Express law No. 72

19 June 2008

Employers can be obliged to pay redundancy as advised
in an estimate

A recent New South Wales Supreme Court decision has
found that an employer can be bound by a miscalculated
redundancy offer even where the offer is far greater
than the employee's award entitlement.

Justice White held in Tooheys Pty Ltd v Blinkhorn [2008]
NSWSC 499 that letters sent by Tooheys to its employees
constituted binding obligations even though an error in
the calculations meant employees would receive up to $163,000
more than their award entitlement.

Tooheys had indicated in the letters that the calculations
were made on the basis of the award and that the actual
figures were 'estimates only' which could change
in certain circumstances. But Justice White found that
Tooheys had intended to make a contractually binding offer
and that it was reasonable for the employees to look to
the actual figures rather than the formula on which the
calculations were based.

Background

When Tooheys decided to automate part of its brewing process,
it offered the employees, who were brewing technicians
in its main brewery, the choice of taking a redundancy
package or transferring to another department at a lower
wage.

An industrial award, which was binding on Tooheys and
the relevant unions, governed the employees' employment
conditions, including their redundancy entitlements. Under
the award, the employees were entitled to three weeks payment
for each of their first 15 years of service and four weeks
payment for each subsequent year of service, plus five
weeks ex gratia payment.

A series of letters setting out the employees' options
culminated in a letter in which Tooheys asked the employees
to indicate whether or not they wished to accept 'a
redundancy package as outlined in the attached calculation'.
The formula stated for calculating the payments was in
accordance with the award, but the actual figures exceeded
the employees' entitlements under the award by $64,000,
$56,000, $150,000, $147,000, $163,000 and $60,000. The
mistake was a result of an Excel spreadsheet which calculated
each employee's entitlement on the basis of 32.68
years of service.

When Tooheys realised its mistake it purported to revoke
the letters, but six of the employees had already returned
the signed letters by this time. Two of the employees had
not returned the letters because they were pursuing further
negotiations with Tooheys, and one employee never received
the letter of offer.

Tooheys said it did not consider itself to be bound by
the letters and issued what it called a 'corrected
redundancy estimate'. This was an accurate calculation
of the redundancy payment to which the employees were entitled
under the award.

Were the letters offers capable of giving rise to a binding
contract?

Tooheys submitted on the basis of Air Great Lakes Pty
Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR
309 at 326 per Mahoney JA that there was no consensus
capable of forming a binding contract. Tooheys submitted
that the parties had not intended that there be a binding
contract because:

  • the calculations were estimates only
  • Tooheys was under no obligation to pay more than the
    award
  • Tooheys' offer was to pay an amount calculated
    in accordance with a formula, not the amount set out
    in the calculations.

Final offer or estimate only?

Justice White found that the plaintiffs intended to be
bound by the letters, despite the statement on each of
the calculations that 'this redundancy calculation
is an estimate only–advise [sic] of Final Dates and
Calculations will be at Lion Nathan's discretion'.

The letters stated that the calculations were accurate
at the time of processing but that changes to the employees' contracts
or taking of leave would affect the final amount payable.
Tooheys submitted that the agreement was therefore incomplete
because the plaintiff has reserved a discretion as to whether
it would pay the amount set out in the calculation.

Construing the document as a whole, Justice White held
that these statements indicated the redundancy calculations
were a final offer that would be varied in the circumstances
specified. As to Tooheys' discretion, Justice White
pointed out that, on Tooheys' case, Tooheys intended
to pay the employees according to the award and therefore
the statements could only indicate a discretion to offer
more but not less than the award.

Payment more than the award

Justice White found that, although Tooheys was under no
obligation to pay more than the award, there was no reason
why Tooheys could not agree to pay more to encourage the
employees to take redundancy. Justice White noted that:

… the offer of a 'redundancy package' rather
suggests the plaintiff was offering something more than
that to which the employees would in any event be entitled
if they chose not to take up the alternative employment.

This was strengthened by the circumstance that there was
no express statement in the letters to the effect that,
if the employees took redundancy, they would only be paid
their entitlement under the award.

Figures or formula?

The letters contained no express offer to pay a particular
amount. Instead the letters stated a formula for calculating
the amount, being three weeks salary for the first 15 years
and four weeks per year thereafter.

Justice White held that the letters bound Tooheys to the
figures set out in the attached calculations, not the formula
on which those figures were said to be calculated. It was
implicit in Tooheys' invitation to the employees
to indicate their acceptance of the 'redundancy package
as outlined in the attached calculation' that Tooheys
was offering to pay the amount of the 'redundancy
package as outlined in the attached calculation'.

Justice White said that 'it would be reasonable
to expect the employees to look at the "bottom line" of
what they would be paid in deciding whether to take redundancy
or accept alternative employment'.

Outcome

Justice White concluded that, in the case of the employees
who returned their signed acceptance of the redundancy
offer, the employer was contractually bound to pay the
redundancy set out in the calculations attached to the
offer.

Implications for public sector

Redundancy entitlements for public sector employees are
commonly set out in an industrial instrument, such as a
certified or collective agreement, under the Workplace
Relations Act 1996. Such employees are generally entitled
to a redundancy payment which is calculated in accordance
with a formula set out in the industrial instrument, like
the award in Tooheys Pty Ltd v Blinkhorn.

An industrial instrument will not necessarily preclude
an employer from agreeing to payment of a higher redundancy
than required by the industrial instrument. Public sector
employers therefore should consider taking steps to avoid
being obliged to pay redundancies higher than the entitlements
under the industrial instrument.

When providing an employee with a redundancy offer including
a redundancy estimate, the employer should be able to avoid
liability in contract if the employer clearly explains
that:

  1. the offer is to pay a redundancy amount to which the
    employee is entitled in accordance with the relevant
    industrial instrument (or any other relevant document)
  2. the estimate is an estimate only of the redundancy
    entitlement payable under the industrial instrument (or
    other relevant document). (As a matter of abundant caution
    it could also be stated that the estimate can be subject
    to variation in any respect.)

If employers take such steps they should also avoid potential
liability in negligence for any damages suffered by an
employee as a result of reliance on incorrect and negligent
advice about the benefits which would be payable on a redundancy.

For further information please contact:

Paul Vermeesch
Special Counsel Litigation
T 02 6253 7428 F 02 6253 7381
paul.vermeesch@ags.gov.au

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