Fonterra Brands argues 'highly paid' executive breached employment contract
The Fair Work Commission recently dealt with a senior executive’s general protections application, asking the former to clarify whether his employer dismissed him.
The employee was a Fonterra Brands (Australia) Pty Ltd senior executive. Due to a restructuring around June 2022, Fonterra announced the creation of a “Global Markets” structure. Disagreements arose as to how that would apply to the senior executive and those disputes led to the end of his employment.
Fonterra argued that he was given “a lawful and reasonable direction to perform certain duties” and that he had the “intention not to perform them.” The company said that this resulted in him repudiating his contract by renunciation.
Fonterra is a global dairy company operating under a cooperative structure owned by around 9000 farming families in New Zealand. It has significant operations in Australia.
The senior executive was employed by Fonterra from 2013 to 2022. At the time of the termination of his employment, his role was Director of Sales and Marketing Services. He was reportedly “highly remunerated,” with a salary above $600,000 annually.
Under his contract, he reported to the Asia Pacific CEO.
Consolidation of roles
In June 2022, Fonterra announced the creation of a “Global Markets” division of its business, which represented a business restructure that would bring together its ‘Asia Pacific’ (APAC) region and ‘Asia, Middle East and North America’ (AMENA) region under a single leadership team. At this point, the senior executive worked within the APAC region.
According to records, the creation of Global Markets would consolidate the sales and marketing ‘director’ roles for the APAC and AMENA regions into a single role, being “Director Sales & Marketing – Global Markets.”
The senior executive was considered for the role, and they sent him an email discussing his new duties and obligations if he ever accepted the position. In the proposed package, the value of the salary increase was (together with a year-end remuneration increase) only “approximately a 5% increase to his then level of remuneration.”
The senior executive complained, saying “there should be more pay than the 5% increase as the role was bigger.”
The employer’s management told him the role had been “benchmarked well in the market, and you’re very well paid.”
The senior executive then replied that he was “sick of being told I am well paid” and “this is a substantially bigger job.”
The employer reminded the senior executive of the terms of his contract, part of which stated:
“You are required to perform the duties of your position and such other duties and responsibilities as may be specified by the company from time to time, including for any other company in the Fonterra group. You may also be required to work in a position, other than that to which you have been appointed, that is commensurate with your skills and/or experience and you may from time to time have different reporting responsibilities. Irrespective of any changes to your duties, position or reporting responsibilities, the terms and conditions set out in this document and your letter of offer will continue to apply unless otherwise amended in writing.”
It argued that the senior’s executive failure to perform his responsibilities in the company’s restructure was violating the said terms. After a series of exchanges, the employer summarily dismissed him.
The arguments
The commission said that the senior executive has shown his “intention not to perform the new Global Markets role.”
“In this case, a critical issue was remuneration, and it was clear that neither party was moving from their position. The employee had made it clear that the proposed increase was insufficient; Fonterra had made it clear that no further salary increase was coming.”
Fonterra argued that a “refusal to perform work” or to “comply with a reasonable and lawful direction” have been found to constitute a repudiatory breach of the employment contract, justifying a summary dismissal.
In examining the terms of his contract, the commission noted that he was “a highly paid executive in a leadership role.”
“While the duties clause in the contract is not without limit, it was sufficiently broad,” the commission said. It said that the changes proposed by the employer were not “beyond the boundaries of the senior executive’s contract.”
Thus, it said that the company accepted the employee’s failure to perform his duties as repudiation, entitling Fonterra “to elect to terminate the contract.”
Consequently, the commission said “the circumstances in this case are a dismissal” under the Fair Work Act.
