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Failure to update employment contract costs employer more than $1 million

The Supreme Court of NSW has highlighted the importance of employment contracts reflecting changes to an employee’s role and in particular the parties’ expectations as to the applicable notice period.

Roderick v Washington H Soul Pattinson & Company Limited (No 2) [2020] NSWSC 1224 concerned the dismissal of Melinda Roderick, a senior employee of Washington H Soul Pattinson & Company Limited (‘WHSP).

Ms Roderick commenced employment with WHSP in 2006 as CFO. At that time, Ms Roderick’s employment contract contained an express term requiring WHSP to give Ms Roderick three months’ notice of termination.

Despite her promotion to Finance Director in 2014, Ms Roderick’s employment contract was not updated or replaced.

In 2018, WHSP terminated Ms Roderick’s employment without notice due to poor performance.

Three months later, WHSP paid Ms Roderick an amount equivalent to three months’ salary in lieu of notice reflecting the notice period prescribed by her original employment contract. Ms Roderick, however, considered that she had no applicable written employment contract at the time of her dismissal and claimed that she was entitled to “reasonable” notice (ie. more than three months).

Status of employment contract

Ms Roderick argued that her appointment to the position of Finance Director had changed her duties to such an extent that:

  • her original employment contract was no longer applicable; and
  • her employment was governed by a new contract from 2014.

Further, Ms Roderick argued that the mutual intention of the parties was that her original employment contract had ended. She referred to conversations with WHSP to the effect that upon her promotion, a new employment contract would be prepared. In addition, a draft employment contract was provided to her in 2015. This contract was never formally executed, or its terms finally agreed.

WHSP contended that:

  • the parties remained bound by the original employment contract; and
  • despite its failure to provide Ms Roderick with notice in accordance with that contract, its breach was of no consequence given it later paid her three months’ salary in lieu of notice of termination per the original employment contract.

Neither party contended that the draft contract prepared in 2015 reflected the employment agreement as at termination.

The key question for the Court to determine was whether Ms Roderick’s employment was governed by the original employment contract or whether that contract had since been discharged and her employment was governed by a different contract at the time of her dismissal, as this would impact upon her notice claim.

Decision

The Court held that the employment relationship was governed by a new employment contract due to:

  • the change in Ms Roderick’s duties; and
  • the discussions between the parties and the draft employment agreement which indicated that the parties clearly intended that Ms Roderick’s original employment contract had ended upon her appointment as Finance Director.

Rather than finding that the draft employment contract applied, his Honour Justice Cavanagh held that there was no written agreement in place at the time of dismissal. In turn, it was necessary for the Court to imply a term as to “reasonable” notice owing to Ms Roderick.

Ms Roderick sought a reasonable notice period of 24 months, while WHSP argued that three to six months was reasonable.

Given Ms Roderick’s circumstances (for example her age, position, salary and expected period of time to find new employment), his Honour found that a 12-month notice period was reasonable in the circumstances.

The Court awarded Ms Roderick damages equivalent to nine months’ pay (being 12 months’ notice pay, less the three months’ notice already paid), plus additional entitlements she would have received during that period. This brought the total amount owing to Ms Roderick to more than $1.1M.

Conclusion

This decision provides a timely reminder that where an employee’s duties change substantially (such as upon promotion), employers must ensure that the employment contract is updated or replaced to ensure certainty around the terms pertaining to the new position. Failure to do so may result in a finding that a substantial “reasonable” notice period applies in the absence of a relevant, current agreement between the parties.

Cowell Clarke’s Employment and Workplace Relations team is well-placed to assist employers in negotiating, formalising and achieving certainty as to the terms of an employment agreement. Should you require assistance in this regard, please feel free to contact us.

This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.

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