Industrial Relations Commission of New South Wales in Court Session CITATION: Steven Squires v Powerlan Ltd and anor. [2005] NSWIRComm 354 APPLICANT: Steven Squires PARTIES: DEFENDANTS: Powerlan Ltd and Powerlan Resources Pty Ltd FILE NUMBER(S): IRC 5580 of 2002 CATCHWORDS: Unfair contract - Industrial Relations Act 1996 - s 106 - transfer of senior manager to purchasing company - redundancy - no contractual provision providing notice and severance pay in circumstances of redundancy - manager subsequently dismissed for misconduct/repudiation of contract during period of notice - one month paid as notice - respondents argue misconduct/repudiation operate to disqualify manager from any redundancy benefits - redundancy of manager held to warrant six months' notice and 17.5 weeks' severance pay - notice reduced to four months on application of principle of mitigation - manager's actions not misconduct/repudiation of contract such as to disqualify manager from additional payments because of redundancy - orders to be prepared reflecting findings of Commission. Bostik (Aust) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20 English v Aradlay Insurance Brokers Pty Ltd [2005] NSWIRComm 253 Gala v State Bank of New South Wales Ltd (No 2) (1998) 84 IR 216 CASES CITED: Truth and Sportsman Ltd v Molesworth [1956] AR NSW 924 Westfield Holdings v Adams [2001] 114 IR 241 Yetton v Eastwoods Troy Ltd [1967] 1WLR 104 HEARING DATES: 09/12/2005; 09/13/2005; 09/15/2005 DATE OF JUDGMENT: 10/05/2005 APPLICANT: Mr D Chin of counsel SOLICITORS: Phillips Fox LEGAL REPRESENTATIVES: RESPONDENTS: Mr A Moses of counsel SOLICITORS: Agnew Legal Pty Ltd JUDGMENT: - 18 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION CORAM: Haylen J 5 October 2005 Matter No IRC 5580 of 2002 STEVEN SQUIRES v POWERLAN LTD & ANOR Application under s 106 of the Industrial Relations Act 1996 JUDGMENT [2005] NSWIRComm 354 BACKGROUND 1 Mr Steven Squires is the applicant in a claim brought under s 106 of the Industrial Relations Act 1996. The claim arises out of his employment by the first respondent Powerlan Ltd and his purported employment by Powerlan Resources Pty Ltd in circumstances where that employment was terminated for reasons of redundancy but where the employment contract made no provision for severance payments and otherwise was alleged to have made inadequate provision for notice of termination. In the Summons for Relief, Mr Squires also claimed unpaid annual leave, unpaid long service leave and reimbursement in relation to the costs of a mobile telephone. 2 In October 1996, Mr Squires with a colleague James Phillips formed an IT company called Centrelink Systems Pty Ltd ("Centrelink") and shortly after, in March 1997 established Phase Shift Technology Pty Ltd ("Phase Shift") as a wholly owned subsidiary of Centrelink. Mr Squires was then employed by Phase Shift. 3 After a few years of apparently successful trading, Mr Squires and Mr Phillips agreed to sell their business to the first respondent Powerlan Ltd. This sale was completed on 25 February 2000 when the first respondent purchased the Centrelink and Phase Shift businesses being the provision of mainframe computer software consulting services and the development of "shrink-wrapped" software products and tools. The business purchase agreement governing the terms of the acquisition specified that completion of the agreement was conditional upon Mr Squires and Mr Phillips entering into employment agreements with the first respondent. In accordance with these terms, Mr Squires commenced employment with Powerlan Ltd on 25 February 2000 as the manager of the business for a term of three years at an annual remuneration package of $120,000 plus a car allowance of $20,000, superannuation and reimbursement of mobile telephone expenses: the total package was agreed to be worth $158,000. The business purchase agreement spoke of the employees of Centrelink and Phase Shift being terminated and paid out their entitlements and being transferred in employment to the first respondent on conditions not less favourable than existing at the time of purchase. 4 By the first few months of 2001, the IT downturn was beginning to have an effect on the first respondent's business and its ability to make work available to Mr Squires. In April 2001, the first respondent contracted Mr Squires to provide services to a client, Cardlink Services Ltd ("Cardlink") as a temporary Manager, Applications and Support. By late 2001, the downturn in business was such that Mr Phillips took leave without pay from November 2001 and he was made redundant in June 2002 . At the end of December 2001, Mr Squires' employment with the first respondent was apparently terminated and he was either transferred or re-employed by the second respondent, although Mr Squires had no knowledge of this change in the identity of his employer nor did he accept such a termination, and re-employment or transfer. 5 A restructure of the respondents' business led to Mr Squires being transferred to the second respondent's "Business Infrastructure New South Wales Division" but reporting to a Mr Ravi. Shortly after this re-structure, in July 2002, Mr Squires was informed that his services were no longer required at Cardlink as that company wished to employ a permanent replacement in the position that he had been occupying on a temporary basis since April 2001. 6 From 8 July 2002, Mr Squires was aware that Mr Ravi was proposing to terminate his employment and discussions were undertaken as to the basis on which that might occur. During these discussions, Mr Ravi stated that Mr Squires could take up employment with Cardlink or any of the other clients of the respondents if he so desired. A draft deed was presented to Mr Squires on or about 12 July 2002 offering him the payment of some $78,000 including pro rata long service leave, accrued annual leave and four weeks' pay in lieu of notice. While Mr Squires initially conveyed his acceptance of this proposal to Mr Ravi, the respondents took no further action to finalise or execute the deed and Mr Squires ultimately decided not to resign. 7 On 26 July 2002, Mr Squires' work at Cardlink terminated and on 29 July 2002 he returned to work at the respondents' premises although there was little or no work for him to perform. On 2 August 2002, Mr Ravi gave Mr Squires a letter informing him that his position was redundant effective that day, that he would receive three months' salary "in lieu of notice" but paid on a monthly basis and that he should not attend the respondents' premises due to the impending sale of the Business Infrastructure New South Wales division but that he should be available by telephone to perform any tasks as requested. 8 On 7 August 2002, it appears that the second respondent's Business Infrastructure division was sold to Optima ICM Ltd ("Optima"). At around the same time, Mr Squires commenced work with Cardlink, firstly as a consultant and later in a permanent position. By 3 October 2002, this employment on a permanent basis was confirmed at a salary rate of $122,000 inclusive of superannuation, car allowance and leave loading and thus approximately $30,000 per annum less than his salary package with the respondents. 9 While these events were occurring, the respondents raised concerns about Mr Squires' employment with Cardlink. On 16 September 2002, at the request and direction of the second respondent, Mr Squires attended a meeting in which the second respondent alleged that his employment with Cardlink was in breach of his contract of employment. The second respondent then purported to summarily terminate Mr Squires' employment effective from 13 September 2002. The second respondent paid Mr Squires' salary and accrued annual leave up until 13 September 2002, calculated by reference to the date of his commencement of employment with the first respondent. THE ISSUES (a) the contract of employment and the identity of the employer. 10 Considerable attention was paid to the terms of the contract of employment between Mr Squires and the respondents and, in particular, his employment with the first respondent. The business purchase agreement concerning the businesses of Centrelink and Phase Shift was a document apparently drawn by solicitors acting for Mr Squires and his colleague Mr Phillips. That agreement was made between Mr Squires, Mr Phillips, their two companies and the first respondent, Powerlan Ltd. 11 Under the business purchase agreement the following provisions were made: (a) in clause 2.3, the first respondent was to conduct the Centrelink and Phase Shift businesses during the "burnout periods" in a prudent and businesslike manner: the period appeared to be six months from 1 January 2000 to 30 June 2000 and there was to be an account of profits during this period. (b) clause 4 provided that Mr Squires would be immediately responsible to and carry out such lawful directions as were given from time to time by "any director of the Company". The term "Company" was a reference to the First Respondent, Powerlan Ltd; (c) under clause 5, completion was to take place at the office of the seller's solicitor on the completion date, namely 25 February 2000 or such other date as the parties agreed; (d) under clause 5.2, at or before completion, the seller was to give to the buyer assignments or novations of those asset leases and consulting contracts that could be assigned or novated at completion. The seller was to use its best endeavours to procure the assignments and novations of asset leases and consulting contracts that it could not provide at the time of completion as soon as practicable after completion; (e) under clause 6.1, the seller, before or immediately following completion, was to terminate the employment of "the employees", ensure that all contributions due to be made by the seller to superannuation, redundancy, statutory compensation or other funds in respect of each employee had been duly made and was to ensure that the amount of all employee entitlements as at the effective date were paid to the "transferring employees". The employees were listed as Mr Squires, Mr Phillips and three others who were employed as systems programmers: in a schedule to the agreement their date of commencement was set out together with details of salary, leave entitlements at the end of 1999 together with superannuation contributions per year; (f) under clause 6.2, the buyer was to offer employment to existing staff of the business at completion on terms as favourable as the terms on which they were employed by the seller. The seller indemnified the buyer from and against all liabilities in respect of employee entitlements of the "transferring employees" as at the effective date or otherwise referrable to any period or event occurring prior to completion. The buyer indemnified the seller from and against all liabilities in respect of the employee entitlements of the "transferring employees" falling due after the effective date or otherwise referrable to any period or event occurring after completion; (g) under clause 11, the seller and Phase Shift were required to give to the buyer on completion, all documents and notice as necessary to enable a change in the register of the Australian Securities and Investments Commission and were to facilitate the buyer registering the business names "Centrelink" and "Phase Shift" throughout Australia; (h) clause 15 was a restrictive covenant stating that, in consideration of the buyer entering into this agreement and to reasonably protect the goodwill of the business, the seller undertook that, during a period of 12 months from completion, within Australia on its own behalf and on behalf of any other person or entity, neither it or any related body corporate, secretary or shareholder of it would, without the prior written consent of the buyer, participate, promote carry on, assist or otherwise directly or indirectly be concerned with or involved in, financially or otherwise, as a member, shareholder, unit holder, director, consultant, advisor, contractor, principal, agent, manager, employee, beneficiary, partner, associate, trustee or financier of any business or activity which was the same or substantially similar to the business or a material part of it. There were prohibitions against soliciting, canvassing or inducing other persons who were an employee or agent of the buyer in the conduct of the business to leave the employment or agency of the buyer; (i) clause 16 was headed "Employment Agreement". It stated that completion of the agreement was conditional on the buyer, Mr Phillips and Mr Squires, entering into employment agreements in the form attached to the sale agreement; (j) clause 9, "Employees", provided that a nominated schedule comprised a complete list of employees of the seller employed in the business at the date of the agreement and their respective entitlements to wages, salaries, annual leave and leave loading, long service leave, sick leave and any other remuneration, compensation or benefits. Further, each employee was stated to be employed exclusively in the business, had been paid in full by the seller all amounts due to them and could be lawfully terminated as an employee on one month's notice or less without payment of any damages or compensation, including severance or redundancy payments. The schedule disclosed no amounts due for long service leave or redundancy. 12 On 25 February 2000, Mr Squires entered into an employment agreement with Powerlan Ltd, the first respondent. The agreement (as well as the business purchase agreement) made no mention of the second respondent, Powerlan Resources Pty Ltd. That agreement noted that Mr Squires had agreed to be employed by the first respondent as a manager in a business conducted by the company involving the application and development of "shrink-wrapped" products and software tools, formerly known as "Phase Shift" and mainframe services and consulting, formerly known as "Centrelink". Under clause 2, Mr Squires agreed to be employed by the company for a term of three years from the date of commencement, which was in fact 25 February 2000. A list of duties was set out in a schedule and Mr Squires was immediately responsible to and was to carry out such lawful directions as given from time to time by any director of the first respondent. 13 Clause 5 of the employment agreement dealt with hours of duty and stated that Mr Squires "... shall devote substantially the whole of his time and attention during the ordinary business hours of the company to the discharge of his duties and shall conform to such hours of work as may from time to time reasonably be required of him, and in this regard shall not be entitled to receive any remuneration from work performed outside ordinary business hours". Under clause 9, the company was able to terminate the agreement at any time without prior notice if Mr Squires committed any serious or persistent breach of any of the provisions of the agreement, was guilty of any grave misconduct or wilful neglect in the discharge of his duties, became wound up or made any arrangements or composition with creditors; or was convicted of any criminal offence other than an offence that, in the reasonable opinion of the contractor, did not affect the position of Mr Squires. The company could otherwise terminate the agreement on the giving of three months' prior notice in writing: no provision was made for Mr Squires to terminate the agreement on any specified period of notice. The employment agreement also contained clauses dealing with confidentiality and restraint of competition. (b) Notice of redundancy 14 On 2 August 2002, Mr Squires received a letter from Mr Ravi who described himself as the Manager, Business Infrastructure New South Wales of "Powerlan Resources Pty Ltd", the second respondent. This letter was on a letterhead that simply carried the word "POWERLAN", although at the bottom of the page the contact details were for "Powerlan Ltd", the first respondent. 15 This letter referred to an earlier meeting on the same day and confirmed that Mr Squires' position of Manager with the New South Wales Business Infrastructure Division was made redundant effective that very day "due to operational requirements". The letter stated that attempts had been made to look for alternative employment both within the organisation and outside it but that it was not available. Because of the controversy surrounding the terms of this letter, it is appropriate to set out the remaining paragraphs: In accordance with your Agreement you will be paid three (3) months' salary in lieu of notice. The salary will be paid on a monthly basis, as being currently paid, over the next three months. At the end of the notice period, any outstanding leave will be paid into your bank account. We would prefer for you to work your notice period, however due to impending sale of Business Infrastructure New South Wales Business, we would ask for you not to come to office but be available on telephone, should we require you to perform any tasks. Finally if you wish to be provided with a Certificate of Service or a Employment Separation Certificate please do not hesitate to contact me ... 16 The background to this letter appears to be, firstly, Mr Squires' fulltime work with Cardlink from April 2001 until late July 2002. Mr Squires said that after the sale of the business to the first respondent, he continued to provide services to clients of the Centrelink and Phase Shift businesses although the first respondent allocated a few clients for mainframes, sales and service. He records that, gradually, Centrelink and Phase Shift clients ceased using Powerlan's services for mainframe sales and services and the work for Mr Squires and Mr Phillips declined. Within that context he took up employment in April 2001 with Cardlink but the work of Powerlan declined to such a degree that Mr Phillips took leave without pay from November 2001 and was finally made redundant in June 2002. 17 In the period approximately May to July 2002, Mr Squires had a conversation with Mr Ravi about the Cardlink work winding down because of that company's desire for a permanent employee to do the work that he had been doing on a temporary basis. Mr Ravi had apparently been attempting to negotiate with Cardlink to continue providing Mr Squires' services through Powerlan and there were negotiations as to cost but ultimately Cardlink decided to appoint its own employee. 18 Mr Ravi's position at this point is of some interest. In his affidavit, he stated he was employed by the first and second respondents from October 1998 until the first respondent sold the Business Infrastructure Division on 8 August 2002 to Optima. Mr Ravi was not questioned or cross-examined to clarify in what way he was employed by both the first and second respondents although later in his affidavit he stated that from June 2002 he was appointed the second respondent's Manager, Business Infrastructure New South Wales until his employment was "transferred to Optima". He stated that, as a result of a restructure within the first respondent, Mr Squires was transferred to the Business Infrastructure Division shortly after his own appointment and was required to report to Mr Ravi. 19 In light of the likely loss of the Cardlink business, Mr Squires then commenced negotiations with Mr Ravi about the terms upon which he might leave the service of the respondent. Mr Squires mentioned that he was owed a lot of annual leave and long service leave from his time with Centrelink and Phase Shift and, ultimately, Mr Ravi was able to put a proposition to him that the respondents would terminate his contract on the basis that the period of notice would be reduced from three months to one month but that he would be paid all entitlements. A deed of agreement was drafted and received by Mr Squires on approximately 12 July 2002. The deed proposed the payment of one month's notice, the payment of annual leave of 712 hours which included annual leave accredited at Phase Shift, long service leave and totalled $78,039.56. Mr Squires contacted Mr Ravi and accepted the terms of the deed. 20 Mr Ravi recollected that about 8 July 2002 he had a conversation with Mr Squires after it was determined that the respondents would not reduce their charges to Cardlink and that this business would be lost to the respondents. Mr Squires indicated his preparedness to leave the service of the respondents and asked how much he would be paid, to which Mr Ravi responded, four weeks' notice, all the annual leave and long service leave, so long as an indemnity was also provided that Mr Squires agreed not to set up a company in competition with the Powerlan interests. Mr Ravi then stated: "We have no objection to you being employed by Cardlink or any other Powerlan customers. I will forward you a document to confirm this". A draft deed in those terms was forwarded to Mr Squire on about 12 July 2002. 21 Mr Squires' evidence was that, having accepted this proposal, he made several enquiries as to the whereabouts of the final document but was told by Mr Ravi it was being drafted elsewhere and to contact the people involved. Mr Ravi's evidence was that during this period he had discussions with Mr Theo Baker, a director of the first and second respondents, who had queried whether long service leave was due to Mr Squires and had ultimately received advice that no such payment for long service leave was due to the applicant. 22 On 26 July 2002, Mr Squires' work with Cardlink terminated and on 29 July 2002 he returned to the respondents' office but there was almost no work for him to do. He made numerous requests of Mr Ravi to be allocated work and, although Mr Ravi said he would find something for him to do, no work was in fact provided to Mr Squires. Mr Baker said that on 1 August 2002 he spoke to Mr Ravi to enquire what was happening in relation to Mr Squires because Optima was in the course of undertaking due diligence on the Business Infrastructure Division and "Squires (was) not part of the deal". Mr Ravi told him that he had not yet had a chance to speak to Mr Squires and Mr Baker directed him to finalise arrangements by the following day. Also, on 1 August 2002, Mr Squires had sent an email to Mr Ravi stating that it appeared there was no useful work available to him and that his time in the office was futile and asking if he could refrain from attending the office on a regular basis until there was work for him to do. 23 Mr Ravi's evidence was that on 2 August 2002 he spoke to Mr Squires and told him that he had been made redundant and would be paid on a monthly basis until the end of the three months' notice period. Mr Ravi said that he would prefer that Mr Squires worked out his notice period and, when Mr Squires asked if that meant he had to come to the office, Mr Ravi told him that he did not have to come to the office, "... but you should be available on the telephone should we require you". Mr Ravi then handed Mr Squires a letter "confirming" his redundancy. That is the letter referred to in paragraphs[14 ] and [15] above. According to Mr Squires, during the course of this meeting he raised with Mr Ravi whether the respondents were able to place him "on call" and pay him out in stages because, being redundant, he had to be paid out immediately. Mr Ravi said he had checked it with the company solicitors and was told that it was within the respondent's rights to ask him to fulfil his contractual obligations. 24 On the same day, having received the letter making him redundant, Mr Squires contacted Cardlink and asked if the position he had temporarily filled had a permanent occupant. He was asked to start immediately in the position by Cardlink and did so for a short period by rendering an account like a consultant while Cardlink was getting its books in order. By October 2000, Mr Squires had become permanently employed by Cardlink. 25 In evidence was a running email exchange between Mr Ravi and Mr Baker in early July 2002 concerning Mr Squires' engagement with Cardlink and the options open to the respondents if that engagement came to an end. On 4 July 2002, Mr Ravi raised the possibility that Cardlink would not accept a reduced rate or that the respondent might not be prepared to reduce the rate, and then Cardlink could hire someone else for the role and the respondent would lose the revenue and would "have to pay out Steve his dues". He pointed out to Mr Baker that the respondents were contractually obliged to pay Mr Squires three months' notice plus annual leave which was in excess of 18 weeks, plus long service leave: in the alternative, the respondent could give Mr Squires a month's notice and then force him to go on leave and then still pay three months' notice plus long service leave. On that day, Mr Baker replied asking whether Mr Squires wanted to take up Cardlink's offer of employment and that if he did then Mr Squires would simply resign and the respondent would pay him his entitlements. This was another option about which he sought Mr Ravi's advice. Mr Ravi replied that Mr Squires did not want to resign but rather wanted to come into the respondents' offices "asap". Mr Baker apparently formed the view that Mr Squires was "playing games", but endorsed Mr Ravi's suggestion about making an offer to Mr Squires in terms as suggested by Mr Ravi. On 8 July 2002, Mr Ravi sent an email to the respondents' solicitors with a copy to Mr Baker asking for a document to be drawn up to terminate Mr Squires' contract with Powerlan by providing a notice period reduced to four weeks from the three months stipulated in the contract, paying annual leave, plus long service leave if eligible, and including a restraint of trade clause but noting "... however, in an individual capacity we have no objection to him seeking direct employment with Cardlink or any other customers". 26 As earlier noted, that proposal did not proceed after it was accepted by Mr Squires, firstly, because the respondents had concerns about whether long service leave was actually owing (although it had been paid to Mr Phillips when he was made redundant) and, secondly, because Mr Squires himself rethought the matter and decided that he would not resign. These matters however formed the background to the respondents' notification of 2 August 2002 to Mr Squires informing him of his redundancy. (c) Termination for breach of contract 27 It apparently came to the knowledge of Mr Baker that Mr Squires had obtained employment with Cardlink and he asked for advice as to whether this was in conflict with Mr Squires' contractual obligations. Mr Baker's evidence was that he did not immediately state that Mr Squires' employment with Cardlink was a breach of contract but he sought advice on the matter and the advice was to that effect. In Mr Baker's view, there was a serious conflict as Powerlan was trying to renegotiate a continuing contract for Mr Squires with Cardlink: when it was drawn to his attention that such a view formed in September 2002 was inconsistent with the respondent's letter of 2 August 2002 making Mr Squires redundant because Cardlink had determined to fill the position permanently rather than on contract, Mr Baker referred to the fact that he regarded Mr Squires as working out his notice and was still employed by the respondents, yet now was working for Cardlink and could not be available to assist the respondents. In addition Mr Baker initially stated that he was unaware that Mr Ravi had told Mr Squires that he could take up employment with Cardlink under arrangements proposed in the draft deed of July 2002. When shown the terms of the emails that led to this draft deed being proposed to Mr Squires, Mr Baker accepted that he was part of the discussion with Mr Ravi that included the possibility of Mr Squires working for Cardlink or any other client of Powerlan, but he did not recall these emails and, in particular, did not recall them when, acting on advice, he made the determination for the respondents to terminate the services of Mr Squires effective from 13 September 2002 for alleged misconduct. 28 The letter of termination of employment was dated 18 September 2002 and was written on "Powerlan" letterhead and signed by Ms Deborah Leon as human resources manager. This letterhead was identical to the letterhead used in August 2002 to make Mr Squires redundant and carried at the bottom of the page a reference to Powerlan Ltd and its contact details. 29 The letter of termination of employment referred to discussions held on 16 September 2002 and two allegations of misconduct, namely: (a) Mr Squires' alleged breach of duty to act faithfully and honestly whilst an employee of Powerlan Ltd by performing work for a former client of Powerlan without Powerlan's consent; and (b) Mr Squires' breach of the restraint obligations as set out in clause 12.2 of his employment agreement dated 25 February 2000. 30 The letter continued that Mr Squires' response to these serious allegations was that he did not consider himself to be an employee of Powerlan and was therefore free to work for its client even though his letter of redundancy dated 2 August 2002 and subsequent emails between himself and Powerlan, clearly indicated that he had agreed to work out his three months' notice period. The letter recorded the finding that his explanations were not acceptable and that Powerlan had no alternative but to terminate his employment without notice in accordance with the provisions of clause 9.1(a) and (b) of the employment agreement. He was informed that he would be paid his contractual entitlements up until Friday 13 September 2002. He was reminded of the confidentiality clause in his employment agreement, its continuing operation and that Powerlan reserved its right under the employment agreement to take whatever proceedings were appropriate against him to ensure that he continued to comply with the provisions of the employment agreement. Ultimately, no such steps were taken by the Powerlan interests to enforce either the confidentiality or restraint provisions of the employment agreement. 31 Early in the proceedings, counsel for the respondents made it clear that they would not persist in the allegation that, by taking employment with Cardlink Mr Squires was in breach of the restraint obligations appearing in clause 12.2 of the employment agreement. The respondents took the position that Mr Squires' employment with Cardlink was a breach of his duty to act faithfully and honestly while an employee of Powerlan. It was asserted by the respondents that Mr Squires was not only under a duty to perform work for the Powerlan interests but that he had breached that duty and had chosen not to obey a reasonable direction of his employer, Powerlan. It was also put that, because of Mr Squires' continued employment by Powerlan the respondents treated the fact of his engagement with Cardlink as a breach of contract leading to the contract being terminated on 18 September 2002 (but apparently with operation from 16 September 2002). DELIBERATION 32 There was no issue between the parties that the applicant had been made redundant on 2 August 2002 and that the employment contract was silent in relation to the manner with which redundancy would be dealt. The applicant ultimately received one month's pay as notice. 33 Mr Squires' case is that he should be given credit for his service with Centrelink and Phase Shift which would give him a total of 5.5 years' service at the time of his termination by reason of redundancy. His employment with the first respondent began on 25 February 2000 and concluded on 2 August 2002. The respondents argue that the employment agreement and the business purchase agreement did not contemplate credit being given by the first respondent for service rendered to the Centrelink businesses prior to February 2000. Clearly, the business agreement required Mr Squires and Mr Phillips to pay out entitlements that had accrued to the existing staff, including themselves, but there is some ambiguity, at the very least, introduced by the business agreement referring to Mr Squires as being a transferring employee together with Mr Phillips, and making provision for the other employees of the Centrelink businesses to be employed as transferring employees on benefits no less valuable than they received with Centrelink: such a benefit might be the ability to continue to accrue benefits such as long service leave. The applicant's case goes a step further and relies upon the provisions of Ch 2, Pt 8 of the Industrial Relations Act 1996 and the operation of s 102 to ensure continuity of service for the purposes of calculating long service leave entitlements when transferring to a new business. Although not stated in as many words, the applicant's case appears to be that, when s 102 operates to treat Mr Squires as a transferring employee with continuity of service when he commenced with the first respondent, then there is no reason, for the purposes of calculating notice and severance pay, that the same approach should not be taken. In terms, the respondents' written submissions did not deal with this issue. 34 The applicant then submits that the requirement to pay out accrued benefits on the sale of the Centrelink businesses has no relevance to the claims for notice, severance pay and long service leave. At the time of the sale of the Centrelink businesses there was no redundancy and no long service leave liability requiring a payout to Mr Squires. On the sale of the business, Mr Squires and Mr Phillips continued their Centrelink businesses almost as an autonomous entity within the first respondent. The continuity of participation in the Centrelink businesses, when taken up by the first respondent, was emphasised in the business agreement and the requirement that Mr Squires and Mr Phillips remain in employment with the first respondent for a period of three years from 25 February 2000. This was a requirement imposed by the first respondent and ultimately agreed to by Mr Squires. It was submitted on behalf of the applicant that, having been pressed to undertake to give three years' employment to ensure continuity within the business, Mr Squares was entitled to feel secure in that employment for at least that period of time notwithstanding that there was a general provision allowing termination of the contract by the first respondent on three months' notice. On one approach, the applicant had lost 7 months' secure employment when he was made redundant in August 2002 and, it was submitted, that was a factor to be considered in assessing an appropriate period of notice. 35 It is worth stating at this point that the respondents but faintly addressed this aspect of the applicant's claim for redundancy pay but directed their emphasis and attention to disqualifying factors that would result in no finding of unfairness being available and no further payments being required to be made to the applicant. 36 Those matters will be addressed in due course but it is appropriate to commence with a consideration of the fairness of the contract in not providing redundancy pay. Having regard to the position held by the applicant in the Centrelink business, the transfer of his employment to the Powerlan business, the requirement for him to remain in employment with Powerlan for three years, the near autonomous operation of the Centrelink business within the Powerlan group by Mr Squires and Mr Phillips, the status of the position held by Mr Squires at termination and the payment arrangements (being substantially by share allotment) which tied the value of the sale of the business to the continued profitability and share market price of the respondents and the continued input of Mr Squires to achieve profitable results, and Mr Squires' age and the fact that there was still seven months of the three year period to run when he was terminated, I consider that the claim for six months' notice on being made redundant is not unreasonable. Such a period is in reality, a fairly modest claim which is justified by consideration of concepts of fairness and reasonableness and by reference to the expectations of the ordinary person: the contract was unfair in its terms by not providing six months' notice in circumstances of redundancy. This is an entirely orthodox approach supported in numerous cases decided under this provision, but see, for example, the Full Bench judgment in Gala v State Bank of NSW Ltd(No 2) (1998) 84 IR 216. 37 The next matter to be considered is the applicant's submission that, in the calculation of entitlements arising from his redundancy, credit should be given for the period of employment with the Centrelink businesses. The respondents point to the terms of the business purchase agreement that required the accumulated entitlements of employees of Centrelink to be paid out before being transferred to the first respondent. The applicant points out that there was certainly no redundancy due nor was there any long service leave due to him at that point and that is all that was addressed by the business agreement. There seems to be some support for that approach in the schedule to the business purchase agreement that noted only annual leave and superannuation in amounts calculated as being the entitlements of the Centrelink employees including the applicant. What is clear is that the business sale agreement contemplated the transfer of the applicant's employment to the first respondent and bound him to give three years' service to the first respondent as an employee to operate the business he had formerly owned with Mr Phillips. Although the picture is a little confusing, the business purchase agreement certainly made no clear provision for prior service not to be credited to transferring employees: on the other hand, there is no provision, in terms, giving credit for prior service. Ultimately, I think the key to this issue is the fact that the business purchase agreement clearly contemplated the transfer of employees to the first respondent and only the payout of accumulated and then due amounts for redundancy and long service leave by Centrelink and Mr Squires. At this point, there was no redundancy payable, nor was there long service leave payable. In those circumstances, I think it is appropriate that, in calculating what is fair in the arrangements for providing payments on redundancy, prior service should be credited to the applicant. Some support for this approach appears from the terms of clause 6.4 of the business purchase agreement. That clause indemnified the seller (Centrelink) against all liabilities in respect of employee entitlements of transferring employees falling due after the effective date or otherwise referrable to any period or event occurring after completion. In relation to Mr Squires, the was no liability for Centrelink to pay long service leave or redundancy - those liabilities only arose after the transfer of employment to the first respondent. These were liabilities falling due after the effective date and related to an event occurring after completion, namely the redundancy of Mr Squires. In this way it might be said that clause 6.4 operated on the basis (or was open to operate on the basis) of giving transferred employees credit for service with Centrelink but only in relation to liabilities that crystallised after the date of completion. It should be stated that even if this approach is not an accurate description of the operation of clause 6.4, fairness requires that the contract be varied to recognise prior service for the purposes of calculating long service leave and redundancy, given the factors previously referred to and in particular the transferred nature of the employment. 38 The major disqualifying issue argued by the respondents was the fact that, while working out his leave, Mr Squires took up employment with a client of the respondents without their consent thus repudiating the contract and making himself unavailable for work for the respondents, thereby breaching the contract. This approach requires a consideration of the contract of employment with the first respondent and the proper construction of the letter of 2 August 2002 whereby the applicant was made redundant. Firstly, there was nothing in the contract of employment with the first respondent that required the applicant to work solely and exclusively for the first respondent, nor did it require him to obtain the first respondent's consent before taking up some other, unrelated, employment. The contract of employment required the applicant to devote "substantially" the whole of his time and attention during the ordinary hours in the discharge of his duties. There was clearly room for him to undertake other tasks so long as he was "substantially" so employed. At the time of his redundancy, and for a considerable time before that, the first respondent, and probably the second respondent so far as it is relevant, had no work within their businesses for the applicant according to his statement of duties and the only work available was performing unrelated tasks for Cardlink. It was this very fact that caused the respondents to terminate the applicant for redundancy. 39 The next point is that the letter of redundancy dated 2 August 2002 spoke in terms of the applicant being paid three months' salary "in lieu of notice". What follow thereafter is, however, somewhat ambiguous. The second respondent purported to pay out the three months' salary in lieu of notice on a monthly basis rather than in a lump sum and then to pay outstanding leave at the end of the three month period. While this suggests that the applicant might be working out the notice, the letter then went on to say that the second respondent would prefer the applicant to work the notice period, however, due to the impending sale of the business infrastructure division, he was not to come in to the office but to be available on the telephone should he be required to perform any tasks. The structure of this sentence is also ambiguous, but seems to operate from the premise that the second respondent had a preference for the applicant to work out his period of notice but, because the division was to be sold, he was not to come to the office but might be called on the telephone to perform unspecified tasks in relation to a division that was in fact sold five days later. At best, this seems to be a short term requirement or it might simply be the second respondent attempting to space the period over which the payments had to be made and holding the applicant to perform incidental tasks in the unlikely event that they occurred but, nevertheless, giving him three months' salary "in lieu of notice". The finality of the arrangement appears to be concluded by the second respondent's offer to provide the applicant with a certificate of service or an employment separation certificate, documents that were not to be provided at the end of three months but, it appears, immediately if they were desired by the applicant. 40 Bearing in mind that the respondents' business was suffering a downturn as, indeed, was the entire IT industry, and that Mr Squires had no work within the respondents' business since April 2001, and that Mr Phillips was similarly unable to be employed, it does not appear that the respondents had work for Mr Squires to perform within the statement of duties that was part of his employment contract. Although this letter of redundancy is not without its difficulties, the preferable construction ultimately is that Mr Squires was being given salary in lieu of notice because of the sale of the division and was not to attend the office. There was in fact no work for him to perform. That construction is consistent with the July discussions with Mr Ravi - that he could leave on a month's salary in lieu of notice and be paid other emoluments. That arrangement was also consistent with the fact that the respondents had no work for him to perform in terms of his obligations specified in the contract of employment. 41 Even if the letter of 2 August 2002 could be construed as giving actual notice, the respondents are incorrect in submitting that Mr Squires, by taking up employment with Cardlink, repudiated his contract of employment with the respondents and was in breach of his contract of employment by refusing to accept a lawful and reasonable direction, apparently a direction to remain available to perform work. There is nothing in the evidence that suggests that Mr Squires' engagement from 5 August 2002 was such that he was incapable of responding to any incidental request by telephone that the respondents might make in the three months after 2 August 2002. If this submission is dealt with on the basis that Mr Squires had, in fact, been given three months' actual notice rather than payment in lieu (a proposition I have doubted), nevertheless, there is no evidence that he was required to perform any work and that he refused to do so and, further, that such a refusal was as a direct result of his obligations as an employee of Cardlink. The evidence showed that the only time that he was requested to come to the office of the respondents, in mid-September, he was able to do so and was able to participate in the meeting concerning his alleged misconduct and repudiation of his contract of employment. That piece of evidence suggested that, whatever his obligations with Cardlink, he was able to make time to attend to other matters such as any discussion that the respondents might wish to have with him. Further, the respondents are wrong in submitting that Mr Squires actually refused any duty: indeed, there is no evidence that any duty was required of him. There was no evidence called by the respondents that, in the three months after 2 August 2002, there were particular tasks for him to perform that he was unable to perform because of the repudiation of his contract and his contractual obligations to Cardlink. There was no cross-examination of Mr Squires identifying specific tasks within his duties that were required to be performed by the respondents but were refused to be performed by the applicant. Indeed, the Business Infrastructure division was being sold and Mr Squires was not "part of the deal" contemplated by the respondents. 42 As with so many aspects of the relationship between the applicant and the respondents, the termination of his contract of employment for misconduct or by repudiation is, itself, clouded in ambiguity and uncertainty. The rather ham-fisted dismissal of Mr Squires by letter of 18 September for alleged misconduct and repudiation of the contract is hardly a document of substance. It is to be remembered that the person who made this decision, Mr Baker, had participated in discussions during July with Mr Ravi whereby Mr Squires could resign and work for Cardlink or any other client of the respondents, but acting on legal advice when he came to decide to terminate Mr Squires' employment for misconduct and repudiation of the contract, it was not in his mind and he did not remember his earlier discussions with Mr Ravi about the possibility of Mr Squires working for Cardlink or any other client of the respondents. Bearing in mind that earlier conversation, how could it be, just a few weeks later, that Mr Squires had misconducted himself by taking that very course? He had been told by Mr Ravi that it was a course open to him and that work with those clients did not pose any conflict with the interests of the respondents: yet that was the very reason, according to Mr Baker's oral evidence, that he was dismissed for misconduct. 43 In the circumstances outlined above, no matter which approach is taken, I am unable to conclude that Mr Squires acted in any way that disqualified him from being paid a proper sum for being made redundant by the respondents. My primary view is that, by the letter of 2 August 2002, he was in fact terminated on that day with salary in lieu of notice and with no or little further work to perform. Even if the respondents' argument is correct, given the admitted ambiguity of the letter of 2 August 2002, there is nothing about the circumstances of Mr Squires' employment by Cardlink that amounted to misconduct or a repudiation of his contract enabling the respondents to terminate his contract of employment. It is also to be remembered that the legal advice upon which Mr Baker acted was that by this employment Mr Squires was also in breach of the restraint clause in his contract of employment. Sensibly, that ground was not pursued at the hearing. 44 In the context of dealing with these issues, it should be stated that the actions of the first respondent in purporting to transfer the employment of Mr Squires to the second respondent, thereby creating a new contract of employment upon the same terms as the existing contract of employment, has created difficulties in my mind, difficulties that the parties appeared content to largely ignore. It was accepted by the parties that Mr Squires' employment could not be unilaterally transferred to the second respondent. The acceptance of that proposition left Mr Squires employed by the first respondent but it does not appear to be the first respondent that imposed the so-called conditions in the redundancy letter of 2 August 2002 for which the respondents argue since that letter is clearly a letter signed by Mr Ravi in his position with the second respondent. The letter of termination of employment for repudiation of the contract is also a problem, being signed by the Human Resources Manager, an employee of the second respondent. Indeed, Mr Squires attended the meeting in September 2002 at the direction of the second respondent. It is not disputed that the applicant was paid by the second respondent since the beginning of 2002. The two critical decisions made concerning the applicant therefore appear to be made by an entity that was not his employer. It might be said that the applicant's employment with the first respondent may have been the subject of direction by the second respondent by an arrangement between those respondents, but there was no evidence as to the internal workings of the respondents. The unsatisfactory state of the evidence simply adds to the cloud of uncertainty and ambiguity surrounding the relationship with the applicant and, in particular, the ambiguity evident in the letter of 2 August 2002, as earlier referred to. Ultimately, I do not find it necessary to resolve these issues but they form part of the unsatisfactory background to the dealings between the applicant and the respondents. 45 A further issue raised by the respondents was that Mr Squires had apparently engineered the termination of his temporary employment with Cardlink in order for him to obtain the position on a permanent basis as an employee. The evidence in support of this proposition was given by Mr Squires' colleague Mr Phillips, who had originally filed an affidavit in the applicant's case. They had since fallen out over the issue of having to account for leave paid out to Mr Phillips by the respondents in relation to a period when, under the business purchase agreement, that liability lay with the Centrelink businesses then in their ownership. Mr Phillips' evidence was that he had a telephone conversation with Mr Squires and, as I heard the evidence, while he was unable to give a precise account of what was said, it was his distinct impression that Mr Squires had told him that he had brought about the termination of his temporary employment with Cardlink to suit his own ends. This inexact recollection of Mr Phillips is not sufficient to persuade me to make a finding adverse to Mr Squires and, in particular, to make a finding that he did organise the loss of the work to the respondents in order to obtain permanent employment with Cardlink. Even if Mr Squires said words to that effect to Mr Phillips, it did not necessarily mean that he had taken that action: Mr Squires had no recollection of a conversation in those terms, and denied the proposition. Further, if this was an issue to be seriously pressed by the respondents, then it was open to them to call evidence from the two identified managers in Cardlink who could have given a firsthand version of what was said to them - if anything - by Mr Squires in relation to this issue. The respondents did not call that evidence but chose to rely on the less satisfactory impressions and imprecise evidence of Mr Phillips. In those circumstances, I am unable to accept their submission. 46 In relation to the applicant's claim for long service leave, I have already held that it was fair in the circumstances of this contract that credit should be given for past service when Mr Squires was transferred to the employ of the first respondent. I accept the thrust of the applicant's submission in relation to the operation of s 102 of the Industrial Relations Act but in the absence of full debate, a finding on this basis is unnecessary: in any event, on the application of principles of fairness, it seems to me that it would be appropriate that Mr Squires be paid pro rata long service leave having been terminated for reasons of redundancy. An order should therefore be made in favour of the applicant in recognition of 5.5 years of service paid out as long service leave on the applicant's accepted package of $158,000. 47 The last matters are claims for annual leave, and the reimbursement of telephone costs in the sum of $334. In each case, the applicant seems to have been put to proof of his claim but there is nothing in the written submissions for the respondents contesting either claim. The amount of annual leave should give full credit for the payments made in this regard to Mr Squires on 13 August 2002 and 18 September 2002 and may resolve this issue. In those circumstances, I accept the evidence of the applicant in relation both to annual leave and the reimbursement of telephone accounts. 48 The last issue to be dealt with concerns the application of the principle of mitigation. Mr Squires, with his colleague Mr Phillips, had been the principals in their own business prior to its sale to the first respondent. They were both given continuing positions of seniority within that business, although inside the overall business of the first respondent in February 2000. Their roles were considered so critical to the future viability of the business that they were bound to continue in this new employment for a period of three years and, on the evidence, they appeared to act almost autonomously within the overall structure of the first respondent. When Mr Squires was made redundant, he took up employment with Cardlink but in a position that was approximately $30,000 per annum lower in salary and, on the evidence, in a different position and one not like the position he held with the Centrelink businesses. This new employment did last for a considerable period and is the only post-termination employment that has to be considered when dealing with the principle of mitigation. 49 As pointed out by the Full Bench in English v Aradlay Insurance Brokers Pty Ltd [2005] NSWIR Comm 253, the assessment of appropriate compensation under s 106(5) and also under s 106(6) involves an act of judgment where the general law principles as to mitigation of damages are relevant but not decisive as to what order is to be made. Further, the authorities as to mitigation of damages make clear that, while the duty to act reasonably to mitigate damages does not generally require an employee to take employment of a different or inferior kind, that part of the rules of mitigation known as the rule as to avoided loss, or mitigation in fact, means that, where an applicant actually avoids loss by obtaining other employment (or earnings), the earnings will reduce the damages or compensation even though the non-acceptance of the other employment would not have constituted a failure to mitigate (see par [35]). Another Full Bench in Westfield Holdings v Adams [2001] 114 IR 241 noted that the court, in determining what is just in the circumstances of the case, should give consideration as to whether and to what extent any money amount in respect of notice of termination that is contemplated to be the subject of an order under s 106(5) should be reduced by monies earned or imputedly earned in the relevant post-termination period: it would not ordinarily be appropriate to reduce redundancy or severance pay when making orders under s 106 because of the efforts or success of the employee in obtaining alternative employment. It might be added, in this context, that there does not seem to have been any real discussion in this jurisdiction of the appropriateness of reducing the amount of notice in a case of redundancy where, in fairness, notice and severance pay should have been given. It seems somewhat incongruous that an employer who properly and promptly makes a payment of notice and severance pay at the time of redundancy (rather than as a result of litigation) in circumstances where the employee, either fortuitously or otherwise, soon after obtains work at a comparable rate of pay, does so where there is no reduction in the period of notice paid out: whereas, after litigation, for example under s 106, a person in an identical position may have their period of notice reduced where subsequent employment has been obtained during the relevant period. As noted in Aradlay, the duty to act reasonably to mitigate damage does not generally require the employee to take employment of a different or inferior kind (Truth and Sportsman Ltd v Molesworth [1956] AR NSW 924; Bostik (Aust) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20), although it is said that, in some circumstances, it may be unreasonable not to accept employment at a lower status and salary level (Yetton v Eastwoods Troy Ltd [1967] 1WLR 104). A number of these cases, of course, have to be considered in the context of a claim for damages whereas s 106 operates on a much broader and different basis. 50 In relation to the amount of severance pay, the applicant suggested, amongst other approaches, the application of the standard to be found in Sch 1 of the Employment Protection Regulation 2001: having regard to his age and years of service, this would result in a payment of 17.5 weeks to Mr Squires. In my view, that is an appropriate approach and one that would make a fair provision for severance pay in the contract of employment with the respondents. In relation to the period of notice, I have already held that the contract of employment should be varied to specify a period of 6 months' notice in the case the applicant being made redundant. Having regard to the principles of mitigation, I believe that this is a case where, notwithstanding the difference in employment, the different status of the employment and the lower rate of pay, there should be some reduction in this period of notice to take account of the amounts earned by Mr Squires in his new employment with Cardlink. In my view, the justice of this case would be met by a period of four months' notice for which credit would need to be given for the one month already paid by the respondents. 51 It is clear from the foregoing reasons that I consider that the contract was unfair and should be varied to provide for adequate notice and severance pay on redundancy. As a consequence of the redundancy, the applicant is entitled to pro rata long service leave, annual leave and reimbursements of telephone expenses. The solicitors for the applicant are directed to file and serve Short Minutes of Order within 14 days that reflect the decision made on these issues that will result in money orders being made in favour of Mr Squires. Unless the parties wish to be heard further on the issues, there should also be an order for interest and an order for costs in the usual form. 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