Employment Contracts – proceed with caution

Posted by Malcolm Campbell on 14 May 2015

A recent decision of the Supreme Court of NSW has highlighted the importance of carefully drafted employment agreements.

The case involved claims brought by the former CEO and former head of global markets at ABN Amro Australia following its merger with the Royal Bank of Scotland.

The key facts were:

1. Both former employees’ positions became redundant following the ABN Amro/RBS merger;

2. ABN Amro had a redundancy policy, the existence of the policy was generally known through ABN Amro’s workforce. 

3. However, the content of the policy was only known to members of ABN Amro’s senior management;

4. The policy provided that in the event of an employee’s position becoming redundant, the employee would be paid their accrued statutory entitlements, notice in lieu, a severance payment calculated with reference to the employee’s period of service and, potentially, an ex-gratia payment in lieu of any bonus entitlement;

5. The former CEO’s employment agreement contract incorporated a provision to the effect that he agreed to be bound by the company’s various policies – the former head of markets agreement did not contain such a provision.

The Court found that the provision contained in the former CEO’s agreement did not make sense unless ABN Amro was also bound to adhere to its own policies.

As a result, the former CEO succeeded in claiming an entitlement to a redundancy package in accordance with the provisions of the company’s policy.

That package, coupled with interest, totalled more than $2.9 million.

The former head of markets failed in his claim and was ordered to pay RBS’ (as the successor of ABN Amro) costs of the proceedings. Primarily, he failed because he could not establish that he was contractually entitled to a redundancy package.

The stark difference in the fortunes of the two former employees highlights the importance of having carefully crafted employment agreements across your workforce.

It is essential to get it right, right from the start.