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Moving the goal posts gives employee freedom of choice

By Charles Power on July 19th, 2017

In Crowe Horwath (Aust) Pty Ltd v Loone (2017) the Victorian Court of Appeal confirmed that a restraint clause is not enforceable against an employee whose employment ends by the employer’s wrongful conduct — whether it be wrongful dismissal or the employee’s acceptance of the employer’s repudiatory conduct.

The decision concerned a company providing financial services operating from an office in Launceston. The company employed an accountant under an employment contract that provided he was employed in the position of Managing Principal.

His employment contract stated that the company may, from time to time, require him to occupy another position, either on a temporary or permanent basis, if it had consulted with him about the change and the other position was at least equivalent in status to, and had an equivalent level of remuneration.

Under the contract the employee was eligible to receive a discretionary bonus, which the company would determine each year by consideration of various performance parameters including but not limited to personal performance, the performance of the group and the broader economic conditions.

The contract also provided for post-employment restraints.

The Court ruled the company had committed repudiatory conduct by:

  • unilaterally changing the bonus scheme to provide for deferral of 20 per cent of any annual bonus awarded for a three-year period;
  • deciding that profitability flowing from a recent acquisition would be excluded from the calculation of the Launceston bonus pool; and
  • implementing a different operating model.

Three strikes

The first change meant the company had failed to give consideration to his personal circumstances when exercising its discretion whether to award him a bonus, and thereby breached his employment contract.

The second change was not permitted by the contract.

The effect of the third change was to require the employee to occupy a position other than that of Managing Principal. There was no engagement in consultation, but rather as proclamation of an edict.

The Court observed there was not the slightest prospect, realistically, that the company would adjust its model to suit the employee’s concerns. Moreover, the new role was not of equivalent status and entailed greatly reduced responsibilities.

The Court accepted these decisions breached the employment contract and constituted repudiatory conduct.

The employee was entitled to and had relied upon the repudiation in ending his employment contract. Therefore, he was no longer bound by any post-employment restraint clauses.

Were you aware that these sort of changes to an employee’s working arrangements would have this effect in the longer-term (post-employment)?

What else might you be unaware of about employment contracts that may affect your business?

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  • how to end a legal relationship;
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