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Allens Arthur Robinson

Focus: Workplace Relations - June 2009

In this issue: we look at enforcing a post-employment restraint of trade; the consequences of failing to adhere to dispute resolution provisions in an employment contract; the potential cost of revoking an employment inducement; and an employer's responsibility to deal with allegations of sexual harassment even in the absence of a formal complaint.

Restraint of trade clause unenforceable

In brief: A recent decision of the NSW Supreme Court demonstrates the need for caution when drafting and enforcing post-employment restraints of trade.1 Law Graduate Matt Baillie reports.

How does it affect you?

  • Restraint of trade clauses in employment contracts should be carefully drafted and relate directly to the employer's genuine interest.
  • An employer may lose the protection of a restraint if it breaches the contract when terminating employment.
Background

Mr Howell had been employed as an account executive with Northern Tablelands Insurance Brokers since 2000. In a contract of employment signed in 2005, Mr Howell agreed to a restraint of trade clause that would prevent him from 'canvassing, soliciting or endeavouring to entice away' Northern Tablelands' clients for a period of '12, 24 or 36 months' after his term of employment.

On 10 February 2009, Northern Tablelands offered Mr Howell a redundancy package of approximately $30,000. After rejecting a counter-offer made by Mr Howell, Northern Tablelands advised him verbally to return his office keys, pack his belongings and leave the premises immediately. That afternoon Northern Tablelands sent him a letter informing him that his position had been made redundant.

Shortly after, Mr Howell began working with another insurance firm, and sold insurance to clients he had previously dealt with at Northern Tablelands. Northern Tablelands sought an injunction in the Supreme Court to enforce the restraint of trade in Mr Howell's employment contract.

Decision

Justice Barrett refused to grant the injunction.

Firstly, the court found that the 2005 contract of employment required Northern Tablelands to give Mr Howell written notice of termination. By informing him orally and ordering him to leave, Northern Tablelands had engaged in a breach amounting to repudiation of the employment contract, with the consequence that the contract was terminated. The subsequent written notice was not sufficient. As the contract had been terminated, the court found that the restraint of trade clause, along with the rest of the contract, no longer applied.

Secondly, Justice Barrett found that the restraint of trade clause was invalid in any case. He said that the restriction for '12, 24 or 36 months' meant that it was unclear for how long Mr Howell was subject to a post-employment restriction. The clause should have been accompanied by an interpretation clause which stated how the time limits were to operate.

This decision confirms that when a contract provides various options:

  • the options should be separate and capable of applying at the same time; or
  • if only one combination is to apply, there should be a means for resolving which variables should be selected.

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Breach of grievance clause results in damages

In brief: Dispute resolution provisions in employment contracts can be dangerous and lead to substantial damages claims if not followed.2 Lawyer Andrew Stirling reports.

How does it affect you?

  • Before dismissing an employee, employers should ensure they have followed all procedural steps they have committed to in the employee's contract (or applicable industrial instrument).
  • Failing to follow a procedural step may mean an employee has been dismissed in breach of their contract or industrial instrument. This may lead to the employee being awarded damages for that breach.
  • Damages can be substantial if a court concludes that, had the procedural steps been followed, termination may not have resulted.
Background

Mr Van Efferen was employed on an Australian Workplace Agreement (AWA) by CMA Corporation Limited (CMA), to work as a marine supervisor on a wharf demolition project which CMA had been engaged to perform on behalf of John Holland. During the fortnight he performed the role, Mr Van Efferen had a number of disagreements with CMA's Project Manager about what he considered to be poor health and safety practices.

After those disagreements, Mr Van Efferen was relocated off site at the project manager's behest. The court rejected evidence that suggested John Holland had required CMA to remove Mr Van Efferen. Since CMA had no other work for Mr Van Efferen to perform, he was soon retrenched. At no time did CMA follow the grievance procedure in Mr Van Efferen's AWA to discuss any concerns it had about his performance.

Decision

The court dismissed CMA's contention that it had no obligation to follow the grievance procedure in the AWA before terminating Mr Van Efferen's employment. It ruled that a reasonable person would have concluded that CMA intended to be contractually bound to follow the procedure.

Further, the court decided that, had CMA followed the grievance procedure, Mr Van Efferen would have responded positively to any request about his future conduct. Based on his expected improved performance, the court decided that Mr Van Efferen would have remained on site and continued to perform his role.

Mr Van Efferen was awarded damages equivalent to the salary he would have earned had he not been removed from site and made redundant. From that, deductions were made for income he earned in alternative employment and a 10 per cent discount for the possibility the contract might have been validly terminated before the project concluded.

The court cast doubt on the recent judicial trend to imply terms into employment contracts requiring parties to act in good faith towards each other and not to act in a manner likely to destroy the relationship of trust and confidence between them. However, despite that reservation, the court had no problem with applying a term agreed expressly.

The case highlights the danger in adopting industrial relations practices without limiting their application as guidelines or indicators subject to circumstances.

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Employer found vicariously liable where informal complaint of sexual harassment

In brief: A recent decision in the Queensland Anti-Discrimination Tribunal further highlights an employer's responsibility to act on complaints of sexual harassment, even if the complainant asks for no action to be taken.3 Senior Associate John Naughton reports.

How does it affect you?

  • Employers should confirm, as part of a thorough EEO training program, that they have a responsibility to act on any complaint of harassment or discrimination in the workplace that is brought to their attention.
  • This responsibility extends beyond formal complaints and will even arise in circumstances where a complaint is raised in an informal way.
Background

A female sales employee complained that her supervisor repeatedly asked her out on dates, asked her for cuddles and hugs, asked her if she was wearing any underwear, put his hand on her bare leg while she was driving a forklift, and on one occasion kissed her through the open window of a car. Although these complaints were made to a senior manager, the complainant initially declined the senior manager's offer to speak to the supervisor, claiming that she would handle the matter herself.

The behaviour continued, and the woman eventually made a formal complaint. An investigation largely conducted by the same senior manager determined that the complaint was unsubstantiated. The complainant then brought an action in the Queensland Anti-Discrimination Tribunal under the Anti-Discrimination Act 1991 (Qld).

Finding of vicarious liability against the employer

In finding the employer vicariously liable for the sexual harassment, the tribunal noted that:

  • despite the existence of extensive EEO policies, the employer had failed to ensure 'that persons employed by it as supervisors fully appreciate that it is their primary responsibility to ... provide a work environment free from harassment';
  • from the moment the first informal complaint had been made to the senior manager, it had become his responsibility 'to take control of the situation and take the matter further - either to protect the complainant from the [supervisor] or to show that the complainant was a person who makes false complaints against a co-worker';
  • the respect to be accorded to the wishes of complainant should be subservient to this overriding responsibility; and
  • the senior manager should have ensured that the complainant's supervisor could not continue with the alleged behaviour by, for example, physically redeploying the two employees to different parts of the business.

The tribunal ordered the employer as well as the supervisor to pay $23,425 in damages and to provide every member of employer's board of directors with a copy of the decision.

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Broken promise costly for employer

In brief: An employee has been awarded damages as a result of being induced to enter a contract of employment by a promise that was subsequently revoked.4 Lawyer Catherine Ware reports.

How does it affect you?

  • Employers should be aware that promises about incentive payments (or other inducements) may be binding if relied on by an employee when accepting employment.
  • Changing incentive entitlements that are part of an employee's terms of employment may be misleading and deceptive conduct under the Trade Practices Act 1974 (Cth).
Background

Mr Morton brought an action against his former employer Interpro Australia Pty Ltd (Interpro) and the payroll company Courts Global Pty Ltd, alleging he was induced to relocate from England to Australia on the basis that his contract of employment with Interpro provided for a 1 per cent override commission on Interpro's gross profit (the override commission) in his second year of employment. This term was not included in his written contract of employment.

Interpro changed the override commission approximately six months into Mr Morton's employment, effectively reducing Mr Morton's entitlements in his second year of employment. Mr Morton disputed the change and ultimately resigned.

The decision

The Federal Magistrates Court determined that, despite the contract being silent on the override commission, there was a binding representation made by Interpro:

  • at the time of the negotiations between Interpro and Mr Morton;
  • relied on by Mr Morton when accepting the offer; and
  • dishonoured by Interpro prior to Mr Morton receiving the benefit.

The court determined there was no suggestion by Interpro that the override commission was removable at will. Interpro was found to have breached section 53B of the Trade Practices Act 1974 (Cth),5 as well as Mr Morton's contract of employment.

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Footnotes
  1. Northern Tablelands Insurance Brokers Pty Ltd v Howell [2009] NSWSC 426 (22 May 2009).
  2. Van Efferen v CMA Corporation Limited [2009] FCA 597 (4 June 2009).
  3. KW v BG Limited [2009] QADT 6 (21 April 2009).
  4. Morton v Interpro Australia Pty Ltd & Anor [2009] FMCA 423 (14 May 2009).
  5. Section 53B provides 'A corporation shall not, in relation to employment that is to be, or may be, offered by the corporation or by another person, engage in conduct that is liable to mislead persons seeking the employment as to the availability, nature, terms or conditions of, or any other matter relating to, the employment'.

Published 3 July 2009

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