Moray Vincent v Merrill Lynch Australia Pty Ltd

Mr R Reitano of Counsel SOLICITORS Sydney Cove Law Group

RESPONDENT Mr H J Dixon of Counsel SOLICITORS Allen Allen & Hemsley

INDUSTRIAL RELATIONS OF NEW SOUTH WALES IN COURT SESSION

Matter No IRC 648 of 1999 MORAY VINCENT v MERRILL LYNCH (AUSTRALIA) PTY LTD Application under s106 of the Industrial Relations Act 1996

1 These proceedings are brought under s 106 of the Industrial Relations Act 1996 ("the Act") by the applicant Moray Vincent against the respondent Merrill Lynch (Australia) Pty Ltd. The basis of the claim is set out in an amended summons for relief. Sections 105 and 106 of the Act are as follows: 105 Definitions In this Part: contract means any contract or arrangement, or any related condition or collateral arrangement, but does not include an industrial instrument. unfair contract means a contract: (a) that is unfair, harsh or unconscionable, or (b) that is against the public interest, or (c) that provides a total remuneration that is less than a person performing the work would receive as an employee performing the work, or (d) that is designed to, or does, avoid the provisions of an industrial instrument. Note. The jurisdiction of the Commission under this Part is exercisable only by the Commission in Court Session.

106 Power of the Commission to declare contracts void or varied (1) The Commission may make an order declaring wholly or partly void, or varying, any contract whereby a person performs work in any industry if the Commission finds that the contract is an unfair contract. (2) The Commission may find that it was an unfair contract at the time it was entered into or that it subsequently became an unfair contract because of any conduct of the parties, any variation of the contract or any other reason. (3) A contract may be declared wholly or partly void, or varied, either from the commencement of the contract or from some other time. (4) In considering whether a contract is unfair because it is against the public interest, the matters to which the Commission is to have regard must include the effect that the contract, or a series of such contracts, has had, or may have, on any system of apprenticeship and other methods of providing a sufficient and trained labour force. (5) In making an order under this section, the Commission may make such order as to the payment of money in connection with any contract declared wholly or partly void, or varied, as the Commission considers just in the circumstances of the case.

2 The applicant qualified as an engineer in the United Kingdom and worked for a short period utilising his engineering skills with a large chemical company. Subsequently he completed an MBA at a University in the United States. He joined the Merrill Lynch organisation in its New York office on 19 August 1994 as an Associate in its Global Debt Finance rotational training programme. The intention was that he would undertake assignments of three months each in different areas within the debt sales and trading functions in different Merrill Lynch offices around the world. He completed his initial training programme in New York, spent three months each in New York and London and six months in Sydney. At the end of the programme he transferred to the Sydney office and became employed by the respondent to these proceedings. This occurred in September 1995. 3 On 26 October 1995 the applicant signed a letter of appointment with the respondent as a junior trader. He came under the supervision of the head of the Credit Trading Desk Mr Seumas Dawes. 4 The letter of appointment provided for a remuneration package which was initially $83,000 a year. That package was to be "reviewed, but not necessarily increased, each year." He was also entitled to participate in the "Employee's Variable Incentive Compensation Plan" (VICP) which provided for the payment of a bonus which was said to be at the complete discretion of the employer. Bonus payments were to be made in February each year. 5 The letter of appointment provided for termination by either party by giving 30 days written notice or payment in lieu by the respondent. There was also provision for termination without notice on the usual grounds. 6 The applicant was paid a bonus in January 1996 of US$20,000. At the time that he was given his bonus cheque the applicant was told by the person who was then head of the respondent's debt markets division that "this may not be as good as you expected, but it's because that you did not achieve monetary budget. We're expecting much more of you next year." 7 In November 1996 the applicant was promoted from Associate to the next rung in the respondent's corporate ladder, Assistant Vice President. He was paid a bonus of US$120,000 in January 1997 with respect to his performance and contribution in the 1996 calendar year. 8 In February 1997 Mr Dawes resigned from the respondent and the applicant later became Head of the Credit Trading Bank. Throughout 1997 he hired two persons to work as junior traders to assist him. In July 1997 his salary was increased from $83,000 to $103,000. 9 In January 1998 the applicant received a bonus of US$120,000. A compensation summary issued by or on behalf of the respondent said with respect to that bonus: "Your 1997 incentive compensation reflects the performance of the Company as well as your group's performance and your individual contribution." 10 At about that time the applicant had a conversation with Mr Keith Bailey to whom he reported who told him that the bonus remained at the 1996 level because the Desk which the applicant operated had lost money. Most of those losses were said to be due to losses sustained on certain Korean debt which was attributable to losses incurred as a result of the actions of Mr Dawes. Mr Bailey said in part: "The committee that determines your bonus was divided on how to treat you, but decided after much deliberation to pay you the same as last year. The purpose of paying you the same bonus as last year is to give you the message that there are good and bad things about your performance. You were thrown in at the deep end when Seumas left and although things didn't work out, you have made a good fist of it." 11 The applicant said that he was promoted from Assistant Vice President to Vice President, the next step up the respondent's corporate ladder during the calendar year 1998. At this time his salary was increased to $115,000 per annum. Mr Bailey commented that the salary increase was part of a global initiative to line up salaries with titles across international regions and that the promotion to Vice President fulfilled a promise made to the applicant by his predecessor early in 1997. The applicant denied that any such promise had been made. 12 During the course of 1998 the applicant had a conversation with Mr Bailey in which was discussed a proposal that the applicant transfer to the Tokyo office of the Merrill Lynch organisation. The applicant resisted this because of the impact that it would have on his wife and young child. Mr Bailey said that it would be in the applicant's best interests if he transferred because one of the six senior managers who had been involved in the discussion of the applicant's bonus payable for the 1997 year, Mr Magowan who was, apparently, a joint Chief Executive Officer of the respondent had blamed the applicant for the Korean positions which had caused the losses in 1997 and "had it been his decision alone, he would have paid you no bonus for 1997 and fired you." Mr Bailey also said: "Despite various people's efforts to change Magowan's view of you, including efforts made by myself, he is not convinced. Going forward it is likely that Magowan will be in Australia for a long time and as a result of this, and Magowan's dislike of you, it will probably be impossible for you to have the career you deserve in Merrill Lynch Australia." 13 The applicant also discussed his circumstances with another senior manager who told him that he would have to move at some stage because "there is an element in a senior position within the Australian organisation that does not like you and it is best that you move to a different office." It was suggested to the applicant that there was a possibility of an opportunity to move to Tokyo or London in February 1999. Mr Bailey commented, however, that it may not be possible for the applicant to stay in Australia until early 1999. 14 In September 1998 the applicant had undertaken a performance evaluation with respect to his work in the 1997 year. The evaluation which was undertaken by Mr Bailey demonstrated a number of strengths but the applicant failed to achieve a priority given some significance namely to "assist Syndicate and Sales in the building of the Firm's presence in the domestic credit market. The emphasis is on demonstrating growth in this market." 15 In terms of general competencies the assessment read: "Moray is not yet fulfilling the necessary leadership elements of the role - particularly in relation to motivating the sales force some of whom regard him as not being supportive. He is very revenue focused. Needs to develop a greater sense of urgency and communicate more concisely. Intellectually strong, Moray would benefit in relation to certain aspects of his skillset from working for someone who can provide him with direction and oversight." 16 The review did, however, note that the applicant's group had attained its revenue budget of $US12 million (within related costs and equity usage targets.) 17 The applicant said that he was called in to the office of Mr Keith Bailey his immediate superior on 14 October 1998 and was told without warning that he was being made redundant as part of a global down-sizing of the Merrill Lynch organisation. He was handed a letter dated that day and was told further that he would be required to leave the respondent's employment that day. 18 The letter of 14 October 1998 gave details of the offer of a redundancy package. A schedule attached to the letter indicated that the package consisted of one months pay in lieu of notice and five months pay as a redundancy package. These payments were calculated on the basis of the applicant's underlying salary package of $115,000. In addition the applicant was given certain other benefits including access to an outplacement service. The applicant was also offered a "1998 bonus" which was a percentage of his 1997 VICP bonus. The amount offered was US$36,000. 19 Payment of the redundancy payment was made conditional upon the applicant signing and returning within one week a deed of release which was attached to the letter and which released the respondent from any further claims or demands arising out of or in connection with the applicant's employment or the termination of that employment. It was said that: "Obtaining a signed Deed of Release from the terminating employee prior to payment is a standard procedure for the company in the case of redundancies. If you do not sign the attached Deed of Release and return it to us within one week of today's meeting, the termination payment Merrill Lynch will make to you will be that amount which equates to your minimum statutory requirements which could be a lesser amount." 20 The applicant did not sign the deed of release and did not receive the redundancy package including the percentage of the bonus offered. However he did receive the benefit of outplacement services provided by an independent provider. 21 About ten weeks after the applicant's employment was terminated, a junior trader whom he had employed and who had previously reported to him was promoted by being given the title of Associate, was paid a bonus of 150% greater than his previous year's bonus and received a salary increase from $70,000 to $120,000 per annum. That salary was a little higher than that which the applicant had been earning at the time of his dismissal.

THE BASIS OF THE PROCEEDINGS 22 The applicant claimed in effect that the conduct of the respondent in connection with the termination of his employment and in particular by reference to the amount paid was unfair. It was said to be unfair firstly by reference to the amount of notice or payment in lieu of notice which should have been afforded and secondly as to the calculation of the monetary amounts which should have been paid. In this latter connection the applicant claimed that the bonus which he had been paid was an integral part of his remuneration by the respondent and should thus have formed the basis of the calculation of fair and reasonable benefits payable to him on termination of employment. In that the bonus scheme operated to the contrary, it was unfair. These claimed benefits included both a proportion of the 1998 bonus up to date of dismissal and inclusion within the payment in lieu of reasonable notice which should have been afforded to him. 23 Accordingly, a number of discrete issues were raised in connection with the conduct of these proceedings which it will be necessary to determine. I shall deal with them each in turn, and whilst doing so make reference to additional relevant evidence.

THE BASIS FOR EXERCISE OF JURISDICTION 24 The circumstances in which this Court may exercise jurisdiction under s 106 of the Act were recently considered by a five member Full Bench comprised of Wright J, President, Walton J Vice-President, and Glynn, Hungerford and Schmidt JJ in Reich v Client Server Professionals of Australia Pty Ltd (2000) NSWIRComm 143. The majority of the Bench (Wright J, President, Walton J, Vice President and Hungerford) J in a joint judgment held, inter alia, that "unfair conduct of itself by (an) employer could establish a relevant ground of unfairness that the contract of employment was unfair under s 106 so as to attract relief thereunder." (para 2). After an extensive review of relevant authorities their Honours said: In other words, it seems to us, in finding a contract (contract or arrangement, or any related condition or collateral arrangement) to be unfair, that may be supported because it became an unfair contract due to the conduct of a party at the time of the termination of the contract which enabled a finding that a contract which could or did so operate was relevantly unfair. It would then be open to declare the contract void or to make an order varying its terms in an appropriate way, with as to either form of relief a consequential order for the payment of money considered to be just in the circumstances. We have to say we find nothing surprising in that reasoning in terms of the operation of s 106 and, indeed, if it were otherwise then the whole jurisprudence developed in relation to the unfair contracts provisions in the industrial legislation over more than three decades would be effectively negated. Indeed, as to the conduct of parties, s 106(2) not only recognises such development in the cases but emphasises it by express statutory provision. (para 24) 25 This reasoning was repeated in the course of the joint judgment. For example at para 27 their Honours said in part: "….to us it seems an utterly arid exercise in semantics to find conduct as part of the operation of a contract to be unfair but not thereby to find also the contract to be unfair because such unfair conduct was not permitted by the otherwise fair contract - we think it should be stated as plainly as it may be, and as we think the authorities and s 106(2) do, that a contract may be found to be unfair because of any conduct of the parties." At para 28 their Honours said: A contract whereby a person performs work in an industry (including as here a contract of employment as a species thereof) has as an inherent feature the behaviour or conduct of the parties for the contract to be able to operate. It is difficult, we think, in conceptual terms to separate the contract itself from the conduct of the parties in performing it. As Priestley JA, with whom Kirby P and Meagher JA agreed, observed in Rothmans Distribution Services Ltd v Full Court of the Industrial Court of New South Wales [1994] 53 IR 157 at 160, "how the terms of the contract operated in practice … necessarily means looking at … conduct … and to conclude that a contract which could so operate was unfair". What a contract of employment does is set the terms and conditions to govern the employment relationship; the contractual relationship is another term which may be readily used to describe it. If a party in the course of operation of the employment relationship were to act in contravention of the contract of employment, particularly by committing a fundamental breach thereof, then that may only mean that the contract otherwise was unfair in so allowing or not preventing such unfair conduct or, indeed, in failing to make appropriate provision in the event occurring. In any of those situations, we think it clear that s 106 could be called in aid by the aggrieved party to obtain relief. We repeat, the section should not be construed to the contrary and as would protect the wrongdoer. (para 28)

26 I mention by way of completeness the dissenting judgment of Glynn and Schmidt JJ which was to the effect that whilst conduct of the parties may reveal "how it is that the contract in question is unfair, either when entered or subsequently" the provisions of s 106 and in particular s 106(2) have not "done away with the need for a relevant finding of unfairness, so far as the contract in question is concerned." (at para 169). 27 In conformity with the expression of opinion of the majority in Reich it is only necessary that I find in the circumstances of these proceedings that there was unfair conduct on the part of the respondent and it is not necessary that I relate that conduct in any way to any terms of the underlying contract of employment or to any of the provisions of any arrangement or related condition or collateral arrangement including the bonus scheme. 28 More particularly, for the purpose of these proceedings I refer also to what was said by Hill J in Lavings v Barclay Mowlem Constructions (NSW) Ltd (unreported, CT93/1233 15 September 1994) cited with approval by Hungerford J in Adams v Westfield Holdings Ltd (unreported 30 June 2000) (2000 NSWIRComm 112). Hill J said "it seems undoubted on the authorities that the failure by an employer to make fair and reasonable provision for notice and severance benefits to an employee on termination for redundancy reasons can, notwithstanding its provisions governing notice on termination, render the contract of employment unfair."

THE PERIOD OF NOTICE 29 The offer made to the applicant on termination of employment was for payment of one month' pay in lieu of notice and a further five months redundancy payment making a total of six months. That offer was, as I have previously pointed out, made conditional upon the applicant signing a deed of release. 30 I am conscious that differing views have been expressed by judges of this Court and its predecessors as to the most appropriate approach to be taken to the assessment of notice and payment in lieu of notice, especially where redundancy is involved. Some judges have assessed separate amounts of moneys to cover payment in lieu of notice to terminate the contract of employment and to cover an amount which should properly be payable by reason of the retrenchment of the employee through redundancy. Some of the authorities in this area are referred to in the judgement of Maidment J in Starkey v Healthcare Corporation Pty Ltd (unreported 24 August 1999) IRC 97/6613. His Honour analysed the various factors which are relevant to the assessment of a period of notice on termination and which are relevant to the calculation of severance payments in redundancy situations and observed that there was some area of overlap. His Honour said: "Accepting the difference of judicial view as to the components properly attributable to either pay in lieu of reasonable notice or severance pay it would seem to me to be artificial to award compensation for perceived inadequacies of either payment without regard being paid to their aggregate." I respectfully agree with this approach. 31 To some extent the approach which will be adopted will depend upon the practice adopted by the employer. (See, for example, the observations of Peterson J in Young v Tieman Industries Pty Ltd (2000) NSWIRComm 111). 32 The circumstances of the applicant's employment and the circumstances applying to his termination of employment on the basis of redundancy are significantly different from those which were considered by the Full Court of the Industrial Court of New South Wales in Baker v National Distribution Services Ltd (1993) 50 IR 254. There is no question in these proceedings, as was the case in Baker of relevantly different standards of redundancy entitlements being applied by an employer to two groups of employees so as to render the lesser standard unfair. In addition, the circumstances of the applicant's employment by the respondent and the termination of that employment do not appear to come within obligations imposed on employers by the Employment Protection Act 1982 which, by clause 10 of the Employment Regulation 1995 applies only to employees whose employment is covered by an industrial instrument. Obviously the existence of standards applying to award employees as referred in Baker will create some form of standard by which the provision of payments on redundancy to all employees may be judged on a relative basis in terms of fairness. However, there are many areas of distinction between circumstances where employment is governed by industrial awards and redundancy standards applied to employees whose employment is governed by industrial awards and those which apply, and ought to apply to non-award employees. Such a distinction will be heightened in cases, such as this, where the applicant worked under conditions and in circumstances which are remote from those usually governed by industrial instruments. 33 In all the circumstances of these proceedings I prefer to assess one period of reasonable notice which will take into account inter alia the fact that termination of employment involved a redundancy situation. 34 This global approach appears to have been adopted by a Full Bench of this Court in David Jones Ltd v Cukeric (1997) 78 IR 430, ESP at 462. The same approach was taken by a Full Bench of this Court in Gala v State Bank of NSW (1998) 84 IR 216. In those proceedings the Full Bench (Cahill VP, Maidment and Hungerford JJ) were required to assess "what benefits an employee in the appellant's position might reasonably expect to receive if the respondent had retrenched the employee after eleven years of satisfactory service in a senior specialist position when, through no fault of the employee, that position had been made redundant." (at 226). Their Honours referred to the Redundancy Awards Case (1994) 54 IR 419 by which a scale of severance pay was set for insertion under awards by way of a safety net. After referring to the relevant scale and to severance pay scales set in an award of the Australian Industrial Relations Commission, the Full Bench concluded: "In the circumstances of this case, we think it is reasonable for the appellant to be awarded an amount referable to a lack of notice (or pay in lieu) and to the failure by the respondent to extend benefits which would normally be expected upon a termination on account of redundancy." (at 226-7). An amount was assessed which was the equivalent of nine months' salary based on the appellant's annual salary. The approach taken by each of the Full Benches in each of these cases, and especially in Gala appears to me to involve the determination of a period of notice which was considered to be reasonable in all the circumstances, the fact of redundancy being one element and presumably a major element within those circumstances. This approach was also applied recently by Walton J, Vice President in Ross v GN Comtext (Australia) Pty Ltd (2000) NSWIRComm 133. 35 By what process does one determine what would be a reasonable period of notice in all of the circumstances? Reasonable notice is that which the employer should have reasonably given in all the circumstances. Such a period should reflect that which the hypothetical ordinary average standard employer acting reasonably should have given. I was not referred to any authority which adequately describes such an employer. Obviously, analogies exist in the area of negligence where the conduct of a reasonable person is more frequently applied within the litigation process. 36 An interesting and to my mind helpful description of the reasonable person is contained within an article by Henry T Terry on Negligence published in 29 Harvard Law Review 40 at 47-49. This publication occurred in 1915 so that some of the language may be seen to be dated, especially the reference to a standard man as opposed to a standard person. Nevertheless I set it out because it contains some material which I find of assistance in identifying the reasonable employer for the purpose of these proceedings: The test of reasonableness is what would be the conduct or judgment of what may be called a standard man in the situation of the person whose conduct is in question. A standard man does not mean an ideal or perfect man, but an ordinary member of the community. He is usually spoken of as an ordinarily reasonable, careful, and prudent man. That definition is not exactly correct, because in certain cases other qualities than reasonableness, carefulness, or prudence, e.g., courage, may be important; but it will do for our present purpose. It is because the jury is supposed to consist of standard men, and therefore to know of their own knowledge how such a man would act in a given situation, that questions of reasonableness and negligence are usually left to the jury. Every man, whether he is a standard man or not, is required to act as a standard man would. If by chance he is not such a man, he may, as has been said, make a mistake and act so as to be guilty of legal negligence, though he has used all such care and forethought as he was capable of. In the case of contributory negligence there is an exception to this rule in the case of abnormal persons, such as children and persons of unsound mind. They are not required to act like a standard man, but only to use such judgment as they are capable of. But as to negligence which is not merely contributory, as to negligent wrongs against others, the standard man test applies to their conduct also. Women are not abnormal persons, except perhaps in respect to courage. Anything that a standard man would do is reasonable. If there are several different courses which he might take, any one of them is reasonable, even though one would be more reasonable than another. All that the law requires of a man is reasonable conduct, not the most reasonable nor even the more reasonable. Also even a standard man, being human and therefore fallible, may err in his judgment. Conduct which in fact causes injury, if due to an error of judgment which a standard man might make, is not negligent. This is the meaning of the statement above mentioned, that mere error of judgment is not negligence. But this must be distinguished from an error which a standard man would not make.

37 The reasonable conduct which is sought for the purpose of these proceedings is that of the hypothetical ordinary standard employer required to give notice of termination of employment to an employee in analogous circumstances as that which applied to the applicant in these proceedings. In determining how such a standard employer would have acted in all the circumstances I take into account my own understanding of the level of notice which is commonly given in New South Wales in circumstances which are as analogous as possible to those which apply in these proceedings and secondly, the assessment of courts in like circumstances which are intended to reflect an understanding of the reasonable conduct of standard employers in like circumstances. 38 This Court is a specialised Industrial Court, the jurisdiction of which traverses most areas of the employment relationship. In addition, members of this Court hold dual appointments as Presidential Members of the Industrial Relations Commission of New South Wales, an industrial tribunal with jurisdiction over industrial and employment matters. 39 Although the respondent sought to make calculations separately by reference to payment in lieu of notice and severance pay, the separate calculation with respect to severance pay was made by reference to what was perceived to be the standard applicable in New South Wales to employees whose employment conditions were traditionally regulated by industrial awards. At the end of the day, it matters not whether one approaches the matter by reference to two separate calculations guarding against any double counting, or whether one takes an aggregate approach. What matters, in my opinion, is whether or not the resultant determination is reasonable and therefore arguably fair, in all the circumstances. I would prefer to approach the applicant's situation by reference to an assessment of what would be a reasonable period of notice to terminate his employment in all of the circumstances, including the circumstances which predominantly brought about that termination, namely redundancy. 40 Having regard to the middle management position occupied by the applicant in the respondent's structure, having regard also to the period of his employment, and taking into account by way of background the volatile nature of the industry in which the respondent operated and the applicant was employed, and having regard also to the period of the applicant's employment with the respondent and a period of prior employment with the global Merrill Lynch organisation in the United States, it is my opinion that a period of notice which was reasonable in all the circumstances for the termination of the applicant's employment was six months. The applicant claimed a longer period, but given the relatively short period of employment it seems to me that six months is appropriate in all the circumstances. 41 The period of six months which I have selected accords with that offered by the respondent, albeit the respondent sought to qualify the offer by making it conditional upon the execution of a deed of release. If the respondent thought that six months' pay in lieu of notice was in all the circumstances reasonable I do not understand why it would be necessary in those circumstances to secure a deed of release. If the payment were not unfair, then the respondent had nothing to fear by reason of any action that the applicant might take under s 106 of the Act. To this extent the conduct of the respondent in requiring the applicant to sign a deed of release may be seen to be unfair. Certainly, the failure to pay that amount even in the absence of a signed deed of release was, in my opinion, unfair, and constituted unfair conduct. That the employment contract permitted this to occur rendered it unfair.

42 CALCULATION OF ENTITLEMENT OF SIX MONTHS NOTICE.

It was here that much of the controversy between the parties occurred. The applicant claimed, based on evidence to which I shall shortly refer, that firstly he should have received payment based on a 1998 bonus up to time of dismissal and secondly the payment in lieu of notice should have been based on that bonus as well as his underlying salary. 43 The evidence with respect to these issues included an examination of the respondent's bonus scheme, the payment of certain other moneys in the nature of bonus to other employees and the application of the respondent's bonus scheme generally and with respect to a number of other employees. 44 Evidence about the respondent's bonus scheme known as its Variable Incentive Compensation Plan (VICP) was given by Averil Henry, Human Resources Director of the respondent. Ms Henry asserted that the VICP was not, as a matter of practice, treated as an entitlement in the respondent's organisation but was intended to be completely discretionary. Nevertheless, evidence was given during the course of the proceedings to the effect that the previous year's bonus could, in general terms, be considered as a basis for the establishment of an appropriate bonus in the current year, whether by reference to increase or decrease, depending upon the circumstances. 45 It appears from the evidence of Ms Henry, corroborated by that of Mr Bailey that in each year the executive directors of the Merrill Lynch organisation in New York determine the extent of the bonus pool to be applied throughout the whole Merrill Lynch organisation. This is based upon a formula of 50% of the annual profit of the world-wide operations and 50% on return on equity, again world-wide. The global bonus pool is then allocated between the global business groups throughout the organisation. Each global business group's VICP is based as to 75% on the profit earned by that business unit plus return on equity and 25% on corporate profits together with a return on equity. Within each global business group the bonus pool is allocated to each of the regions in which the global business group operates. Accordingly in the case of Debt Markets, the global bonus was allocated between six geographical regions world-wide. Within the Australasian region the bonus amounts so allocated to the Debt Markets group and its sub-groups were then pooled and divided up between employees of that group by the Chief Executive Officer of the respondent in consultation with the heads of the relevant sub-groups. Mr Bailey had previously been Regional Head of the Debt Markets Group in Australia from July 1997 and occupied that position at the time the applicant's employment was terminated. He is currently the Managing Director, Debt Product Control Group based in the New York offices of the Merrill Lynch organisation. Mr Bailey in his evidence emphasised that the size of the bonus pool which was eventually allocated to Debt Markets in Australia was settled with only a "very marginal impact" by reason of the actual performance of Debt Markets in Australia. 46 The Merrill Lynch financial year equated substantially with the calendar year. Accordingly, the determination of bonus levels was made, with respect to each year, at the end of that calendar year and was payable early in the following year. The evidence given in the proceedings was to the effect that the 1997 financial year had been a good year for the Merrill Lynch group world-wide. However the 1998 year was a poor year caused by the collapse of the Russian financial market and the collapse in Asian markets, creating volatility throughout world-wide financial markets. This impacted in particular, it was said, on the Asia-Pacific region of the Merrill Lynch organisation. 47 In fact, the general deterioration in revenue within the 1998 calendar year world-wide led to a determination made from the Head Office of the group in New York to reduce staff at all levels of the world-wide business. 48 The decision to terminate the employment of the applicant was made by Mr Bailey some time in the second half of September 1998. The decision was taken after compiling a list of persons who were seen to be not indispensable to the continued operation of the respondent's business, particularly in the Debt Markets area. Mr Bailey probably shared a list of those persons whose employment was to be terminated as part of the staff reduction operation with a number of other senior executives within the respondent. Mr Bailey said that in making a decision to terminate the applicant's employment he had in mind as one factor his assessment of the applicant's overall performance including some shortcomings. He conceded that he did not mention those shortcomings to the applicant at any time in connection with the termination process, although they had previously been discussed with the applicant during the course of formal assessments.

THE APPLICANT'S WORK PERFORMANCE 49 There was a deal of evidence and much debate during the course of the proceedings concerning the applicant's performance as an employee of the respondent. Although the applicant's employment was terminated as part of an overall downsizing of the respondent's operations and not because of his performance, this matter arguably became relevant in terms of determining any bonus which should have become payable to the applicant for the 1998 year. 50 The applicant had been given a formal performance evaluation by Mr Bailey in September 1998, a few days prior to the head office taking a decision to downsize the respondent's operations and a short time before the decision was taken to terminate the applicant's services. The review form which was completed by Mr Bailey demonstrated that the applicant had achieved a number of business priorities including the attaining of revenue budgets, ensuring full and accurate reporting of risk data, enhancing focus on technology and recruiting and development talent. However the appraisal indicated that the applicant did not achieve priorities in the area of assisting syndicate and sales in the building of the firm's presence in the domestic credit market, and in his career/professional development. In this latter regard it was suggested that he "needs to grow communications skills and understanding of the objectives of others involved in the business. Suggest spell in Tokyo or London." 51 The appraisal also indicated that there was an equivocal performance in terms of any increase in global coordination between origination, trading and distribution, in developing the use of credit derivatives for solutions to client problems, and in his general competencies. In this latter regard it was noted: "Moray is not yet fulfilling the necessary leadership elements of the role - particularly in relation to motivating the sales force some of whom regard him as not being supportive. He is very revenue focused. Needs to develop a greater sense of urgency and communicate more concisely. Intellectually strong, Moray would benefit in relation to certain aspects of his skillset from working for someone who can provide him with direction and oversight." 52 There was a deal of evidence led about certain Korean trading positions, to which I have earlier referred and a number of specific transactions in which the applicant played some part. Some of these transactions were the subject of some criticism by Mr Bailey and also by Mr Stephen Duchesne. The conclusion which I derive from the totality of the evidence of Mr Bailey and also Mr Duchesne is that the applicant was considered to be a competent operator overall with some specific weaknesses with respect to particular products and in some areas. For example Mr Duchesne said that the applicant was competent but lacked experience in certain areas and did not enjoy good relationships with some of his fellow employees. 53 There was particular debate in the evidence of the applicant on the one hand and Messrs Bailey and Duchesne on the other about particular transactions and whether or not the manner in which they had been handled by the applicant and their outcome would have had a positive or negative result on the allocation of any bonus to the applicant for the 1998 year. Given that the overwhelming evidence is that the 1998 bonus would have been determined by Mr Duchesne , it seems to be preferable that I have regard to his evidence in particular when determining this issue. I observe generally that the applicant was regarded by Messrs Bailey and Duchesne as having a number of shortcomings, that the applicant was aware of those shortcomings as specifically set out in his 1998 formal review and appraisal to which I have earlier referred, that the applicant had not undertaken any particular transactions during the course of his trading operations in 1998 which had created any adverse view as to his competence and that generally the applicant was regarded as a competent employee with some specific shortcomings.

THE ASSESSMENT OF BONUSES GENERALLY 54 I have already described in general terms the manner in which the respondent's overall bonus pool operated. The letter of appointment which was given to the applicant and the evidence of Ms Henry was to the effect that the payment of a bonus remained and was at all times discretionary. In particular the evidence of Ms Henry and Mr Bailey emphasised that the size of the bonus pool which was available to particular divisions of the respondent within Australia depended initially on the size of the overall allocation made within the Merrill Lynch head office in New York. 55 However there were isolated circumstances where persons who were being laterally employed by the respondent were guaranteed a particular bonus as a term and condition of their employment, in order to attract them to join the respondent's organisation. This was said to be an exceptional circumstance. There was also evidence that in some cases bonuses were paid to retain employees for reasons which were not necessarily associated with their particular performance or the other factors to which I have referred. This led to an assertion made on behalf of the applicant that these circumstances were contrary to the purpose for which the bonus pool had been established namely to reward performance in a particular year. It was said that use of the bonus pool for reasons which were not strictly related to performance (that is to attract employees and to retain employees) was one of a number of indicia which pointed to the inherent unfairness of the scheme as a whole. Utilisation of some part of the funds for these purposes including the payment of a guaranteed bonus in one nominated case, diminished the amount which would otherwise justly be available to reward performance. 56 It was the evidence of Ms Henry also that in general terms the respondent did not calculate an amount payable in lieu of notice of termination of employment by reference to any bonus payments paid or payable to an employee. 57 In his oral evidence in the course of cross-examination Mr Bailey said that the key determinant of an individual's bonus was performance in the relevant year. Prior year's performance was irrelevant other than for the purpose of recognising consistency of performance in circumstances where there was a "track record of making money every year." An important element also was the revenue generated by the employee concerned during the year as well as attributes such as leadership, teamwork and the like. 58 Evidence was also given concerning the respondent's bonus scheme by Mr Stephen Duchesne who was at the time of giving evidence Managing Director of the respondent. It was Mr Duchesne who would have made a substantial contribution to the assessment of the applicant's 1998 bonus if the applicant had remained in employment with the respondent in January 1999. Mr Duchesne gave evidence that the global operations of Merrill Lynch changed the manner of assessing expenses for the purpose of calculating revenues as a step in the ascertainment of the bonus pools in 1997. There was, in effect, a change in the relevant accounting system which made it difficult to compare in a general sense the revenue figures used for the 1997 bonus with those used for the 1996 bonus. 59 Mr Duchesne also gave evidence about the multi factorial approach to the determination of individual bonuses. His evidence was to the effect that the "performance of the company globally would have a fairly direct impact into the aggregate bonus pool for the company…. How that bonus pool is cut up further would take account of …. other factors ….". These included local performance and profitability, business unit performance and profitability and the contribution of the individual. However Mr Duchesne said that the determination of the bonus pool "would not necessarily be purely on the basis of local production versus the global result. A good example would be where the local operation for a particular division had an outstanding year of production but the company as a whole made a loss and did not have any money and there was no profit to share, as it were. In a situation like that, and that is an extreme example, but that is how the interplay has to work, so it cannot be the sole determinant at that level." 60 In terms of the assessment of bonuses on an individual basis Mr Duchesne said that length of service would not be relevant nor would the person's remuneration when compared with that of other persons. Nor would any comparison necessarily be made with the salary level in assessing a person's contribution over the previous 12 months. He said: "What we try and do is establish comparable people in Australia or elsewhere but you can say at least in the informal discussions you would characterise it as being similar level of seniority and responsibility. It is quite difficult to do but you have to make the effort to do that. If you expect that group to (be) compensated in a similar way, in that sense that is how that particular component is introduced into the process as a check that there has not been a misunderstanding of the person's total contribution vis a vis other people in other similar positions." 61 Mr Duchesne also elaborated in connection with the relevance of bonus payments to salary. A question was asked of him in cross examination about the responsibility that a person who occupied the position of desk head would have in terms of those who reported to that person and as to whether this would be important in assessing that individual desk head's contribution. Mr Duchesne said that the salary level of itself was not a determinant factor and did not of itself indicate the measure of an individual's contribution. He added: "As part of that process the whole compensation process is on a total compensation basis and someone's salary is taken into account at the end of the year when the VICP is put together, so it is total compensation and not just VICP or salary." Accordingly, Mr Duchesne spoke of the totality of an executive's compensation as including both salary and bonus. 62 In discussing the position of the person who succeeded the applicant after the applicant's dismissal, and the level of bonus paid to him Mr Duchesne said that he took into account the necessity to retain that person as well as the contribution which he had made by way of performance over the previous year. In particular Mr Duchesne said: "To my mind it was partly to encourage him to see himself positively and involved and engaged at Merrill Lynch and saw it as a positive environment. He was a young guy who had not been at the firm that long and then had lived through a fairly difficult and stressful period. I did not want him to either get disheartened with the company or the industry. For me it was necessary to ensure we could demonstrate to him we were committed to him in the long term." Mr Duchesne went on to confirm that one factor in determining this person's bonus for the 1998 year was to retain him in the respondent's employment as well as taking into account his contribution during the 1998 year. 63 Mr Duchesne gave evidence with respect to another particular employee to the effect that she was paid an amount out of the VICP bonus pool which was "more of a pre-payment of future contribution" than an assessment of her contribution during the 1998 year. 64 The applicant also gave evidence about his understanding of the way in which the bonus pool operated. He conceded that the size of the bonus would be affected by the size of the bonus pool. He also conceded that there were a number of ways in which an employee's contribution to the activities of the respondent could be assessed. However it was his understanding that in terms of an individual's contribution, "Bottom line contribution is the role done on an individual basis."

THE APPLICANT'S PUTATIVE BONUS FOR THE 1998 YEAR 65 In order to consider the applicant's claim it is necessary to make some assessment of what the applicant may have earned by way of bonus during the 1998 year assuming that he had remained in employment during that year. 66 In his evidence Mr Bailey said that it was his understanding that the available bonus pool for Australia in 1998 was less than half of what had been available in 1997. 67 It was the evidence of Ms Henry, Mr Bailey and Mr Duchesne that the primary responsibility for the assessment of the applicant's bonus for 1998 assuming that he had remained in employment at all relevant times during that year and into January 1999 when the bonus was determined would have been made principally by Mr Duchesne, with the assistance of the co-Chief Executive Officer of the respondent Mr Greg Bundy and a Mr Reinhardt Olsen. 68 Mr Duchesne said that the allocation of bonuses for the 1998 year "was a very difficult task in that size of the bonus pool was much smaller than it had been in 1997 and, generally speaking, all employees, even star performers in the Debt Markets in Australia, received substantially less than in 1997. …. Given the economic climate in the second half of 1998, it is probable any bonus payment made to Moray Vincent with respect to 1998 had he not been made redundant, would have been less than the amount he had received for 1997 because the bonus pool available for distribution in Australia in 1998 was much smaller than in the previous year, since the firm as a whole had not performed well and a number of business groups, including Global Debt Markets, had made substantial losses." Nevertheless, it was the evidence of Mr Duchesne that the base line level for assessing a 1998 bonus for the applicant would have been his 1997 bonus although he would probably have received a lower payment than in 1997. 69 It was Mr Duchesne's assessment of the applicant in terms of his performance, competencies and attributes that the applicant was competent but lacked experience and had not developed the necessary relationships with other employees within the respondent's organisation. Mr Duchesne conceded that even though the area of operation over which the applicant had responsibility had incurred some losses on some transactions the applicant was not necessarily responsible for all of these losses. 70 In his evidence Mr Bailey had stated that if the applicant had not been made redundant in October 1998 that it was probable that he would only have received a very small bonus payment if any because of the smaller bonus pool available for distribution in Australia, the fact that the applicant had committed two "very serious errors of judgment" with respect to two transactions and there were continuing concerns about the applicant's performance. I propose not to take this evidence into account because, as Mr Bailey conceded, he would not have been involved in a determination of any bonus for the applicant. This would have been predominantly the concern of Mr Duchesne. In addition these errors of judgment had occurred in prior years and had not been replicated in 1998. 71 It is against this backdrop that it is necessary to have regard to the retrenchment package which the respondent offered to the applicant which was created on a global basis by the head office of the Merrill Lynch organisation. This was, as I have earlier stated, the payment of a component of the retrenchment pay representing a 1998 bonus equal to 30% of the bonus payment received in 1997. At the time that this was formulated it was the expectation that the Debt Markets bonus pool for 1998 would be about 40% of 1997 levels. It should be noted that this offer was fixed from the head office of the Merrill Lynch organisation and was formulated without considering the individual circumstances of any employee and was not discussed with any employee, and in particular had not been discussed in any way with the applicant. 72 The applicant sought to attack the respondent's arguments concerning the 1998 bonus which might have been paid to the applicant if he had remained in employment, in a number of ways. 73 Firstly, the applicant produced a confidential document (Exhibit I) relating to the controllable profit and loss of the Asia-Pacific region of the Merrill Lynch organisation in the financial futures and options area, which included the Debt Markets area. The figures are in US dollars. The actual total revenue for 1998 was $16.5 million as opposed to $8.9 million in 1997. The total operating costs were $9.7 million in 1998 and $5.4 million in 1997. This left a contribution for the 1998 year of $6.8 million as opposed to $3.4 million in 1997. Thus, it was said, that the Asia-Pacific region not only produced a profit in 1998 but that that profit was double that which was achieved in the 1997 year. Accordingly, bonuses for the Asia-Pacific region generally and for Australia in particular should not have been reduced in 1998. As against this, the respondent's witnesses pointed out that the revenue contribution to the global operations of Merrill Lynch from the Australian operations was very small and of minimal significance when determining bonuses on a world-wide basis. 74 The applicant produced documentation based upon information furnished by the respondent about bonuses paid to individual employees in the respondent's Debt Markets operations. Some of this information was produced on a confidential basis. The applicant's documentation showed that the total bonus payments for employees in the respondent's Debt Markets area for 1996 were US$3.17 million, for 1997 US$3.82 million and for 1998 $4.52 million. Of the 1998 figures $3.89 million was paid to employees who services were not terminated and $626,000 was paid to those employees who were retrenched during 1998. The average bonus of those persons who were retained in 1998 and were also employed in 1997 increased from US$246,000 to US$264,000. This information was also advanced by the applicant to support his contention that his 1998 bonus would not have been reduced had he remained in the respondent's employment throughout 1998. 75 Evidence was given on behalf of the respondent concerning the individual circumstances of a number of employees who received bonuses in 1998 and 1997 in order to resist the thrust of the applicant's submissions based on this documentation. Unfortunately, in order to determine this issue on the basis of this documentation it would be necessary in effect to litigate the individual circumstances of each and every employee. 76 If one, however, takes a broader view of the documentation I am satisfied that in general terms the available bonus pool for 1998 did not decrease significantly as alleged by the respondent. In fact, there was, as the figures demonstrate, a significant increase. 77 However, I am unable to ignore the assessment of Mr Duchesne that the applicant would have received less than his 1997 bonus if he had remained in the respondent's employment in 1998.

WAS THE BONUS SCHEME RELEVANTLY UNFAIR? 78 The applicant attacked the respondent's bonus scheme as being unfair, harsh and unconscionable. It was submitted that the bonus scheme was part of an arrangement within the meaning of s 106 of the Industrial Relations Act, the other part of the arrangement being the contract of employment. For this the applicant relied on Legal & General Assurance Society Ltd v Stock 49 IR 464 at 480-1. The bonus scheme was attacked not only with respect to its terms and conditions, but on the basis of what those terms and conditions failed to contain. It was also attacked in the manner in which it operated. 79 The allegations of unfairness contained within the applicant's amended summons for relief as they related to the contract of employment and to the bonus scheme were as follows: "it permitted the respondent to terminate the contract of employment without any or any sufficient or valid reason; the applicant was at all material times in a position of unequal and inferior bargaining power in respect of his dealings with the respondent and was specifically in such a position at the time of termination; it failed to provide for the giving of a fair, reasonable and appropriate period of notice in all the circumstances; it permitted the respondent to avoid having a fair, reasonable, transparent and patently clear policy on the payment of bonus payment; it permitted the respondent to avoid, in circumstances where the applicant had in the years preceding termination of his employment received bonus payments in the order of $200,000 for each of those years (which represented a significant component of his remuneration in his employment), paying any bonus component for the notice period (or payment instead of notice) or redundancy payments to be made to the applicant upon termination and/or to avoid the payment of a bonus to the applicant in respect of the period prior to the termination of his employment; it was unfair in that it failed to provide for any mechanism that would ensure the applicant was treated fairly in respect of the payments of bonus in any year or part of a year when his contract of employment was or was to be terminated; it was unfair on its face and in its operation in that it allowed any bonus to be paid to the applicant to be calculated solely at the discretion of the respondent without recourse to the applicant at all and without recourse to any objective, fair or rational formula; it failed to provide for any mechanism that would ensure that the applicant would in the period of any notice or termination or in the period following termination of employment, maintain his income at the level of his income immediately prior to termination of employment for a reasonable period whilst he sought alternative employment; it failed to provide for any termination payment to take account of the applicant's significant contribution to the respondent's business in circumstances where had the applicant remained in employment that contribution would have been reflected by the payment to him of a significant and substantial bonus payment particularly had any firm rational transparent and objective criteria been applied to the calculation of such payment; it failed to provide for a fair, conscionable or reasonable payment of a bonus in all the circumstances having, in particular, regard to: (i) the bonuses paid to the applicant in the preceding year of his employment with the respondent; (ii) the applicant's significant and substantial contribution to the respondent's business in 1998; (iii) the significant improvement in both the applicant's performance and the Merrill Lynch credit trading business in Australia when compared to previous years; (iv) the applicant's senior position within the respondent's business; and (v) the bonus payments made to other employees of the respondent since 1995 and after the termination of the applicant's employment. it failed to provide for the payment of a fair and conscionable bonus payment in all the circumstances." 80 More specifically the bonus pool and the method in which it operated was attacked in terms of unfairness in the following way: "(i) The size of the pool which was made available was reduced because for some employees moneys were paid out of it to retain them as employees and because for some persons moneys were paid out of the pool to attract them to become employees by way of a guaranteed bonus payment. This was said not to be the purpose of the pool which was predominantly to reward an employee's performance in any given year. It was said that the depletion of the pool and the use of its resources in this way created unfairness. It was also said that the bonus scheme operated unfairly because it failed to protect the applicant on termination of employment particularly in circumstances where that termination was instigated by the employer in circumstances unassociated with the performance by the applicant of his employment duties. It was unfair in these circumstances that he not receive any part of his bonus payment for the 1998 year having worked to October that year. (ii) Allegations were also made that the bonus scheme was applied in a non consistent and arbitrary manner. A detailed analysis of bonuses paid to individuals and the circumstances of those individuals suggested that there was no consistent approach between individuals in any year and from year to year in terms of the revenue generated by any particular employee, the revenue generated within the employee's particular area of operation, the amounts paid relatively to various "desk heads", and amounts paid to some employees who had worked for only a short period during the relevant year but remained an employee as at the 31 December that year. It was said that an overall examination of bonuses paid to employees of the respondent in the 1996, 1997 and 1998 years demonstrated "the stark unfairness of a bonus scheme which allows an employer to have regard to subjective factors and the exercise of an unfettered discretion absent transparent and objective criteria being applied…." 81 The respondent emphasised the discretionary nature of the bonus scheme. This was said by the applicant to be contrary to the evidence and in particular the applicant's own experience. He had been paid a bonus in each of the three years preceding termination of employment and in the two years preceding termination had received a bonus payment of US$120,000. There was a general expectation that a bonus would be paid each year and, indeed, the respondent and its American parent appear to have dedicated a degree of resources and time to the calculation of the global and divisionalised bonus pools. 82 The applicant emphasised that the respondent recognised the predictability of the payment of a bonus when it arbitrarily created an assessment of 30% of the prior year's bonus to be paid to each of the employees who were to be made redundant at the same time as the applicant. 83 The respondent submitted that as at October 1998 there were no realistic means available to it to assess what the overall profit position would have been at the end of 1998. In normal circumstances, given a rational and "ordinary" trading environment most sophisticated employers would be able to take account of seasonal and other factors and be able to make some reasonably informed guess within the last quarter of a financial year as to the likely trading result for that year. Perhaps the volatile economic circumstances which prevailed throughout the 1998 calendar year may have precluded the respondent and its American parent from undertaking such an analysis with any reasonable confidence as to its ultimate accuracy. In these circumstances the respondent argued that the applicant's employment contract did not operate unfairly at the time when the assessment was made to pay the applicant and other employees being made redundant a component to cover bonus assessed at 30% of the applicant's 1997 level. 84 The establishment of bonus schemes which are said to be completely discretionary creates a situation in which claims of unfairness may fester and grow. This is especially so where the awarding of a bonus is seen to be an integral part of an employee's remuneration package and where it can form a substantial proportion of overall earnings, that is, the yearly bonus becomes part of the employment culture. 85 Enlightened employers establish performance criteria by which the employer and employees alike can assess the work and contribution of employees and by which areas for improvement or modification of performance can be identified. Such criteria, if valid, fortify an employer against the possibility of allegations of unfairness which may be levelled by employees. If such criteria provide some potential to establish fairness in one area of dealings between an employer and employees, then the absence of any such criteria may create the potential for unfair conduct in that area. 86 In my opinion the same considerations apply in the case of a bonus scheme which is both an integral part of an employment relationship and potentially provides a substantial proportion of earnings. If no criteria are formally established upon which both the employer and employees can operate, the potential exists for unfairness in the manner in which the scheme is conducted. 87 Firstly, the process itself may not be transparent. Whilst transparency is not an essential ingredient in the operation of a bonus scheme which is not unfair, its existence forms an important plank by which fairness can be tested. Secondly, the existence of defined and appropriate criteria allows proper processes to be implemented by those responsible for administering the scheme. Thirdly, the existence of such criteria forecloses the consideration of immaterial or inappropriate criteria the utilisation of which may cause or contribute to unfairness. Fourthly, the existence of such criteria allows a uniformity and consistency of approach to be taken to all persons who are entitled to be considered for participation in the bonus scheme. Such a uniformity and consistency of approach will militate towards a bonus scheme which is not unfair. 88 It is a trite observation that the recognition which employees are afforded by the favourable exercise of a discretion in bonus schemes is not only absolute in an individual sense but relative in a comparative sense to the recognition afforded by an employer to other employees, particularly those within the same employment area. I readily concede that satisfaction of the innate and fundamental desire for recognition does not necessarily form an integral part of any employment arrangement which is unfair, but acknowledgment by employers of this factor will reflect an enlightened attitude and an approach which, if properly applied, is more likely to enhance fairness. (For a convenient discussion of recognition as a universal factor and for some examples of its application in employment situations, see Part III of "The End of History and the Last Man" by Francis Fukayama, Penguin Books, 1992). 89 In circumstances where employers do not establish firm criteria to be applied in the operation of bonus schemes, it becomes necessary to examine the manner in which bonus schemes operate to determine whether in all the circumstances of the particular proceedings, any requisite unfairness exists. The difficulty about such an examination conducted as part of a forensic exercise is that a court is forced to examine on an ex post facto basis a wide range of matters, and the process of deliberation undertaken by those responsible for the administration of the discretionary bonus scheme. The forensic exercise itself may impart notions of artificiality and force the examination of matters which should or should not have been taken into account in the exercise of the discretion at an earlier time. The forensic exercise itself focuses attention on particular aspects with varying degrees of emphases which may have been relatively unrealistic in terms of the processes actually undertaken when determinations were being made in the administration of the bonus scheme, which are the subject of attack for alleged unfairness. 90 The documentation which established the bonus scheme which is under attack in these proceedings did not set out any particular criteria to be applied. Indeed, the bonus scheme was operated and implemented by the respondent's parent company although senior personnel within the respondent organisation had some say in the manner in which the scheme operated. However there were representations made to the applicant by or on behalf of the respondent as to the criteria which the respondent would determine the extent of any bonus to be awarded to the applicant in any given year. Notwithstanding that the applicant's letter of appointment made it clear that payment of the bonus was completely discretionary regardless of performance the applicant was informed at various stages that the following matters were relevant namely:

1. The achievement of personal monetary budget
2. Individual performance
3. The performance of the applicant's division
4. The performance of the respondent's business as a whole
5. The performance of the overall Merrill Lynch organisation world-wide
6. Adherence to the "core values" of the Merrill Lynch organisation
7. The assessment of revenue with no regard for expenses
8. The assessment of revenue with regard for expenses.

91 The evidence does not suggest that there was necessarily any consistent approach to the determination of the amount of bonuses by reference to any particular criteria and there was certainly no evidence concerning any weighting to be given to any particular criteria. For example the applicant was paid a bonus for the 1996 year of $US120,000 and during that period he was regarded as a junior trader holding no or little responsibility. The applicant received a bonus in the same amount for the 1997 year. During that year the Merrill Lynch organisation globally made large profits but there was an overall loss in the Australian trading situation. In 1997, also, there were allegations made against the applicant with respect to the Korean positions and two other transactions, to which I have earlier referred. The applicant's performance that year was said to be under a cloud. 92 In addition, there is evidence that not all of the bonuses were paid to reward performance. As I have already indicated, some persons were guaranteed a payment of a particular amount out of the bonus pool unrelated to performance as employees of the respondent in order to attract them to join the respondent; other employees were paid moneys from the bonus pool with the predominant purpose of retaining them as employees. 93 Hungerford J considered a bonus scheme and the question of bonus payment in a redundancy situation in Adams v Westfield Holdings Ltd (2000) NSWIRComm 112. His Honour said (at para 74): As to the bonus payment which arose for review at or about the time of the termination of the applicant's employment, the fact of redundancy, in my view, required careful attention to the terms under which the bonus was payable. It was claimed for the respondent that being based on performance, divisional results, no bonus was due because of the failure of the Wholesale Trusts Division. However, as I have said, the lack of specificity of the entitlement to bonus where the applicant met all of his performance objectives demonstrates in a redundancy situation an inherent unfairness in the contractual specification of the bonus conditions. The applicant's evidence, on the other hand, made clear his understanding that the bonus element was an important part of his total remuneration package as initially negotiated and that it was payable in an amount of up to 40% of base remuneration if the requisite performance levels were achieved. In that situation of some uncertainty as to the qualifying criteria, he received only one bonus payment in 3 years of employment and that was only paid as a resolution of a dispute concerning the payment of a bonus. The way in which, particularly in a situation of redundancy where all prior performance levels had been met, the respondent reserved unto itself the absolute discretion whether a bonus became payable, but in the absence of any published or available criteria by which that could be measured, represents to me a fundamental unfairness in the scheme. It should be corrected.

The approach which I propose to take in these proceedings is consistent with that of Hungerford J in Adams. 94 Overall, I am of the opinion that the manner in which the bonus scheme was established and operated exposed it to being characterised as unfair. The principal unfairness which I find, relevantly, is that where employment is terminated by the employer part-way through the calendar year for reasons unassociated in any way with the conduct of the employee then there is no opportunity for the employee to participate in any bonus. In making these observations I should be seen to be confining myself to the particular circumstances of these proceedings involving termination of employment on account of redundancy on 14 October 1998 when the calendar year was almost at an end. This finding is also based upon a finding which I make for reasons given later in these reasons for judgment that the bonus was an integral part of the applicant's remuneration package. 95 In any event, the failure to make payment of moneys referable to bonus on termination of employment in the circumstances which applied in these proceedings can equally be associated with unfairness in the underlying contract of employment pursuant to which participation in the VICP arose. 96 Accordingly, it is not necessary, in my opinion, that I make any particular findings of unfairness with respect to the bonus scheme and the manner in which it operated. I have, however, set out the factual material, the basis for attack made by the applicant and the defence of the scheme made by the respondent in deference to the manner in which the proceedings were conducted by the parties. Much of the evidentiary material was necessarily associated with arguments concerning the amount of the putative bonus which would have been payable with respect to the 1998 year.

PERFORMANCE OPTION PROGRAMME (POP) 97 It was part of the applicant's claim that in determining what payments should have been made to him on the termination of his employment some consideration should have been given to take into account the existence of a Performance Option Programme (POP). This programme was announced in January 1999. It was intended to create a one-off incentive programme for remaining employees, particularly to address questions of morale after the wholesale redundancies which had taken place in the latter half of 1998. The programme consisted of the award of a "performance-based stock option grant" which only became exercisable if the Merrill Lynch organisation overall achieved specified financial goals measured by reference to the Merrill Lynch cumulative economic profit. 98 In view of the decision which I have reached to reject the applicant's submissions in this area, it is not necessary that I describe this compensation plan in detail or determine the manner in which it may have operated in connection with the applicant's employment. In my opinion it is not fair to the respondent, nor is it unfair to the applicant for any finding of unfairness to be made because the respondent could not take into account the possibility of the creation of the POP award and the fact that it might have been available to the applicant after January 1999 in determining what is fair and reasonable compensation which should have been afforded to the applicant at the time of the termination of his employment in October 1998. The determination of such compensation can only, in my view, be relevantly assessed by reference to matters which were known or ought reasonably to have been known to the parties at the relevant time namely when the decision to retrench the applicant and the other employees was made. 99 In addition, the purpose for the establishment of this scheme was clearly directed to benefit employees who survived the redundancies created in October 1998.

WAS THE BONUS AN INTEGRAL PART OF THE APPLICANT'S REMUNERATION PACKAGE? 100 This issue was central to these proceedings. It was the applicant's claim that the moneys properly payable to him by the respondent on termination of employment should have included an amount by reference to a bonus which he would have earned in 1998. 101 Although the respondent was at pains in the applicant's letter of appointment to highlight the discretionary nature of the bonus under its employees' Variable Compensation Plan, it is clear from the totality of the documentation which became evidence in the proceedings and from the evidence of all of the witnesses that the existence and operation of this plan formed an integral and important part of the basis upon which the respondent and the Merrill Lynch organisation globally rewarded its employees. I am left with the clear impression that the respondent operated on a basis which recognised bonus payments in this way. That is, the payment of bonuses was part of the respondent's "employment culture", as part of the overall global operations of the Merrill Lynch organisation. The regular payment to the applicant and other employees of the respondent of a bonus during the period of employment, and the quantum of that payment when compared with base salary reinforce this impression. At the least, the bonus scheme was a related condition of or a collateral arrangement to the contract of employment between the applicant and the respondent. 102 Once it may be concluded that the bonus was an integral part of the applicant's employment contract with the respondent it follows in my opinion that fairness dictates that some element of bonus should have been taken into account by the respondent in determining what moneys should have been paid to the applicant on termination of employment. Indeed, so much was acknowledged by the respondent by offering to pay an amount of money on termination calculated by reference to the applicant's 1997 bonus. 103 This is consistent with the approach taken by a Full Bench of this Court in David Jones Ltd v Cukeric (1997) 78 IR 430. At 462 the Full Bench (Hill, Hungerford and Schmidt JJ) said: "The monetary order we propose will reflect all elements of Mr Cukeric's package on termination, including salary, all non-salary components of the package such as motor vehicle and other benefits, superannuation contributions, statutory entitlements in respect of the further six months period and a sum to reflect what his early retirement payment from the superannuation fund would have been had his employment so continued for a period of eighteen months from (the date of dismissal)." (emphasis added). 104 Accordingly, I conclude that in having failed to pay any amount to the applicant by reference to this factor the respondent's conduct was unfair. In that the amount that the respondent offered was, in my opinion, inadequate for the reasons which I shall shortly give, the respondent's conduct was also unfair.

A FAIR AMOUNT PAYABLE ON TERMINATION 105 I have previously indicated that the applicant should have been afforded a payment on termination of employment in lieu of notice amounting to six month's remuneration. In my opinion such an amount should also include an allowance for the bonus which the applicant would have earned during the 1998 year because, for reasons which I have previously given, the bonus was an integral part of his employment milieu. 106 I have previously referred to the fact that the respondent argued vehemently that it was not in a position to make any real assessment of the likely 1998 bonus at the time that the applicant's employment was terminated in October of that year. Accordingly, it was submitted, one could not characterise the assessment made by the respondent when it offered the applicant a payment based on 30% of his 1997 bonus as unfair. I have previously outlined reasons why, in my opinion, it would have been difficult for the respondent to have assessed in some reasonably accurate way the amount of bonus which it could have awarded to the applicant if he had remained in employment throughout the whole of the 1998 calendar year. Accordingly, there must be some sympathy for the submissions made by the respondent in this regard. However any such sympathy must be predicated upon the basis that the payment actually offered by the respondent had been made to the applicant. In fact, no such payment was ever made because, as I have previously said, the respondent insisted that the applicant sign a deed of release before paying any moneys. I have previously commented that if the respondent's assertion that such a payment was fair in all the circumstances was correct it had nothing to gain by insisting that the applicant sign a deed of release. Given that no payment was made, I am reluctant to examine the respondent's conduct in this area by reference to the assessment which it made in October 1998. It seems to me that it would be more just in all the circumstances to the applicant without visiting any injustice upon the respondent to asses the appropriate level of 1998 bonus by reference to what the applicant might have received by way of bonus if he had remained in the employment of the respondent throughout the 1998 year, not only for the purpose of determining what payment should have been made to him upon termination of employment but also for assessing the quantum of payment which ought to be made within the six month's reasonable period of notice which I have already determined should have been afforded to the applicant. 107 In reaching this conclusion I am conscious that it is arguable that this ex post facto approach should more logically be applied to a determination of the quantum of the bonus component for the six month's notice period than for the determination of the bonus component applicable for so much of the 1998 calendar year during which the applicant was employed by the respondent. This is because the determination relevant to the period of actual employment during 1998 should have been made as at October 1998 and the matter should therefore arguably be judged by reference to what information was reasonably available to the respondent as at October 1998. A determination of this aspect of the claim on this basis would be difficult because firstly, there was no evidence about what the respondent's personnel knew of the trading position of the Merrill Lynch organisation globally as at October 1998 and secondly, such a calculation could conceivably throw up different results for the purpose of determining an appropriate monetary amount for the 1998 bonus for both purposes. On balance, therefore, I have determined to approach the matter for both purposes on a common basis namely, by ascertaining as best I can the bonus which the applicant would have received if he had remained in employment throughout the 1998 calendar year. 108 I have previously referred to the conflicting evidence about the amount of bonus which the applicant would have received. It is clear from the evidence of Mr Duchesne that the starting point would have been the applicant's 1997 bonus of $US120,000. I accept the evidence of Mr Duchesne who would have had primary responsibility for assessing the bonus that the bonus would have been less in 1998 and I reject the applicant's evidence which would tend to disprove this. However having regard to the totality of the material which was tendered which covered the totality of the bonus payments made to other employees within the respondent's organisation, and making such allowance as I can so as to ignore payments made from the bonus pool to persons other than on the basis of performance, I allow the applicant an overall bonus package for 1998 of $US100,000. It follows that he should have been entitled to one half of this amount in terms of payment in lieu of notice, and a proportion of that amount for such part of the 1998 year that he was employed by the respondent. 109 Mr Reitano of counsel who appeared for the applicant submitted that the conversion of the US dollar amounts should be effected at the date the payment became due.

ORDERS 110 Consequent upon the findings of unfairness which I have made I make the following orders:

1. I declare so much of the contract of employment between the applicant and the respondent which allowed for termination by the respondent upon giving 30 days' notice to the applicant to be void.
2. The respondent is to pay the applicant an amount calculated by reference to six months pay in lieu of notice based on an annual salary package of $115,000 and an annual putative bonus for 1998 of US$100,000.
3. The contract of employment made on 26 October 1995 between the applicant and the respondent is varied from its commencement by inserting the following provision, namely: Provided that in the event your employment is terminated by Merrill Lynch Australia Pty Ltd by reason of redundancy you will be entitled to the payment of an amount assessed to the best of the ability of Merrill Lynch Australia Pty Ltd being such proportion of the bonus which would become payable referable to the relevant year in which termination is effected as bears to that part of that year during which you were employed.
4. The respondent shall pay to the applicant that part of US$100,000 that the number of days between 1 January 1998 and 14 October 1998 inclusive bears to 365 days.
5. The conversion rate for the calculation of the Australian dollar equivalent to the amounts expressed in US$ shall be that applied by National Australia Bank Ltd on 14 October 1998.
6. The respondent shall pay interest to the applicant on the moneys due and payable pursuant to the above orders calculated in accordance with s 94 of the Supreme Court Act 1970 from 14 October 1998 to date of judgment.
7. The respondent shall pay the applicant's costs of the proceedings in an amount as agreed or in the absence of agreement as assessed.

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