Employers in the executive firing line

by 16 Sep 2008

SENIOR EXECUTIVES are becoming more assertive when it comes to challenging employment terminations, and courts are becoming increasingly willing to award them compensation.

According to Jamie Robinson, a partner at Harmers Workplace Lawyers in Brisbane, senior executives who believe they’ve been unreasonably dismissed are now more willing than ever to put up a legal fight.

“There’s [now] less of a stigma attached to it,” he said. “Particularly in NSW, senior executives are openly seen in the media to challenge their termination if they think they’ve been terminated in a way that’s unfair. In some quarters it’s almost seen as a badge of honour that you’ve actually stood up for your rights.”

And on a practical level, Robinson explained, being terminated can have serious financial repercussions, particularly as alternative positions become scarcer. “People build their lives around their level of income, so, therefore, when they feel they’ve been hard done by they need to potentially protect that lifestyle. Also with the changing economy, it’s probably a bit more difficult now to move on,” he said.

According to Robinson, courts are now finding avenues for compensating senior executives whose salaries would otherwise put them over the remuneration cap for unfair dismissal claims.

One such case last year, was that of Goldman Sachs JB Were Services Pty Ltd v Nikolich in which the Full Federal Court upheld a decision by Justice Wilcox that certain terms of a grievance policy given an employee when he began his employment, formed part of his contract of an employment.

Goldman Sachs, the court found, failed to comply with the grievance policy which led to the employee, Nikolich, suffering psychological shock and his employment being terminated. Goldman Sachs had therefore breached Nikolich’s employment contract and was liable to pay him some $500,000 in damages.

Another developing avenue for redress is based on the recognition by courts of an implied term of “mutual trust and confidence” in employment contracts.

“It’s an adoption of a concept that’s been used, and is quite widely accepted in British law, and that’s that obviously the employer has to be able to have trust and confidence in the employee, but equally, the employee has to have trust and confidence in the employer,”Robinson explained.

“It’s something that the Australian courts have been reluctant to give heed to, up until Workchoices came through.”

One such case where this avenue was utilised was the case of Russell v The Trustees of the Roman Catholic Churchfor the Archdiocese of Sydney & Anor. Here, The Roman Catholic Church terminated the employment of Mr Russell, a choir master, after allegations of misconduct regarding issues of child protection were made against.

The criminal charges against Russell were dismissed, but the church – based on its own investigation – decided to terminate his employment anyway. Russell brought an action against the church claiming that his termination was unreasonable and Justice Rothman of the NSW Supreme Court agreed.

Justice Rothman held that an employment contract would be unworkable without an implied term of “mutual trust and confidence”, and in this case, the Church had breached it.

“It almost gives [senior executives] a quasi-unfair dismissal claim,” Robinson said. “It’s definitely something with avenues for growth. It will depend to a degree on what the Labor government does with its laws coming forward as to how vigorously lawyers explore that avenue.”

Obviously this new genre of claims creates significant risks for employers, particularly because they concern senior executives who are often on considerable salaries. According to Robinson, mitigating these risks is a three-stage process – planning, risk assessment and risk management.

In terms of planning, Robinson said, employers need to start paying more careful attention to the details of their employment contracts, “because employers – despite the fact that they’re employing very expensive assets in the firm of people – are very lax in the way they deal with their employment contracts.

“The employment contract takes on particular importance in the case of senior executives who won’t have access to unfair dismissal claims, Robinson explained, because the contract can comprehensively define the grounds on which the employer is able to terminate employment.

If an employer is in the position where they want to terminate the employment of a senior executive, they first need to undertake a process of risk assessment and risk management in order to minimise the chances of disputes later on. “Look at what was said to the person during the recruitment stage, look at the contract and look at what the policies say,” Robinson explained. “If you’ve got performance management policies which aren’t expressly excluded [from the contract] then you’re in a situation where you need to do performance management.”

An alternative to going through what can be a lengthy performance management process, Robinson explained, is to offer the employee additional payment as an acknowledgment that the policy hasn’t been properly complied with. They then need to have the employee sign a deed of release acknowledging the agreement.

“And employers do that. A lot of them recognise that they haven’t done [the performance management process well] …so they’re willing to offer a bit of money in order to get that certainty, as opposed to taking the risk [of the employee later bringing a claim].”

COMMENTS

Most Read