In brief: The NSW Court of Appeal has provided valuable guidance on when changes to a senior role will result in that position becoming redundant. The court has also considered what conditions, if any, will apply to the exercise of a discretion that is expressed to be absolute and unfettered. Partner Peter Arthur and Senior Associate Tristan Garcia report on the decision.

HOW DOES IT AFFECT YOU?

  • Reallocation of certain responsibilities to other employees does not necessarily mean a position is redundant.
  • Courts may imply a condition into an otherwise unfettered discretion that it be exercised honestly and not arbitrarily or capriciously.

Facts

Mr Janik had been employed since 1987 by the predecessor company to UGL Rail Services Pty Ltd (UGL). In 2003, he informed his manager that he was thinking of leaving UGL. The company wanted to retain him and negotiations took place over his role and remuneration.

A new contract provided that a recommendation would be made to the CEO of UGL for Mr Janik to be granted 40,000 options. This recommendation was made but not followed, with the result that Mr Janik was granted only 7200 options.

Several years later, UGL undertook an organisational restructure. As a consequence, Mr Janik was informed that his employment would come to an end and that another UGL employee would perform the main functions of his role. Mr Janik claimed redundancy and the balance of the options.

Decision

At first instance, the trial judge found that Mr Janik was entitled to redundancy pay but dismissed the claim with respect to the grant of the options. UGL appealed the redundancy point and Mr Janik cross-appealed with respect to the options.2

On the redundancy point, the court compared the duties performed by Mr Janik with those of his successor and held that, despite a number of changes having been made to the role, those changes were not sufficient to justify a finding that his position had been made redundant. The changes included a different job title and the reallocation of certain responsibilities to other employees within the company. However, overall at least 70 per cent of the functions previously performed by Mr Janik continued to be performed by his replacement.

Mr Janik's contract made clear that the company had no obligation to actually grant the options and the relevant option plan stated that the company had an 'absolute and unfettered discretion' about the granting of options. The court accepted Mr Janik's argument that the discretion could not be exercised arbitrarily or capriciously; rather it must be done honestly and in conformity with the scope and content of the relevant agreement. However, the court found that the recommendation had been transmitted to the CEO as required by the contract and the decision not to follow the recommendation was not made arbitrarily or capriciously.