A former CEO of ABN AMRO Australia Holdings Limited (AAAH) has been awarded over $3 million after the NSW Supreme Court in James v Royal Bank of Scotland  NSWSC 243 found an employment contract clause which bound the CEO to AAAH policies effectively incorporated AAAH's redundancy policy into his contract.
Mr James was the CEO of AAAH. Following the world wide takeover of the ABN AMRO Group Mr James' position became redundant. Mr James claimed that upon redundancy he was entitled to a payment of around $3 million being for severance pay and an ex gratia bonus payment as provided for by AAAH's redundancy policy. Mr James claimed this redundancy policy was incorporated in his contract of employment.
At all material times AAAH had a redundancy policy (Policy) in place. The Policy entitled an employee to four weeks' pay per year of service plus an ex gratia payment based on the employee's average bonus entitlements from the previous two years. If applicable, the Policy entitled Mr James to $2.93 million. Although the existence of the Policy was known to AAAH's employees, the Policy was a 'closed' policy, the details of which were not made available to the employees.
Mr James submitted the term in his contract of employment which stated that he agreed to be bound by AAAH's policies as may exist from time to time effectively incorporated the Policy into his contract of employment.
AAAH submitted the fact the Policy was a closed policy which was not provided to Mr James and was not required to be read or acknowledged by Mr James spoke against ascribing contractual effect to the Policy. Further, AAAH submitted Mr James' contract of employment contained no promise by AAAH that it would be bound by any policies.
AAAH further submitted that Mr James' failure to sign a deed of release as provided for by the Policy disqualified/ meant AAAH was not required to make any payments to Mr James due under the Policy.
Mr James did not contest that on the proper construction of the relevant provision in the Policy that a deed of release was required to be signed. However such a deed was to be "a document which would be concerned with HR matters and with securing the redundant employee's acknowledgment that by the receipt of the final payment arrived at on the redundancy schedule he has received all of his entitlements and benefits" under the Policy, not the broad and far reaching document AAAH had presented.
The Court held that the Policy was incorporated into Mr James' employment contract. In doing so it stated:
"the undertaking by the employee to be bound by the employer's policies as they exist from time to time makes sense only if, implicitly at least, the employer also undertakes to be bound by, or to observe, the terms of those policies. As a matter of common sense, such policies might impose obligations on either or both of the employer and the employee."
As such, the Court could not accept the proposition "that the employee might be bound to accept whatever the redundancy policy provided for him or her in the circumstance or redundancy, but that the employer was not bound to offer that provision."
Having determined Mr James' employment contract incorporated the Policy the Court then turned to the question of the deed of release. The Court held that while it was clear a deed of release may be required as a condition of the redundancy payment, it "is to be no more than a deed which releases each of the parties ... from the obligations ... specified in the [Policy]."
The Court held the deed of release was broader in scope and went beyond what was contemplated by the terms of the Policy. It was therefore not legitimate for AAAH to require Mr James to sign away his rights in excess of that which was required by the Policy.
The Court awarded Mr James the sum of $2,932,692.31 together with interest to be calculated from the date when the redundancy payment should have been made to him.
WHAT DOES THIS MEAN?
Employers should be aware that where it is intended that a policy is to bind an employee only, this should be expressly set out in the contract. Such a term may state that while the employee is to be bound by the employer's policies as in place from time to time, such policies are not binding on the employer.
Employers should review their contracts to ensure they do not incorporate any company policies that impose obligations on the employer.
Seeking legal advice in this respect will assist employers avoid these issues.
For a copy of the full decision please click here.