Employment Contracts are they worth the paper they re written on?

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1 Our values

2 Employment Contracts are they worth the paper they re written on? Shane Entriken, Special Counsel, Practice Leader, Perth Catherine Smith, Solicitor Claire Tuffield, Solicitor

3 The contractual context Cultures & Values ILO & UN Convention Leadership Acts of Parliament Contracts of Employment Employer Employee Doctrine at Common Law Systems & Policies

4 Contract formation Offer; Acceptance; Consideration; Intention to create legal relations

5 Terms may be Express and Implied The terms of the contract of employment may be both express and implied Express terms may be written, verbal or inferred from conduct Verbal terms are just as binding albeit more difficult to prove Terms are implied by law, custom or the presumption the parties in fact greed to them An express provision will override an implied term The contents of industrial instruments get their force from statute and are not implied into contracts

6 Common hot spots Salary review no increase but new contract issued New role very old initial contract Restraint of trade too harsh Clash with the NES or industrial instrument Right to suspend without pay / indefinite suspension Policy incorporated into contract Complex shares, share options and bonus structures Generous payout / non cash benefits on termination Performs substantial part of their duties overseas Employee appointed to board of a group company

7 A fit for purpose contract Creates certainty and harmony Helps to create the desired culture Increases the capacity to manage Provides clarity and liberates leaders Minimises the inadvertent creation of rights that would not otherwise exist

8 Causes of action for breach Fair Work Act 2009: Interlocutory injunction for reinstatement S772 Prohibited Reason PART3-2 Unfair Dismissal: Reinstatement primary remedy PART 3-1 General Protections: Adverse action, discrimination, coercion, sham arrangements, misrepresentation National Employment Standards Wrongful termination in the Supreme Court or District Court of WA Supreme Court Injunction Restraints, confidential information Competition and Consumer Act 2010 misleading and deceptive conduct

9 Drafting tips Draft consistently with the industrial environment Research applicable awards, if any Tick off award requirements (but don t incorporate the award into the contract) Disclosure requirements Classification Include an annualised salary clause if applicable Expressly set off benefits provided against safety net entitlements eg: You agree that we may set off the value of all Benefits paid to or for you against any entitlement you have under any Industrial Instrument to payment for work performed or otherwise in respect of your employment.

10 Drafting tips Don t overwrite or reinterpret the safety net (NES, award) unless you really intend to eg: 20 days annual leave is not necessarily the same as four weeks annual leave In relation to redundancy benefits Consider using the contract to evidence compliance with statutory disclosure obligations: To provide the Fair Work Information Statement To provide the Superannuation Standard Choice form

11 Drafting tips Build in as much flexibility as you can: Role and duties Work location Draft for certainty (uncertain provisions are unenforceable): In all things Particularly around money Define and protect confidential information Secure a consent to infringe moral rights under copyright law Deal with other intellectual property rights as appropriate

12 Drafting tips If post employment restraints against competition and/or poaching are appropriate, spend the effort required to get them right Exclude policies from the contract Include comprehensive termination provisions Make sure the agreement is complete, and use a complete agreement clause (but be careful with complete agreement clauses when updating existing arrangements)

13 Take care to identify and apply the underlying safety net Marriot Airport Concessions Pty Ltd (June 2015) What is the correct underlying safety net ie, minimum entitlements, for your employees? If you do not know find out If you do know double check that you are applying them correctly If you get it wrong... FWO Involvement Substantial back payment liabilities which only increase over time; Claims can be made up to 6 years Civil penalties (currently of up to $10,200 for an individual and $51,000 for a corporation)

14 Overview Implied terms in employment contracts; Implied term of reasonable notice; Incorporating policies into contracts; Discretionary bonus payments.

15 Implied terms in contracts of employment Terms can be implied into employment contacts by law, in fact or by custom. A term can be implied in law if... The terms are necessary to give effect to the employment relationship ie, the legislation, equity, common law allows for it. For example - Good faith and fair dealing (watch this space) Copyright Act and Corporations Act Duty of confidence (ongoing duties); Take reasonable care to ensure health and safety; To obey reasonable and lawful instructions, To cooperate (get the worth done); Duty of fidelity etc.

16 Implied terms in contracts of employment A term can be implied in fact if... the individual facts of case support it. The term must be : reasonable and equitable; necessary to give the contract business efficacy; so obvious as to go without saying; capable of clear expression; AND IMPORTANTLY Not contradicted by any of the express terms in the contract.

17 Implied term of reasonable notice What is the implied term of reasonable notice? the law implies a term that either party can terminate the contract (without cause/fault) upon the giving of reasonable notice to the other. Why is it implied? Mixed decisions about whether implied by law or fact (not settled). NES sets the minimum notice (floor not ceiling). Industrial instrument (agreement or EBA) can set the notice, displacing the necessity to imply the term.

18 What is reasonable notice? Relevant factors can include: Industry practice or custom Duration of the hiring weekly, monthly, yearly or for life Time it takes to secure alternative employment (job mobility) Time it takes to replace the employee The seniority of the employee (age, experience, qualifications etc) The importance of the position (degree of responsibility etc) Length of service with the employer Salary *Not limited to the above factors depends upon judicial discretion

19 Some benchmarks reasonable notice cases Case Name Relevant facts Reasonable notice awarded Macauslane v Fisher and Paykel (2003) Qld Financial controller for the long term, 36 y/o, salary $100,000, employed for 2.5 years 9 months Taske v Occupational & Medical Innovations Ltd (2007) - Qld Joint chief executive officer, 63 y/o, salary $200,000, employed for 1 year, unlikely to obtain other employment 9 months Rogangardiner v Woolworths (2012) WA Finance executive (middle manager 496 others), 44 y/o, employed for 5.5 years, salary $103,000 4 months District Council of Barunga West v Hand (2014) - SA CEO (council), employed for 44 years, salary $124, months Miller v Sunland Park Pty Ltd (2014) - FCCA General manager, employed for 13 months, salary $60,000 6 months

20 Reasonable notice case example What do you think is reasonable notice? Financial controller 49 years old Employed by the company for 24 years Managed 14 employees Salary of $70,000 (other remuneration $750,000 p/a) No express termination clause Employee wanted 12 months reasonable notice Employer said five weeks (based on the Fair Work Act) was sufficient

21 Reasonable notice case example What do you think is reasonable notice? Financial controller, 49 years old, employed for 24 years, managed 14 employees, salary of $70,000 (other remuneration $750,000 p/a) No express termination clause Employee wanted 12 months reasonable notice Employer said five weeks (based on the Fair Work Act) was sufficient Susanna Ma v Expeditors International Pty Ltd; Susanna Ma v Expeditors Pty Limited [2014] NSWSC 859 HELD: 10 months notice based on approximately $750,000 remuneration package (plus other claims) brought award to approximately 1M).

22 Implied terms takeaway points Implied terms takeaway points Employment contract (even detailed ones) may not be the sole source of the terms governing the employment relationship. Do not leave it to the Court to interpret what might have been the parties agreement / intention. Reduce key aspects of the agreement into the written / express employment contract. Some implied terms can be largely avoided by express clauses in the agreement eg, clearly outlining the amount of notice to be provided on termination, and whether notice can be paid in lieu.

23 Incorporation of policies into contract Why exclude policies from the employment contract? If the policies form part of the employment contract, a breach by the employer will allow the employee to claim damages ($$) for breach of contract. Policies are work instructions. They need to be flexible to ensure that they reflect the current legal obligations and operational requirements. When will policies have contractual effect? Policies will have contractual effect when they are expressly incorporated, for example: The workplace policies form part of your employment contract with us. Not clear cut for example they can be incorporated by reference or because of the language used in the contract or policy.

24 Policies case examples (1 of 3) Goldman Sachs JBWere Services Pty Limited v Nikolich (2007) 59 AILR Working with Us policy included a commitment to take every practicable step to provide and maintain a safe and healthy work environment. HELD: Working with Us policy part of employment contract even though contract did not expressly refer to it. The company failed to comply with the policy s terms and the employee was entitled to $500,000 in damages for breach. The policy provided at the same time of the letter of offer. Employee was required to read and sign an acknowledgement that he had read and understood the policy. Policy not merely aspirational. Managers and employees all considered the policy to be binding.

25 Policies case examples (2 of 3) Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177 (22 December 2014) Letter of offer stated that all Farstad Shipping Policies are to be observed at all times HELD: company found to have breached employment contract by failing to comply with policy because of flawed investigation into bullying complaint (damages to be assessed) She was inducted on the policies, regularly reminded of them and asked to re-read them and sign an acknowledgement. Policy wording made it clear that the obligations were mutual exchange of promises and assurances. Some parts aspirational but others serious matters (sex discrimination and bullying) were important and directive.

26 Policies case example (3 of 3) McCormick v Riverwood International (Australia) Pty Ltd (1999) 167 ALR 689 Letter of offer stated You agree to abide by all Company policies and practices currently in place, any alterations made to them and any new ones introduced. Employee argued that an redundancy policy had been incorporated by reference, and that because the redundancy pay (111 weeks pay) had not been paid, the employer had breached the contract. HELD: policies which are stated to be amendable at will can still have contractual effect. Policies can be amended but have due regard to the purposes of the contract [not act capriciously or unfairly].

27 Incorporation of policies takeaway points Incorporation of policies takeaway points Policies can be incorporated into the employment contract fairly easily it is not a high bar. Employers can direct employees at any time to comply with reasonable and lawful directions (ie, policies). Policies provide a framework and evidence of compliance with legal obligations eg, workplace health and safety. Have a clear exclusions. For example: In the contract You must comply with our policies in place from time to time but the policies do not form part of your employment contract. In the policy This policy does not in any way form part of your contract of employment with us. Do not re-incorporate the policy by reference or implication eg, avoid mutual obligations and cross-referencing polices.

28 Discretionary bonus payments Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 Clause in contract provided: [the Company] will assess [the employee's] performance against set objectives...; and The decision as to whether [the employee] should receive the Performance Bonus is entirely within the discretion of [the Company] HELD: company failed to assess the performance and set the objectives, as such, employee entitled to damages. Do not withhold bonus payments capriciously, arbitrarily or unreasonably. Russo v Westpac Banking Corporation [2015] FCCA 1086 (12 May 2015)

29 Discretionary bonus payments takeaway points Discretionary bonus payments takeaway points If the bonus requires reviewing the employee s performance against standards set by the employer make sure the standards are set and reviews are conducted; Keep the criteria and objectives for obtaining a bonus in a separate workplace policy (out of the employment contract); Consider inserting qualification regarding bonus payments, eg, Bonus payments are at the complete discretion of [the employer] and that if the discretion is not exercised by [the employer], that will not itself provide an entitlement to damages for breach of contract ; Do not refuse to exercise the discretion to provide a bonus arbitrarily [random choice or on a whim], capriciously [impulsively] or unreasonably [no reasonable person would consider making the choice].

30 Conclusion The employment contract is worth considerably more than the paper it s written on There is no one size fits all Spend the time to best ensure that each employment contract you enter into adequately addresses the relevant features of the relationship and the risks

31 Our Aspiration How we think Known for our deep industry knowledge we lead and shape the industries where we work Work closely with loyal clients on best in class solutions not politically aligned across industries Deliver innovative outcomes that add real value unshackled from past practices Build a high performance culture that people want to join and create a new industry benchmark for service and value

32 Thank you Shane Entriken, Special Counsel, Practice Leader, Perth Phone s.entriken@hopgoodganim.com.au