Chippington v Sterling Software

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES IN COURT SESSION

Matter No. IRC2300 of 2000 RAYMOND JOHN CHIPPINGTON v STERLING SOFTWARE (PACIFIC) PTY LTD Application unders.106 of the Industrial Relations Act 1996

1 Raymond John Chippington commenced employment with Sterling Software (Pacific) Pty Ltd ("Sterling Software") as Senior Account Manager on 9 March 1992. In February 2000 Computer Associates Pty Ltd ("Computer Associates") acquired Sterling Software. On 26 April 2000 Mr Chippington was advised that he was redundant. He brings a claim under s.106 of the Industrial Relations Act 1996 on the basis that the payment he was offered upon termination was insufficient. Both Sterling Software and Computer Associates are respondents. Mr Chippington is 51 years of age.

2 Mr Chippington claims that his contract of employment should have provided him with a combined payment in lieu of notice of termination and in respect of redundancy pay of nine months calculated on his employment package thus giving the sum of $203,608.

3 For the purpose of calculating the claim his annual employment package is said to be comprised as follows:

Salary $87,000 Bonus $50,835 Commission $133,736 Superannuation $19,010 (estimated) Car subsidy $2,400

4 Ms Lowson of counsel represented Mr Chippington, Mr Hodgkinson of counsel the respondents.

5 The applicant gave evidence and, in the respondents' case, evidence was given by three employees of Computer Associates, Jeffrey John Hunt the General Manager of Finance, Gary Bruce Mitchell the General Manager of Strategic Accounts and Martin Clayton Computer Associates' Legal Counsel.

6 Generally the facts are not in dispute, however the content of some conversations is in issue. In considering the disputed evidence I take into account the fact that Mr Chippington was a difficult witness who was unresponsive, evasive and avoided directly answering questions. I considered the other witnesses to be men of credit.

7 Mr Chippington first learned of the acquisition on 15 February 2000 and, on 16 March, he met with Peter Murphy the NSW Sales Manager of Computer Associates to discuss his future. On 24 March Mr Chippington sought to again meet with Mr Murphy and a meeting was scheduled for 11 April. On 4 April he learned that Mr Murphy had been made redundant.

8 Meanwhile Mr Chippington had taken a hard copy from Computer Associates' web site of a document which specified a severance benefits policy. It contained the following provision: 6. Severance Pay In exchange for providing the Company with a fully executed Waiver and Release Agreement, each employee who is eligible for Severance Pay under the Plan is eligible to receive Severance Pay equal to the greater of the following: (i) two weeks of Severance Pay for each full year of service with the Company and a continuation of benefits in accordance with Section 7; or (ii) for employees outside of United States, the amount otherwise provided by applicable law

Severance Pay shall be calculated based upon the eligible employee's current Base Salary and Bonus. "Base Salary" means an employee's annual base salary rate excluding all commissions. loans, incentive payments, draws, gift related items, bonuses, incentive payments, company property, stock or options grants, car allowances, overtime, royalty payments, expense reimbursement or all other remuneration. "Bonus" means a pro rata portion based on the number of weeks the eligible employee receives Severance Pay in accordance with section (i) above of the total financial objective based or any discretionary bonus that the eligible employee has received in the 12 month period preceding March 1, 2000. Bonus, for the purposes of the Plan, excludes all commissions, loans, incentive payments, one-time special circumstances bonuses, recruiting bonuses, severance bonuses, signing bonuses, transition bonuses, employee referral bonuses, draws, gift-related items, company property, stock option grants, stock grants, 401K contributions, car allowances, expense reimbursements, royalty payments, or overtime.

9 Mr Chippington's evidence is that, as he understood the effect of cl.6(ii), he, as an employee outside the United States, was not entitled to the benefits provided by cl.6.

10 On 7 April Mr Chippington spoke with Gary Mitchell, General Manager of the Strategic Accounts Group of Computer Associates, to discuss his future, he was told that a role concerning the NRMA account was available, that he might be interested in it and that other positions were open. Severance benefits were discussed. Mr Chippington gave evidence that he queried whether or not commission would be included in redundancy calculations and that Mr Mitchell said "I don't see why not". Mr Mitchell's evidence, which I accept, is that he said that any redundancy payments would be in accordance with arrangements entered into between Computer Associates and Sterling Software.

11 Mr Chippington developed a mistrust of Computer Associates and decided that he did not wish to accept employment with them. By email of 13 April he informed Mr Mitchell that: After careful consideration and taking into account our discussion on the 6th and 7th April I have decided not to move across to Computer Associates. I thank you for your time in talking to me. I therefore elect to take a severance package which was also discussed in our conversations of 6th and 7th April 2000.

12 At a meeting with Mr Mitchell on 26 April Mr Chippington was given a redundancy letter which terminated his employment forthwith and offered him redundancy pay on the condition that he sign and return the letter which contained release provisions in favour of Computer Associates.

13 Meanwhile Computer Associates had amended cl.6 of its redundancy policy by inserting, in lieu of sub clause (i) thereof the following: (i) two months of Severance Pay, two weeks of Severance Pay for each full year of service with Company and a continuation of benefits, as applicable under local laws, in accordance with Section 7: or

14 The redundancy pay proposed for Mr Chippington was calculated in accordance with the amended policy upon his base rate plus bonus but not on commission. The calculation afforded him two months "severance pay" plus two weeks "severance pay" for each year of service, a total of 24.67 weeks.

15 Mr Chippington expressed his disappointment, left the meeting and refused to sign the letter. He has not received any severance pay.

16 Mr Chippington commenced subsequent employment on 24 July 2000.

17 Ms Lowson contended that the contract and arrangements were unfair for a variety of reasons including the shortness of the period used for the purpose of calculating Mr Chippington's combined notice and redundancy payment. The failure to include each component of his salary package, including commission, in the calculation is also criticised as being unfair.

18 On the other hand Mr Hodgkinson argued that no unfairness had been demonstrated. He relied upon the facts that Mr Chippington had been offered but rejected alternative employment with Computer Associates and that other employees of Sterling Software had received the same redundancy formula as was offered to Mr Chippington who had been aware that the formula did not take commission into account. He submitted that there is no unfairness in not including a commission component in the formula.

19 The retrenchment of Mr Murphy in April 2000 left Mr Chippington in the difficult position of being apprehensive as to his future prospects. His transactions with Mr Mitchell, which resulted in a position concerning the NRMA being suggested as a possibility, fell far short of any active attempt by Computer Associates to assist in finding an appropriate position for him within its structure. To the extent that there is criticism of Mr Chippington's decision to opt for redundancy rather than accept employment with Computer Associates it is misplaced.

20 The critical issue, as I see it, is whether or not the level of severance/redundancy payment was unfair in the circumstances of this case.

21 In the 12 months prior to his termination the remuneration of Mr Chippington had included his salary of $87K, bonus of $50,835 and commission of $133,737. The severance payment proffered by Computer Associates was the equivalent of 24.67 weeks at the sum of the above salary and bonus amounts but not including the commission component of his remuneration.

22 It is seen that a significant proportion of the remuneration provided to Mr Chippington, who had been a faithful employee of Sterling Software for almost eight years, had been by way of commission. The opportunity to earn future commission was taken from him as a consequence of the decision by Computer Associates to acquire Sterling Software and integrate the operations of the two companies with resultant redundancies.

23 My consideration of the evidence leads me to the view that Mr Chippington had no reasonable ground for thinking that commission would be included as a component of his redundancy pay. In this regard I certainly do not accept his evidence that Mr Mitchell had suggested that commission would be so included.

24 The fact that Computer Associates unilaterally imposed its redundancy formula upon Mr Chippington who had no opportunity to affect its content does not of necessity render the formula unfair, for example the fact that a manifestly excessive pay out which was unilaterally determined by an employer could hardly be, on that account, unfair.

25 That Mr Chippington accepted redundancy knowing that the formula did not include a commission component does not preclude him from complaining that the formula was, on that account, unfair.

26 In my view the failure of the formula to encompass commission payments is unfair in circumstances in which a significant proportion of Mr Chippington's remuneration was by way of commission, the period upon which the payment was calculated is modest and the retrenchment resulted from company acquisition.

27 I am similarly persuaded that the failure to include components referrable to superannuation and motor vehicle subsidy represented unfairness. As I understand the evidence those components comprised part of his ordinary remuneration which was proffered to him by way of a package

28 Ms Lowson argues that the period of calculation is modest to the point of unfairness and relies upon a number of authorities going to appropriate periods for payment in lieu of notice and for the purpose of the calculation of retrenchment pay. Each case, of course, turns on its own facts and it is thus difficult to obtain anything other than general guidance in considering such authorities.

29 Whilst I consider that the period of calculation is modest I nonetheless consider it to be within the appropriate range bearing in mind the level, nature and duration of Mr Chippington's employment. In this regard I note that, having been made redundant on 26 April, he found alternative employment by 28 June albeit not commencing that employment until 24 July 2000. That alternative employment is reasonably comparable with that with Sterling Software. I might add that no explanation was given as to the delay in commencing his new employment.

30 The evidence of Mr Chippington as to the circumstances of the timing of his accepting this new employment was unsatisfactory and unconvincing, however, as those circumstances do not impact upon the issues as I perceive them I need not expand upon that matter.

31 As an alternative argument Ms Lowson relied upon the scale of payments contained in the regulations made pursuant to the Employment Protection Act 1982 which, she argued, should be added to the period of payment in lieu of notice relevantly provided for by s.170CM of the Workplace Relations Act 1996 (Cth) thus providing payment for the equivalent of 25 weeks remuneration.

32 Whilst not losing sight of those provisions in a background sense I do not accept that, assuming the provisions applied, it would be appropriate to add the sum relevantly prescribed under the State Act to that under the Federal prescription. I reject the argument.

33 In my view the contract of employment and collateral arrangements were unfair to the extent that they failed to include, for the purposes of the calculation of termination pay of 24.67 weeks, an amount reflective of the salary package and commission which Mr Chippington had received in his pre-retrenchment position. I would vary the terms of the contract of employment and collateral arrangements to the extent necessary to rectify that unfairness. I accept that the calculation should be based upon the weekly average of the remuneration he had earned during the 12 months prior to his termination.

34 I would make a monetary order in the amount of the resultant outstanding sum and award interest upon that sum at the Supreme Court scale from time to time applicable from the date of his termination.

35 In the absence of agreement the parties should be heard as to costs and/or as to time for payment of the outstanding sums.

36 I direct the applicant to file and serve draft orders to give effect to this judgment.

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