In an important decision about the effect of policies, the Supreme Court of Victoria has found that an employer did not have to comply with its performance management or disciplinary policies before terminating a senior employee. The Court dismissed a senior employee’s claim for damages after he was terminated by his employer on four weeks’ notice, without receiving any warnings or performance management.
The employee held a number of senior positions with his employer, a multi-national conglomerate, over a period of 23 years before his employment was terminated for poor performance. The employee’s remuneration was $265,000 per annum and his employment contract provided for termination by either party giving four weeks’ notice. His contract also contained the following clause in relation to the employer’s policies:
‘The employee shall comply with the employer’s policy and procedures as displayed or advised from time to time and as amended from time to time, at the employer’s discretion. The employer’s policy and procedures are deemed to be included in and form part of this contract, as do any subsequent policy and procedures and/or amendments.’
The employer had a disciplinary procedure and a termination procedure. The termination procedure was expressed to apply to all employees and committed the employer to ensuring that termination of employment was lawful, fair and just. The disciplinary procedure contained prescriptive guidelines to be followed when disciplinary action was to be undertaken, including a series of meetings to detail any underperformance, provide an opportunity for the employee to respond and for a determination to be made as to whether a warning should be issued, as well as timeframes for review. The policy required these steps to be undertaken no less than three times before dismissal.
Prior to his employment being terminated, the employee was not given any formal warnings that his performance was unsatisfactory. Further, he was not told that his employment was at risk of termination because of unsatisfactory performance. Indeed, the Court accepted that the employee was shocked and outraged at being dismissed without warning.
Compliance with the policies
The employee was not protected from unfair dismissal. His claim therefore rested on his allegation that his contract of employment obliged his employer, through its policies, to give him a series of warnings before his employment could be terminated on performance grounds. He claimed 12 months’ remuneration in damages, which was the period of time he alleged his employment would have continued had the employer complied with its obligations.
The employee’s claim was dismissed. The Court held:
- the termination clause prevailed over the employer’s policies and procedures, to the extent that the policies and procedures were inconsistent with the employee’s contract
- the termination clause permitted either party to end the employment relationship by giving four weeks’ notice
- it was not consistent with the right to give four weeks’ notice to ‘read in’ a requirement that the employer engage in a protracted performance management process before the contract of employment could be terminated – imposing such a requirement would take away the right expressly conferred by the contract to end the employee’s employment on four weeks’ notice.
The Court also held that, if it was wrong to give the termination clause precedence, the disciplinary procedure did not in any event apply to the employee. The procedure was not incorporated into the employee’s contract of employment because it did not, by its terms, apply to him. The Court said that it was a procedure directed at less senior employees and those who were protected from unfair dismissal.
Lessons for employers
The decision appears to be at odds with past decisions of other courts in which policies and procedures have been held to be incorporated into an employee’s contract and damages have been awarded for breaching organisational policies. However, it would be prudent for employers to note the following when drafting or updating their contracts of employment, particularly for senior employees:
- avoid including specific performance management or disciplinary processes in the contract of employment as these might be interpreted as contractual obligations that impact on the right to terminate on notice unless the contractual process is complied with
- clarify in the contract of employment that policies and procedures do not create enforceable rights in favour of employees but that they must nevertheless be complied with
- if policies or procedures are not intended to apply to senior employees then an express clause should be included in the policy to that effect.
Despite the outcome of this particular case, employers should exercise caution when performance managing or terminating employees and should seek to comply with the terms of any applicable policies and procedures, particularly where employees are protected from unfair dismissal.