Westpac v Wittenberg [2016] FCAFC 33

St George Bank (SGB) was in the process of a merger with Westpac Banking Corporation (Westpac) and, to ensure key employees remained with SGB through this process, SGB offered them an incentive proposal.

SGB set out the terms of the incentive in a letter to the relevant employees, which provided that the incentive would be paid if they remained employed by SGB on a particular future date, continued to perform and SGB reached its earnings per share target (EPS).

The letter did not specify what the EPS was. The court at first instance accepted that the EPS that had previously been communicated to the market and the employees was 8 percent. SGB had intended an EPS of 10.1 percent to be communicated to the employees. An EPS of 8.3 percent was achieved and SGB did not pay the incentive.

Seven SGB employees brought claims against SGB for, among other things, breach of contract and breach of sections 52 and 53B of the then Trade Practices Act 1974 (TPA). The TPA claims were premised on the basis that if the employees had not relied on SGB’s misleading and deceptive representation in relation to the EPS, they would have sought opportunities elsewhere because the intended target was unachievable. A Full Court of the Federal Court upheld the Judge’s decision at first instance, finding that the employees failed to provide any evidence that any opportunities they gave up were worth more at the time than those provided by SGB. The Full Court found that the employees had got what they bargained for by staying with SGB and the letter had no effect on their actual conduct. The alleged breaches of the TPA therefore failed.

We are seeing an increase in claims from employees asserting that an employer’s pre-employment conduct (for example, during pre-employment negotiations) and conduct during the employment relationship gives rise to not only breach of contract claims but also breach of the now Australian Consumer Law (which replaced the TPA). This decision confirms the high bar imposed on employees to establish they relied on the employer’s representations to their detriment.

The court also confirmed that an entitlement to participate in an incentive or bonus scheme does not, in and of itself, result in a contractual entitlement to a payment under the scheme. This is because, in the usual course, such schemes are inherently uncertain and reliant on future events that are unknown at the time of entering the contract.