Beware: The Chameleonic Employment Policy

A recent decision of the New South Wales Supreme Court, Court of Appeal (‘the Court of Appeal’) has again highlighted the enigmatic nature of employment policies and representations, acting as a caution to employers when making promises to employees, and drafting employment contracts and workplace policies.

In late 2008, Mr McKeith and Mr James were retrenched from their employment with ABN AMRO Group (‘ABN’) as part of, and following, an acquisition by the Royal Bank of Scotland Group (‘RBS’). Central to the disputes in McKeith v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v James [2016] NSWCA 36, concerns the operation of a ‘closed’ redundancy policy (‘Policy’), and notably, whether it had been incorporated into Mr McKeith’s and Mr James’ employment contracts.

The Policy made provision that payment in the event of redundancy:

  • would include accrued contractual and statutory entitlements;
  • could include a ‘severance payment’ (‘the Severance Payment’); and
  • might include, on an ex-gratia basis, a discretionary amount in respect of bonus entitlements that might become payable for the calendar year in which the redundancy occurred (‘the Ex-Gratia Payment’).

On termination of their employment, neither the Severance Payment nor the Ex-Gratia Payment were made to either Mr McKeith or Mr James.

On appeal, the Court of Appeal held:

  • the Policy had been incorporated into Mr McKeith’s employment contract, but Mr McKeith’s claim against ABN failed because ABN had not made any contractual promise to Mr McKeith that the Policy would continue to be applied post-acquisition;
  • RBS had promised to Mr McKeith and Mr James that ABN would apply the Policy post-acquisition, and that this promise caused Mr McKeith and Mr James to enter into new employment contracts with RBS. RBS’ promise, that the Policy would continue to apply to Mr McKeith and Mr James for two years, was made in consideration of each continuing in their employment to assist the acquisition. RBS breached Mr McKeith’s and Mr James’ employment contracts by withholding the Severance Payment, but did not breach their employment contracts by withholding the (larger) Ex-Gratia Payments because the Policy did not confer any ‘right’ to a discretionary payment; and
  • Despite a clause in Mr James’ employment contract that employees must ‘abide by all company policies and practices currently in place’, the Policy was not incorporated into Mr James’ employment contract – key to this finding was the fact that the Policy was deliberately made unavailable to employees, including to Mr James, who was also not provided with a copy of the Policy at the time of entering his employment contract.The Court of Appeal awarded Mr McKeith and Mr James damages in excess of $375,000 and $430,000, respectively, for the Severance Payment, plus interest.This decision highlights the importance of proper drafting of employment contracts, to ensure that a workplace policy is not incorporated; and to avoid making promises to employees that the employer cannot fulfill. We await to see if the parties will apply for special leave to appeal to the High Court of Australia.If you would like more information about drafting workplace policies and employment contracts, or the interaction between the two, please do not hesitate to contact Nick Stevens, Megan Cant or Jane Murray.

    Published April 2016

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