGISTRY ) No. SI 117 of 1994 BETWEEN: GRAEME SIMPSON Applicant AND: SYSTEM SERVICES PTY LTD Respondent MINUTES OF ORDERS JUDGE MAKING ORDERS : VON DOUSSA J PLACE ORDERS MADE : ADELAIDE DATE ORDERS MADE : 10 MAY 1996 THE COURT: 1. Declares that the termination of the applicant's employment was in contravention of s.170DE(2) of the Industrial Relations Act 1988. 2. Orders that the award of compensation made by the Judicial Registrar on 17 October 1995 be set aside. 3. Orders that the respondent pay to the applicant the sum of $30,000. Note: Settlement and entry of orders is dealt with in Order 36 of the Industrial Court Rules. IN THE INDUSTRIAL RELATIONS COURT ) ) OF AUSTRALIA ) ) SOUTH AUSTRALIAN DISTRICT REGISTRY ) No. SI 116 of 1994 BETWEEN: NEVILLE FRYAR Applicant AND: SYSTEM SERVICES PTY LTD Respondent AND: No. SI 117 of 1994 BETWEEN: GRAEME SIMPSON Applicant AND: SYSTEM SERVICES PTY LTD Respondent REASONS FOR JUDGMENT Coram: von Doussa J. Place: Adelaide Date : 10 May 1996 These two applications made under s.170EA of the Industrial Relations Act 1988 ("the Act") were heard together by a Judicial Registrar. The Judicial Registrar found that the termination of the employment of each applicant was harsh, unjust or unreasonable within the meaning of s.170DE(2) of the Act and awarded each of them compensation, it being plain on the evidence that reinstatement was impracticable. The applicants, Mr Simpson and Mr Fryar, being dissatisfied with the amounts of compensation awarded have each sought a review of the decision pursuant to s.377. On the hearing of the applicants' applications for review the respondent also sought to review the decisions. The respondent has contended that the finding that the terminations were harsh, unjust or unreasonable should be set aside on the ground that the finding is based upon an incorrect interpretation of s.170DE(2). By consent, the reviews of each decision have been heard together, and have been conducted on the evidentiary material placed before the Judicial Registrar. No further evidence has been adduced, and no witness has been recalled. The grounds on which review is sought do not turn on the credit of witnesses. The respondent is an Information Technology Services company which provides a range of services to the users of large and complex computer systems and networks. The respondent company was formed in 1985 by a consortium of mainframe computer users in South Australia to provide mainframe technical support. One of the original consortium members was the State Government Insurance Commission ("SGIC"). Mr Simpson had been a systems programmer with SGIC since 1977. On 16 September 1985 he transferred to the respondent. This occurred in the context of SGIC "outsourcing" the computer service department of SGIC for which he had worked. His contract of employment with the respondent provided that the commencement date for the accrual of long service leave would be the date of his commencement with SGIC, and certain other conditions of service with SGIC were carried over into the new employment. Later, Santos Ltd became one of the consortium members, and Mr Fryar, who had been employed by Santos Ltd since January 1984 as a systems programmer with the title "Production Controller" transferred to the respondent in March 1991. The terms of Mr Fryar's contract of employment with the respondent provided that his long service leave entitlement would accrue from the commencement of his service with Santos Ltd, and certain other benefits from his employment with Santos Ltd were to be preserved. Both Mr Simpson and Mr Fryar had specialised skills as system programmers related to "MVS" operating systems of mainframe computers. In 1993 a number of changes occurred in the ownership and business of the respondent. It is not necessary to recite them save to observe that the number of mainframe customers serviced by the respondent fell dramatically, and the respondent faced financial collapse. In late 1993 all the employees of the respondent except Mr Simpson, Mr Fryar and one other, agreed to participate in a staff buy-out of the consortium shareholders. The participating staff members contributed a few hundred dollars each to meet the nominal purchase price plus legal and bank fees. They did so to avoid the liquidation of the respondent by the consortium shareholders. The participating staff members then entered into new employment contracts with the respondent which resulted in a 20% reduction in salaries; Mr Simpson and Mr Fryar did not do so, and their employment continued on the same terms and conditions as before the staff buy-out. Early in 1994 a Hong Kong based company acquired an 80% interest in the shareholding of the respondent. On 5 April 1994 Mr Simpson was given a letter advising that his employment would be terminated on 13 January 1995. On 6 April 1994 Mr Fryar was given a letter advising that his employment would be terminated on 23 November 1994. The notice periods of 41 and 33 weeks respectively given by these letters are central to the applicants' contentions. Each of the letters said "We are giving you this lengthy period of notice to give you every opportunity to obtain alternative employment..." Before the Judicial Registrar the applicants contended that their employment had been terminated because they had refused to sign new contracts of employment reflecting the 20% salary reduction accepted by all other staff members. However the Judicial Registrar rejected that contention and held that the respondent had established a valid reason for the termination. The respondent had adduced substantial evidence to demonstrate that its financial difficulties and changed circumstances in the particular narrow field in which the applicants had skills provided the valid reason connected with the operational requirements of its undertaking. This finding is not now challenged by the applicants. Each of the applicants remained in their employment during the notice periods. Mr Simpson accepted an offer by the respondent made on 22 November 1994 to extend his employment by a further five weeks. He left his employment on Friday, 17 February 1995. He was advised at that time that his position had become redundant. His salary package at that time was $60,960 per annum. On Monday, 20 February 1995 he commenced work with ISSC as a systems programmer on a salary package of $64,000. On 28 May 1995 work in Adelaide with ISSC was no longer available and Mr Simpson had to relocate to Melbourne. His employment with ISSC still continues. Mr Fryar refused an offer made by the respondent in late 1994 to extend his employment for a few weeks, and also refused an offer of contract employment with the respondent in Singapore. He left his employment with the respondent on 23 November 1994. His salary package was $47,560. Prior to the end of his work with the respondent he and his wife formed a computer consulting company that entered into a contract to provide services to ISSC which obtained the contract with Santos Ltd to provide the technical support which the respondent (through Mr Fryar and other employees) had hitherto provided. In the result on the next working day following 23 November 1994 Mr Fryar was at Santos Ltd performing the same tasks as before, but in the capacity of an employee of a consultant to ISSC. Mr Fryar's company is paid an annual consulting fee by ISSC of $66,000 per annum; and the company in turn pays salaries of $27,658 and $18,000 respectively to Mr Fryar and to his wife who is said to provide secretarial services. The applicants contended before the Judicial Registrar that the notice periods given to each applicant were in all the circumstances too short and that by requiring the applicants to work out the notice periods rather than making payments in lieu of notice, the applicants suffered an unfair tax disadvantage. Both these contentions were rejected. The Judicial Registrar considered the notice periods were reasonable, but held that the terminations were unfair as no severance payment was made. The Judicial Registrar said: "The Applicants' employment was taken from them without any fault on their part. Neither Applicant received any severance payment. They have lost non transferable credits such as long service leave and sick leave. They have suffered some inconvenience and hardship as a result of the termination of their employment. In my view the failure to make any severance payment renders the termination of the employment of the Applicants employment harsh unjust and unreasonable. In calculating the amount of compensation to be paid to the Applicant I take into account the loss of non transferable credits of long service leave and the inconvenience and hardship they have suffered. The Termination Change and Redundancy case of the Full Bench of the Australian Conciliation and Arbitration Commission [1984] 8 IR 34 determined severance payments to be made in the case of redundancy. Whilst there have been decisions that have awarded increased severance payments, there needs to be some exceptional circumstances to warrant a departure from the standard. In my view such circumstances do not exist here. I am not prepared to accept that other factors can be taken into account in the circumstances of this case and particularly in light of the substantial period of notice given to each of the Applicants. I therefore award compensation based on eight weeks of the salary of each Applicant. I award to Mr Simpson the sum of $8,547.69 and to Mr Fryar the sum of $6,361.54." It is convenient to first consider the respondent's contention that the finding by the Judicial Registrar that the terminations were harsh unjust or unreasonable reflect an incorrect interpretation of s.170DE(2), and that upon the proper interpretation of the subsection the applicants' claims should be dismissed. At times material to their claims s.170DE provided: "170DE(1) An employer must not terminate an employee's employment unless there is a valid reason, or valid reasons, connected with the employee's capacity or conduct or based on the operational requirements of the undertaking, establishment or service. 170DE(2) A reason is not valid if, having regard to the employee's capacity and conduct and those operational requirements, the termination is harsh, unjust or unreasonable. This subsection does not limit the cases where a reason may be taken not to be valid." Subsection 170DE(2) has since been amended by Act No. 168 of 1995, Schedule 2(4), which came into operation on 15 January 1996, by the insertion of the words "all of the circumstances of the case, including" after the words "having regard to". The respondent contends that subss. 170DE(1) and 170DE(2) should be read together. The central concept is the reason, or reasons for the termination; it is the "validity" or otherwise of the reason which determines whether a breach of s.170DE has occurred; and the "validity" or otherwise of the reasons for termination is a single concept although a number of matters may bear on validity and attract different onus of proof under s.170EDA. The submissions of the respondent continue: "Although s.170DE(2) uses two concepts, 'a reason' and 'the termination', they do not stand independently of one another. It is the quality of 'the termination' which may invalidate 'the reason' for termination. This suggests that there must exist some rational link between the harshness, injustice or unreasonableness of the termination and the validity of the reasons for termination." That the section requires a "rational link" between the harshness, injustice or unreasonableness of the termination, and the validity of the reason for termination is said to gain support from the wording of s.170DE(2) as it stood at the relevant time, Articles 4 and 9 of the Termination of Employment Convention, and s.170EDA. In the present case the applicants now concede the correctness of the finding that there was a valid reason for the termination of their employment, apart from the operation of s.170DE(2), and the harshness, injustice or unreasonableness relied upon is the failure to make an adequate severance payment. The respondent argues that such a failure is irrelevant to the reason for the termination let alone the validity of the reason (except perhaps in cases in which the bona fides of a redundancy is in issue); a severance payment by its very nature is something which happens in consequence of a termination: it does not alter or bear on the reason for the termination. The "rational link" between the harshness, injustice or unreasonableness and the validity of the reason for termination is absent. The adequacy or otherwise of a payment on termination is not a matter connected to "the employee's capacity and conduct" or to the "operational requirements" of the employer, being the matters to which s.170DE(2), as it then stood, directed that regard should be had. Further, it is submitted that the inadequacy of a severance payment is not a matter that fits comfortably within the matters to which the Court is to have regard in assessing compensation under s.170EE(3). Counsel for the respondent argues that if a "rational link" between the harshness, injustice and unreasonableness to which s.170DE(2) refers and the validity of the reason, or reasons, for termination referred to in s.170DE(1) is not a requirement of s.170DE, s.170DE(2) would, in effect, create a fiction; that is, a reason will be deemed to be invalid if for any circumstance, whether related to the reason or not, the termination is found to be harsh, unjust or unreasonable. In short, s.170DE(2) should not be construed as though it was a general prescription making unlawful terminations which are harsh, unjust or unreasonable. The interpretation contended for is a narrow one. If correct, the decision in Leddicoat v Schiavello Commercial Interiors (SA) (Industrial Relations Court of Australia, von Doussa J, 18 October 1995) where a termination was held to be harsh, unjust or unreasonable because the severance payment was inadequate, was wrongly decided. Counsel for the respondent points out that the argument now raised was not advanced in Leddicoat, and that decision cannot be treated as an authority against it. That is so, but Leddicoat reflected a clear trend evident from other judgments that gives a broad construction to s.170DE(2). For example in Quality Bakers of Australia Ltd v Goulding (Industrial Relations Court of Australia, Beazley J, 23 June 1995) terminations based on a valid reason related to the operational requirements of the employer's business were held to be harsh, unjust or unreasonable because of a failure to consult with the employee about the redundancy, a failure to consider alternative employment options, and a failure to provide the employee with any counselling or assistance in relation to the redundancy or in obtaining other employment. The shortcomings in the procedures followed by the employer in relation to the termination would appear to lack the "rational link" with the validity of the reason for termination which the respondent contends should exist. Similar shortcomings, and failures to follow procedures in redundancy situations led to findings that terminations were harsh, unjust or unreasonable in Mitchell-Collins v The Latrobe Council (Industrial Relations Court of Australia, Spender J, 25 August 1995) and in Sinclair v Anthony Smith & Associates Pty Ltd (Industrial Relations Court of Australia, von Doussa J, 1 December 1995). The latter decision was upheld on appeal: Anthony Smith & Associates Pty Ltd v Sinclair (Industrial Relations Court of Australia, Wilcox CJ, Moore and Marshall JJ, 22 April 1996). In Kenefick v Australian Submarine Corporation (1995) 131 ALR 197 at 208 Wilcox CJ observed that there may be redundancy cases where the termination decision is affected by procedural unfairness making it harsh, unjust or unreasonable. State laws had provided remedies for unfair dismissals for many years before the Termination of Employment provisions in Division 3 of Part VIA of the Act were enacted by the Federal Parliament: see The Termination Change and Redundancy Case (1984) (8 IR 34 at 39-40). Following the Termination Change and Redundancy Case provision was made in many Federal Awards requiring that termination of employment by an employer shall not be harsh, unjust or unreasonable. The prescription was similar to that which had existed in South Australia, first in s.15(1)(e) of the Industrial Conciliation and Arbitration Act 1972-1981 (SA), as to which see The Queen v Industrial Court of South Australia; ex parte General Motors-Holdens Pty Ltd (1982) 30 SASR 504, and then in s.31 of the Industrial Relations Act (SA) 1972. In a case arising under the last mentioned section the Full Commission of the South Australian Industrial Commission said in Wynn's Winegrowers Pty Ltd v Foster (1986) 16 IR 381 at 384: "We entertain no doubt that, pursuant to s 31, even where there is a genuine need for redundancy, the dismissal may be properly characterised as harsh, unjust or unreasonable for many reasons. Without necessarily being exhaustive of those reasons it seems to us that, in a given case, the dismissal might fall within the statutory criteria because the employee should not have been the person selected for redundancy, or because the employee could perhaps have been offered a suitable alternative position in the company's employment, or because the method of dismissal adopted might conceivably be considered harsh, or unreasonable, or because the length of notice given might be totally inadequate, or because the redundancy payment was, in all the circumstances, totally inadequate." The South Australian provisions were intended to operate as a general prescription against terminations that were harsh, unjust or unreasonable, and there was no limitation arising from a requirement that the harshness, injustice or unreasonableness, be linked in some way with the employer's reason for the termination. That was also the case with the Federal Award prescription against terminations that were harsh, unjust or unreasonable. Thus in Gregory v Philip Morris Ltd (1988) 80 ALR 455 the length of service and personal circumstances of the employee led to the termination being in contravention of the Award: see Wilcox and Ryan JJ at 471. See also Bostik (Aust.) Pty Ltd v Gorgevski (1992) 36 FCR 20 at 28, and Byrne v Australian Airlines Ltd (1995) 131 ALR 422 at 461 and 463. The object of Division 3 of Part VIA is to give effect or give further effect to the Termination of Employment Convention and the Termination of Employment Recommendation 1982: see s.170CA(1). Section 170DE(1) is in terms which mirror the wording of Article 4 of the Convention and is obviously intended to further that object. It would be surprising however if in furthering that object Parliament intended to limit rights otherwise available to employees in relation to termination of employment under Award provisions which followed the Termination Change and Redundancy Case. If the respondent's suggested interpretation of s.170DE is correct this would be the effect of s.170DE(2). That Parliament did not so intend gains support from the Second Reading Speech when the Industrial Relations Reform Bill 1993 was before Parliament. The Minister then said in relation to the termination provisions (Hansard, House of Representatives, 28 October 1993, p.2781: "The termination provisions will apply where employees have no protection that adequately meets our international obligations, such as the protection already widely available through the 1984 termination, change and redundancy test case." There was no suggestion in the second reading speech that the legislation would result in a lessening of protection available under Award provisions. Further, the Explanatory Memorandum does not, in my opinion, lend any support to the respondent's argument. Rather, it supports the view that s.170DE(2) was intended to deem to be invalid a reason otherwise valid under s.170DE(1) if for any circumstance the termination was harsh, unjust or unreasonable - in other words that it was intended to be a general prescription making unlawful terminations which are harsh, unjust or unreasonable. The Explanatory Memorandum to the Bill, House of Representatives, at p.23, says: "The provisions of proposed subsection 170DE(2) are aimed at prohibiting termination of employment where the reason for termination is of a kind that is acceptable under the Convention, because it is related to the employee's conduct or capacity or to the employer's operational requirements, but where these factors are not sufficiently serious to justify termination. There will not be a valid reason for termination of employment if, in the light of the factors said to constitute the reason for the dismissal, the dismissal was harsh, unjust or unreasonable, for example where trivial misconduct or a minor lapse in performance is the stated reason for termination. In such circumstances, there is not a valid reason for termination of employment within the meaning of the Termination of Employment Convention." The particular example given in this statement, if it were descriptive of the sole operation of s.170DE(2) would lend support to the respondent's argument, but it is given only by way of example of the operation of provisions that are intended to have the much wider purpose stated before the example is given. The wider purpose denies the "rational link" requirement for which the respondent contends. The respondent argues that the provisions of s.170EDA support its contention. I am unable to detect any support in the section, and again the Parliamentary materials give no suggestion that s.170DE(2) had the limited meaning for which the respondent contends. The Supplementary Explanatory Memorandum to the Industrial Relations Amendment Bill (No.2) 1994, House of Representatives, at p.4, is in terms that suggest that s.170DE(2) was understood to have a general prescriptive effect. It states: "17. The existing subsection 170DE(2) provides that a reason is not valid if the termination is harsh, unjust or unreasonable. 18. The effect of proposed subsection 170EDA(1) - to be inserted by this proposed new clause of the bill - will be as follows. If an applicant to the Court alleges that the termination contravened subsection 170DE(1), the employer will have to prove that the termination was for a valid reason or reasons either connected with the employee's capacity or conduct or based on operational requirements. However, it will be unnecessary for the employer to show that the termination was not harsh, unjust or unreasonable: this is the effect of the inclusion in proposed paragraph 170DEA(1)(a) of the words 'apart from subsection 170DE(2)'. Proposed paragraph 170EDA(1)(b) confirms that the onus is on the applicant to establish that the termination was harsh, unjust or unreasonable (if the applicant is relying on this ground)." Finally, it should be noted that even if the respondent's argument could be supported on the terms of s.170DE as it stood at times material to the terminations of the employment of Messrs Simpson and Fryar, that support has been removed by the amendment to s.170DE(2) effected by Act No.168 of 1995. In its present form, it is, in my opinion, clear that s.170DE(2) is a general prescription making unlawful terminations which are harsh, unjust or unreasonable. Again, there is nothing in the Parliamentary materials that gives any suggestion that the Parliament considered that by the amendment of s.170DE(2) the protection to employees was being extended. On the contrary, the suggestion is that the remedies afforded by Division 3 of Part VIA to an employee on termination were being restricted. In the Second Reading Speech, Hansard, House of Representatives, 30 August 1995, the Minister said at 821: "To make it clear that this situation is not intended, the court will be required to consider all the circumstances in deciding whether a remedy of reinstatement or compensation should be granted and, if so, what the remedy should be. In other words, the court will weigh up all of the circumstances, and may, even though an employer has not met a statutory requirement, decide that a remedy should not be given to the employee. This approach is consistent with the long standing practice of industrial tribunals. and the Explanatory Memorandum to the Industrial Relations and Other Legislation Amendment Bill 1995, House of Representatives, at p.6 noted: "The amendment will require all the circumstances of the particular case to be considered when determining whether a reason is not valid under subsection (2). This requirement will mean that all the merits of the case will be weighed up in making such a decision." In my opinion the contention of the respondent on the interpretation of s.170DE should not be accepted. On the contrary s.170DE(2) should be interpreted as a general prescription making unlawful terminations which are harsh, unjust or unreasonable. In any event, even if the interpretation contended for were correct, it is by no means clear that the interpretation would assist the respondent in the present case. Under s.170DE(1) a valid reason may exist connected either with the employees' capacity or conduct or based on the operational requirements of the employer's undertaking, establishment or service. Here the valid reason was based on the operational requirements of the employer's undertaking. But under s.170DE(2) a reason is not valid if having regard to the employees' capacity and conduct and those operational requirements the termination is harsh, unjust or unreasonable. So even where the valid reason is based on the employer's operational requirements, s.170DE(2), as it stood at the time relevant to this case, required regard to be had to the employees' capacity and conduct. There is no apparent reason why the notion of the "employees' capacity and conduct" should be narrowly understood. The capacity and conduct of the present applicants could include their peculiar high level skills in a narrow area of commercial activity which would restrict the opportunities for alternative employment, and their length of service. A failure to recognise these matters with the payment of an adequate severance allowance would appear to be within the "rational link" which the respondent contends is required by the language of s.170DE(2). The review sought by the respondent of the finding by the Judicial Registrar that the terminations of the employment of Mr Simpson and Mr Fryar were harsh, unjust or unreasonable therefore fails. The review sought by Mr Simpson and Mr Fryar challenges the amount of compensation awarded. The Judicial Registrar treated the long periods between the letters advising of termination and the actual dates of termination as periods of notice. In a sense this may be correct, but this characterisation masks the real reason why these long, and different, periods were adopted by the respondent. Reference has already been made to aspects of the terms of employment of each applicant. Both of them transferred to the respondent from other employment with a consortium member, and retained some benefits arising from or based on that earlier employment, e.g. long service leave. Each of the applicants gave evidence that he understood that in the event of retrenchment from the respondent's employment he would receive a redundancy package calculated according to the redundancy terms that would have applied if he were still employed by the consortium member. In the case of Mr Simpson he asserted that the package that would have applied had he still been employed by the SGIC would have been a payment in lieu of notice of 9 weeks plus 3 weeks pay for each year of service. In the case of Mr Fryar he asserted that the redundancy package that would have applied had he still been employed with Santos Ltd would have been 3 months plus 2 weeks pay for each year of service. It was argued before the Judicial Registrar and before me on review that entitlements in these terms were actual terms of the contracts of employment of each applicant. The express terms of engagement contained no such provisions, and the evidence fails to establish the matters which would justify the implication of such a term: cf. Byrne v Australian Airlines Ltd at 427-428. However it appears from the evidence of Mr Brown, the Chief Executive of the respondent, that the respondent considered that aspects of the redundancy policies of the applicants' former employers should apply to them. It is Mr Brown's evidence that the periods of notice which were given corresponded with the respondent's calculation of the redundancy packages that each of the applicants would be entitled to receive upon being terminated on the ground of redundancy. Mr Brown says these entitlements were calculated by the respondent's staff, but as he understood advice had been received to the effect that it was better for employees to be asked to work rather than to leave with a lump sum, the long "notice" periods of 41 and 33 respectively were given. Mr Brown said that if either applicant had left sooner than the nominated date on which his employment was to end, the respondent would have paid the balance of the period as a lump sum. But neither applicant was informed by the respondent of this option, and neither was given any indication that the termination dates nominated by the respondent in any way reflected severence payments from the respondent. In the result, each applicant treated the letters and the nominated termination dates as relating solely to notice, and did not seek to leave earlier so as to receive a lump sum as a severance payment. A consequence of working out the full period nominated by the respondent was that the applicants paid income tax on the weekly remuneration during that period, and were denied a lump sum on termination along with the taxation advantages otherwise available to people whose employment comes to an end from genuine redundancy. How precisely the periods of "notice" were calculated by the respondent is not clearly established by the evidence. In the case of Mr Fryar the period of 33 weeks would appear to reflect the redundancy formula which had at some stage applied at Santos Ltd (viz 3 months notice and a severance payment of 2 weeks for each completed year of service - 13 weeks plus 10 x 2 weeks = 33 weeks). The calculation in the case of Mr Simpson is not so easily rationalised. He had 17 or 18 years of service from his commencement with SGIC (depending on whether the calculation runs to the date of notice or the date of actual termination). The same formula would have led to a period of about 47-49 weeks (as compared with about 41 weeks actually nominated in the first instance, later extended to about 46 weeks). The application of the formula which had applied at SGIC (viz 9 weeks notice plus 3 weeks for each year of service) would have led to a substantially greater period. There is a distinction between the nature and purpose of a period of notice or payment in lieu, and a severance payment. The distinction is reflected in Articles 11 and 12 of the Termination of Employment Convention. Whilst the two are often treated together to arrive at a global redundancy package, the separate nature and purpose of the two entitlements remains, and assume importance in this case. A period of notice is to give an employee the opportunity to adjust to the change in circumstances which is to occur and to seek other employment: Matthews v Coles Myer Ltd (1993) 47 IR 229. The period may be worked out, as s.170DB allows, and it often is as it is recognised that the employee's prospects of obtaining other employment may be better if the search is undertaken whilst the employee remains in employment: see for example Sinclair v Anthony Smith and Associates Pty Ltd (Industrial Relations Court of Australia, von Doussa J, 1 December 1995 at p.8). A severence payment however is intended to provide a payment as compensation for the loss of non-transferable credits and entitlements that have been built up through length of service such as sick leave and long service leave, and for inconvenience and hardship imposed by the termination of employment through no fault of the employee: Termination Change and Redundancy Case (1984) 8 IR 34 at 62, 73. The inconvenience and hardship includes the disruption to an employee's routine and social contacts and the competitive disability to long term employees arising from opportunities foregone in the continuous service of the employer: Food Preservers Union of Ausralia v Wattie Pict Ltd (1975) 172 CAR 227. Such a payment is taxed on the favourable terms which apply to an Eligible Termination Payment. It is quite inconsistent with the nature and purpose of the payment, and the taxation regime, that the severance entitlement should be worked out as if the number of weeks used to calculate the entitlement were weeks of notice. In the present case in the events which happened the applicants worked until the nominated termination dates, and received no severance payment on leaving. The Judicial Registrar was correct to find that this fact rendered the terminations harsh, unjust or unreasonable. The respondent, whatever formula was used, appears to have intended a generous notice period which exceeded that laid down in s.170DB. I think in the circumstances of this case it would be appropriate to treat the true notice period as 13 weeks. This period was worked out, and by the termination date each applicant had obtained alternative employment. In my opinion the amount which should be awarded under s.170EE to compensate for the failure to make severence payments should be calculated by reference to the original periods fixed by the respondent, less 13 weeks. Whilst it may well be, as the Judicial Registrar said, that the amount of a severance payment should not depart from the standard laid down in the Termination Change and Redundancy Case unless some exceptional circumstance exists, in this case an exceptional circumstance does exist, namely the respondent's recognition that the applicants were entitled to a significantly greater payment. This was also the case in Leddicoat v Schiavello Commercial Interiors where the compensation awarded was calculated by allowing 2 weeks pay for each year of relevant service as the respondent did not dispute that that was a reasonable entitlement. In my opinion the compensation for the non-payment of a severance allowance should be: To Mr Simpson: Redundancy period 5/4/94-13/1/95 = 41 weeks Less true notice period 13 Severance payment period 28 This period exceeds the jurisdictional 6 months maximum which the Court can award under s.170EE(3)(a). In money terms one half the annual salary package is $30,480. This sum exceeds the further jurisdictional limit imposed by ss.170EE(3)(b) and 170EE(4)(a). The compensation should therefore be reduced to $30,000. To Mr Fryar: Redundancy period 6/4/94-23/11/94 = 33 weeks Less true notice period 13 20 Severance allowance 20 x $914.62 = $18,292.40 If these sums are now allowed by way of compensation for the non-payment of the appropriate severance allowances, they will be paid as lump sums and attract tax at the appropriate rates for Eligible Termination Payments. No further allowance is necessary to compensate for the taxation disadvantage which would arise if the payments made as ordinary remuneration for services rendered after 5 April 1994 were treated as including the severance payment entitlements. Counsel for the respondent has argued that the compensation should be less than the severance payment which would otherwise have been appropriate as the very long periods of notice enabled the applicants to arrange alternative employment to commence as soon as their employment with the respondent ended. Counsel argued that the purpose of severance payments, whilst primarily to compensate for lost non-transferable credits also included a component to compensate for the time taken to find alternative employment - and that component should not now be paid in money as alternative employment was found before the termination date. It is true that decisions can be found where there has been no clear distinction drawn between the primary purpose of notice, and the purpose of severance payments and the two are treated as overlapping, but even if there is some degree of overlap in purpose I consider that by allowing 13 weeks as the true notice period any risk of "double compensation" is avoided. On Mr Simpson's behalf it was contended that compensation should be awarded for the cost of his relocation in Melbourne, and on the sale of his house in Adelaide. Insofar as these losses might be causally related to the termination of his employment with the respondent, that termination was for a valid reason, and would have occurred even if the appropriate severance payment had been made in the first instance. These claims for compensation are misconceived, but in any event the jurisdictional maximum for compensation is already reached in the case of Mr Simpson, and nothing further can be added to the award. On Mr Fryar's behalf additional claims were also made both under the Act, and at common law for stress, anxiety and depression. These claims, as a matter of law, would face formidable hurdles even if there were a factual basis for them: see Burazin v The Blacktown City Guardian (Industrial Relations Court of Australia, Madgwick J, 15 December 1995). However in this case on the facts the claims fail for lack of supporting evidence. The affidavit evidence of Mr Fryar which constituted his evidence-in-chief reads: "49. I have suffered bouts of high blood pressure and depression related to the degree of aggravation and problems in security at work. Annexed hereto and marked NF20 is a report from Dr P Thomson." No oral evidence was led, and there was no cross-examination, on the topic. The report of Dr Thomson says that Mr Fryar had been suffering anxiety and depression since June 1993 (i.e. 9 months before notice of termination was given). That condition was related to work stress independent of the termination. High blood pressure was detected in October 1993 - well before the notice of termination. The continuation of symptoms in mid-1994, according to the report, were related to Court proceedings in consequence of the notice of termination, not to the termination itself. Insofar as any of these symptoms might have been related to the termination of employment as notified on 6 April 1994, that termination was for a valid reason and would have occurred even if the appropriate severance payment had been made. The evidence fails to show any link between the failure to make a lump sum severance payment and any of the symptoms about which complaint was made. A further claim is also made for the cost of incorporating the company which now employs Mr Fryar. That is a cost unrelated to the failure to make an appropriate severence payment, and is not an item which can attract compensation under s.170EE. In my opinion the orders which should be made on review are: Mr Simpson: 1. Declaration that the termination of the applicant's employment was in contravention of s.170DE(2). 2. Set aside the award of compensation made by the Judicial Registrar on 17 October 1995. 3. Order that the respondent pay to the applicant the sum of $30,000. Mr Fryar: 1. Declaration that the termination of the applicant's employment was in contravention of s.170DE(2). 2. Set aside the award of compensation made by the Judicial Registrar on 17 October 1995. 3. Order that the respondent pay to the applicant the sum of $18,292.40. I certify that this and the preceding pages are a true copy of the Reasons for Judgment of von Doussa J. Associate: Dated: Counsel for the applicants : Mr J Rau Solicitors for the applicants : Johnston Withers Counsel for the respondent : Mr R C White Solicitors for the respondent : Kelly & Co. Dates of hearing : 1 April 1996