Circular No 2004/6: Amounts to be included in payment in lieu of Notice of termination of employment

globe Useful references

Note: This document has not been updated to reflect changes that may flow from the WorkChoices legislation enacted on 27 March 2006

The purpose of this circular is to confirm previous advice given to agencies in APS Commission circulars 1998/1 and 2000/1 on the amounts that should be included when calculating payment in lieu of notice on termination of employment. This circular also includes advice on:

the effect of pay increases that take effect after a person actually ceases employment but during their 'notional' notice period;
the effect of relevant sections of the Long Service Leave (Commonwealth Employees) Act 1976 (LSL Act) on the amounts to be included in payment in lieu of notice; and
the amounts that should be included when calculating payment in lieu of other periods of service, such as where an excess employee accepts an accelerated separation option, or where their retention period is terminated early.

2. This advice has been issued as a result of a recent decision by NSW Chief Industrial Magistrate Miller in Dempster v the Commonwealth [2004] 76346/03 which has received some publicity.

3. Mr Dempster, a former Members of Parliament (Staff) Act 1984 employee whose employment was terminated in August 2003, lodged a claim of unfair dismissal and the case deals with such matters as eligibility for notice of termination under the relevant provisions of the Workplace Relations Act 1996 (WR Act) and payment of accrued entitlements.

4. This circular has been prepared in consultation with the Department of Employment and Workplace Relations (DEWR).

Termination and payment in lieu of notice

5. The employment of persons in the Australian Public Service (APS) is subject to the requirements of Part VIA of the Workplace Relations Act 1996 (WR Act):

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

Earlier advice to agencies

6. The earlier APS Commission advice to agencies, as set out in circulars 1998/1 and 2000/1, on the amounts that should be included in payment in lieu of notice on termination of employment remains current. In summary, this advice is that:

Payments instead of notice should only include payments that are typically included in an employee's weekly, fortnightly or monthly pay packet, although where a particular entitlement is paid on a longer term basis (e.g. quarterly or annually), a proportionate amount should also be included in the payment in lieu of notice even if payment of that amount would not have fallen due during the notice period.
Essentially, this means wages or salary, anticipated overtime and/or shift allowances, and other allowances such as 'higher duties allowance' (where an employee is temporarily assigned duties at a higher classification level and this assignment would have continued), clothing and site allowances as well as amounts that are normally paid directly to third parties on behalf of the employee.
This would include the employee's superannuation contributions that are usually paid to a superannuation fund on behalf of the employee (which form part of the employee's salary), plus any other sums that are included in the employee's remuneration that are paid to third parties (for example under salary sacrifice arrangements).
It does not, however, include employer superannuation contributions payable by agencies or entitlements (such as annual leave or long service leave) that would have accrued between the time the person actually ceased employment (as specified in the notice of termination) and the end of the relevant notice period. Leave does not accrue after the person ceases employment.
It also includes any sums relating to unused annual leave and (where eligible) long service leave credits, calculated in accordance with the relevant legislation/industrial instrument, up until the date of effect of termination of the employee's employment (i.e. the date specified in the notice in writing of termination of employment under s.29 of the Public Service Act 1999).

Effect of a pay rise that takes effect after an employee's employment has been terminated

7. In circumstances where an employee is terminated and receives payment in lieu of notice termination, and a relevant industrial instrument that applied to the employee before their termination provides for an increase in salary in the period between the actual date the employee's employment is terminated and the end of the required period of notice, then, unless the relevant industrial instrument provides otherwise:

the salary increase is only relevant in calculating the person's salary for the balance of the notice period (i.e. the period between the date of effect of the salary increase and the end of the notice period)—the same principle applies to any other increases (such as to allowances or loadings) that would have become payable had the employee continued to work until the end of the notice period; but
the pay rise is not relevant in terms of calculating the person's entitlements to pay in lieu of unused leave credits—entitlements should be calculated using the salary rate that applies at the actual date that the termination of employment takes effect.

8. For example, if an employee who has an entitlement to 4 weeks notice agrees to be paid in lieu of notice and has their employment terminated on 15 June, and a pay rise comes into effect on 1 July, then the person would be entitled to have their notice paid at the higher rate from 1 July until the notice period would have expired, on say 12 July. However, this pay rise would have no effect on the employee's other entitlements as calculated at the actual date of termination (15 June).

If, however, the employee chose to work through the notice period (or part thereof) and remained in employment on 1 July, then he/she would be eligible to have all their accrued entitlements calculated on the basis of the higher rate of pay and would continue to accrue entitlements until their employment was actually terminated.

Payment in respect of unused long service leave credits

9. The amount payable in respect of long service leave on termination of employment is governed by sections 16, 17 and 21 of the LSL Act.

10. The LSL Act provides that the amount payable upon the termination of an eligible employee must be calculated by reference to the salary that applied to the person on the day immediately before the person ceased to be an employee. No provision is made in the LSL Act for taking into account an increase in salary that occurs after the actual date of termination but before the end of the required period of notice.

Other payments in lieu – excess employees

11. Consistent with the above approach, where an excess employee either:

accepts an accelerated separation option whereby the employee receives payment in lieu of the balance of the consultation, consideration and notice periods (however described) if they agree to be retrenched and are terminated by a specified date; or
elects retention in employment (as opposed to a voluntary retrenchment benefit) and is then terminated prior to the expiry of the retention period, and receives a lump sum payment in lieu for the balance of the retention period, including the notice period;

the APS Commission's view is that payment in lieu of these periods should be calculated in the same way as payment in lieu of notice as set out above, unless some other provision of an industrial instrument that applies to the employee provides otherwise.

Further advice

12. For further information on the matters raised in this circular, you may contact the APS Commission's Employment Policy Adviceline—by phone on (02) 6202 3859, or e-mail employmentadvice@apsc.gov.au. It may be appropriate for more complex or sensitive queries to be dealt with in writing. Agencies seeking advice on the application of specific provisions of the WR Act or the LSL Act should direct their enquiries to their DEWR client contact team.

David Bohn
Group Manager
Policy and Employment Group
November 2004