The NSW Supreme Court (NSW SC) has ruled that an employer was able to terminate a senior executive’s employment based on the opinion, as opposed to the proven fact, that the executive had committed serious misconduct.1

Background

Mr Bartlett, then Director of ANZ’s Institutional Property Group (Group) for New South Wales, was one of ten employees who received an email on 20 June 2012 from the Head of the Group. The email warned loans would be more expensive and that it was necessary to “prioritise deployment of new capital”.

On 28 June 2012, a reporter from the Australian Financial Review received in the post a doctored version of the email of 20 June 2012 (doctored email). The doctored email included the added line “No more new lending. We are closed for business. Do not tell the market or our clients”.

ANZ conducted a formal investigation into the doctored email and concluded the email was sent to the reporter by Mr Bartlett. This was based on a number of findings including:

  • of the ten recipients of the 20 June 2012 email, Mr Bartlett was the sole person who knew the reporter;
  • a forensic examination of the handwriting on the envelope sent to the reporter found it was highly probable the writing was Mr Bartlett’s; and
  • Mr Bartlett was flustered in his interview concerning the investigation and initially refused to sign a statutory declaration that he was not the leaker of the email without first obtaining legal advice.

ANZ summarily terminated Mr Bartlett’s employment in accordance with a particular clause of his contract of employment which provided: “ANZ may terminate your employment at any time, without notice, if in the opinion of ANZ, you engage in serious misconduct”.

Mr Bartlett sued ANZ for damages in the order of $9 million for breach of contract in  respect of lost remuneration and bonuses, calculated on the basis that he would have worked for the ANZ for a further 10 years.

Mr Bartlett argued ANZ was only entitled to terminate the contract if it could prove that he was actually guilty of serious misconduct. In the alternative, he argued that if ANZ could terminate on the basis of its opinion that he was guilty of serious misconduct, such an opinion had to be reasonable, correct and formed in good faith. ANZ argued it needed only to prove that it held the opinion that Mr Bartlett was guilty of serious misconduct.

The decision

Justice Adamson found in favour of ANZ. His Honour held that in determining the meaning of the words “in the opinion of” in the clause of Mr Bartlett’s employment contract, whether Mr Bartlett had actually sent the doctored email was not the determining matter.

The determining matter was whether, in the opinion of ANZ, Mr Bartlett was guilty of serious misconduct. In doing so, Justice Adamson gave the words “in the opinion of” their full commercial effect, having regard to the nature of the contract and the capacity of Mr Bartlett’s conduct to affect the reputation of ANZ, both in its capacity as an employer and as a bank.

Justice Adamson also rejected Mr Bartlett’s argument that there was an implied term that the opinion was required to be reasonable, correct and formed in good faith. This was because implying the term would have the same effect as deleting the words “in the opinion of ANZ” from the clause of the employment contract.

Justice Adamson did, however, state that the question of whether contractual powers and discretions can be limited by good faith and rationality requirements was not settled. 

The only question for the Court was, therefore, whether ANZ actually held the opinion that Mr Bartlett was guilty of serious misconduct. Justice Adamson was satisfied that ANZ held the opinion that Mr Bartlett was responsible for sending the doctored email to the reporter, which constituted serious misconduct for the purpose of his employment contract, and that ANZ was entitled to terminate his employment without notice.

Importantly, the parties agreed that the alleged conduct, if it occurred, was serious misconduct. It is doubtful that the clause relied on by ANZ would allow summary dismissal for minor transgressions, as the employer would be unable to establish  that it genuinely held the opinion that the conduct was serious misconduct.

Bottom line for employers

Employers should pay careful attention when drafting employment contracts to ensure that clauses are easily understood and do not create confusion as to their meaning.

Using a clause which requires the employer to have an “opinion” in order to dismiss an employee may offer employers greater flexibility, particularly in cases of alleged serious and wilful misconduct.

Employers relying on such clauses need  to ensure they can prove that the business held the relevant opinion at the time of termination of employment.