Varying an employee's duties and responsibilities may have the effect of repudiating the employment contract.

Justice Sackar's recent decision in Paul Fishlock v The Campaign Palace Pty Limited [2013] NSWSC 531 serves as a useful exposition on employment law addressing topics such as repudiation, restraint of trade, redundancy and long service leave. It is strongly commended to all readers. For the purpose of this article, I will only canvass the issue of repudiation of an employment contract.

In this decision, his Honour found that an employer who hired an executive in, in effect, the same position as the Plaintiff, repudiated the employment contract it had with the Plaintiff. By hiring a "very talented, fun and… up-and-coming [Executive Creative Director]" the Defendant signalled to the Plaintiff that it no longer intended to regard him as the creative head, which amounted to repudiation as he would be no longer be viewed as having the duties, responsibilities and status he once had.

Facts

In 2003, the Plaintiff, Mr Paul Fishlock, commenced employment with what was then Blackbook Nominees (trading as The Campaign Palace) in the role of Chairman/Executive Creative Director, although that title was used interchangeably with Chairman/National Executive Creative Director.

At all relevant times, the Respondent employed a number of persons in the positions of Creative Directors, with Fishlock being the sole Executive Creative Director.

In September 2010, while considering potential candidates to replace the Campaign Palace Sydney Creative Director, who had reported to Fishlock, the Defendant's Australian and American management considered Mr Reed Collins, who was described by one of the management team members as a "very talented, fun and at the up-and-coming ECD [Executive Creative Director] level, where a small office to run makes a lot of sense as a next step."

Issues arose when it became evident that Collins would only be interested in joining the Defendant's firm in circumstances where he would be the creative lead nationally. Various members of the management team, in emails sent between themselves, made the following observations:

  • The BIG issue we have is Mr Fishlock. He will be a problem for Reed to join.
  • We probably should book a call on Paul F.... it's a difficult one… I think we need to ease him out ... I accept that he is not the future but if he left at the end of March 2011 this might be workable.

As stated by Mr Mark Mackay, Executive Chairman of the Defendant, the dilemma was, "[h]ow do we give Reed the title and keep Paul engaged?"

The Defendant went ahead with hiring Collins as the National Chief Creative Officer and an announcement was made in January 2011 without notifying or consulting Fishlock.

On 22 January 2011, Fishlock sent an email to management querying:

"Does Reed report to me? Are we both autonomous. Is Nat ECD supposed to report to Nat CCO (C'mon)? ... [D]oes the ECD/chairman role at The Campaign Palace still exist at all?"

On 28 January 2011, Fishlock received a short response, which simply said:

"Reed is charged with the ultimate creative responsibility over both Palace offices. You should sit down with [the Executive Chairman] and develop a workable plan for the future."

In February 2011, Fishlock's solicitors sent a letter to the Defendant identifying its conduct as wrongful repudiation of Fishlock's employment contract and indicated that Fishlock accepted the repudiation.

That letter ultimately led to the claim before the Court. Fishlock sought a declaration that the Defendant repudiated the employment agreement by appointing Collins to the position of National Chief Creative Officer.

Terms of the contract

Apart from identifying the title of his position, Mr Fishlock's employment contract provided no specific detail about his role within The Campaign Palace.

Fishlock's counsel sought to rely on the High Court case of White v Australian and New Zealand Theatres Ltd (1943) 67 CLR 266 as authority for the proposition that in circumstances where no detail is provided in the contract as to the role, it is permissible to have regard to the parties' post-contractual conduct to assist to determine the terms of the contract.

White v Australian and New Zealand Theatres Ltd involved a contract between theatrical artists and a company which owned and controlled theatres. The contract provided that the company engaged the "professional services" of the artists "as required and directed". As the contract did not specify the nature of those professional services, the High Court held that extrinsic evidence was admissible to identify the services referred to in the contract.

Justice Sackar however noted that in the decisions that came after White v Australian and New Zealand Theatres Ltd, the High Court cited with approval the principle clearly established by English authorities that "it is not legitimate to use as an aid in the construction of [a] contract anything which the parties said or did after it was made".

His Honour found, based on the authorities, that subsequent conduct cannot be used to construe a contract, but in relation to descriptive terms, subsequent conduct of the parties may be used as evidence of how they have applied the contract.

Did Collins replace Fishlock?

Fishlock asserted that he believed he had the ultimate creative responsibility for The Campaign Palace as the Executive Creative Director and that Collins had in effect been given his job.

In response, the Defendant asserted that it did not have one single creative head. Although Fishlock held the position and title of Executive Creative Director, in reality, he was simply one of a number of creative directors that individually had responsibility for their own portfolio of clients.

So far as Collins was concerned, Fishlock agreed that he was never told to report to him, nor told that he would cease to attend management, leadership or board meetings after Collins commenced his employment. Further, he agreed that he was not explicitly told that his role would change as a result of Collins coming on board.

However, Fishlock stated that had been told explicitly by management that Collins would have ultimate responsibility over both Palace offices, Melbourne and Sydney, and that this clearly indicated to him that Collins was the creative future for the company.

So far as the Defendant's management was concerned, notwithstanding that Collins commenced employment with the defendant on 8 February 2011, Fishlock's duties and responsibilities did not change. It was asserted that Fishlock did not have reporting lines altered, nor did he lose any of his responsibilities and duties, or have any clients or projects removed from him.

It was however accept by the Defendant that Fishlock's job title was changed from Chairman/Executive Creative Director to simply Chairman. It was noted that given the demand by Collins that he be the creative head of the Defendant, a change in title was necessary because of the likely confusion that may be caused by having two people who appeared to have the role as head of the creative department.

Mackay, Executive Chairman of the Defendant, stated that in dealing with both Collins and Fishlock, he was "managing egos" and "absolutely sugar coating the situation" for Fishlock.

Justice Sackar ultimately accepted Fishlock's evidence and found that his role and responsibility as the creative leader for the business conformed with the description of his role in his contract of employment and he had, in effect, sole and ultimate authority and responsibility to direct, control and supervise the output of the creative department. His Honour found that, by hiring Collins, Fishlock would no longer be the creative head of the business as that would become the role and responsibility of Collins.

Did the employer repudiate the contract?

His Honour noted that repudiation may refer to conduct which "evinces an unwillingness or an inability to render substantial performance of the contract".

The test for repudiation, which is well settled, is whether, objectively, the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it.

In the context of employment contracts, Justice Sackar noted that the authorities establish that:

  • a significant diminution in remuneration, status or responsibility may constitute a repudiation;
  • even where the employee retains the same remuneration and title, there may be a significant diminution in status or responsibility; and
  • there are circumstances where a considerable change in the nature of an employee's duties may not amount to a repudiation. The circumstances of a particular case may permit a degree of flexibility in approach, with each party being required to provide "some reasonable give and take".

His Honour found that the Defendant regarded Fishlock as the ultimate creative head of The Campaign Palace's Melbourne and Sydney offices and appointed him as such. By hiring Collins, the Defendant signalled to Fishlock that it no longer intended to regard him as the creative head of the Defendant. Fishlock would no longer be viewed as having the duties, responsibilities and status he once had. This had the effect of repudiating the employment contract between the Defendant and Fishlock. Fishlock was therefore entitled to accept the repudiation when he did and terminate the contract.

Having found in Fishlock's favour, his Honour found that Fishlock should be put in the position, so far as money can do so, that he would have been in had the contract of employment been performed. Accordingly, Fishlock was entitled to damages which were substantially determined by reference to the salary he would have received during the nine month notice period prescribed by his employment agreement once appropriate deductions were made for any amounts Fishlock earned during that period.

Implications

Justice Sackar's decision serves as a reminder that an employee's duties and responsibilities are just as important, if not more important than, the employee's title and remuneration.

Employers should be aware that varying an employee's duties and responsibilities may have the effect of repudiating the employment contract, particularly if such variation will materially impact upon the employee's status within the organisation and/or the industry.

This article was first published in the Law Society Journal, July 2013