Employers beware; not just employees might be bound by company policies!  This month, in James v The Royal Bank of Scotland [2015] NSWSC 243 the New South Wales Supreme Court found that a redundancy policy formed part of an employee’s contract of employment, costing the employer close to $3 million for a single redundancy payout.

The Facts

Mr Angus James was employed as Chief Executive Officer of ABN AMRO Australia Holdings Limited (AAA) in 2001.  In 2007, the Royal Bank of Scotland formed a consortium with other European financial institutions and placed a successful bid on the ABN AMRO Group, of which AAA was a subsidiary.  As a result of the merger, James’ position was made redundant.

Like many employment contracts, that between James and AAA contained a clause by which James agreed to be bound by company policies as may exist from time to time.  At all material times AAA had a redundancy policy in place that allowed for four week severance pay for each completed year of service and a discretionary ex-gratia payment.  When AAA failed to comply with their redundancy policy, James commenced litigation to determine if it is was a part of his employment contract.

The ensuing court battle

AAA argued that the redundancy policy was not incorporated into the employment contract because:

• It was a closed policy, meaning it was not available on the company intranet and details were not disclosed to employees, even if requested;
• James was not provided with a copy of the policy at the time the offer of employment was made;
• James was not required to read the policy;
• Nor was James required to acknowledge the redundancy policy.

Although the Court acknowledged AAA’s argument that the redundancy policy was a closed policy, it found that Mr James had sufficient knowledge if he knew of the existence of the policy and had some understanding that the policy might provide a payment in the event a person was made redundant. 

In rejecting AAA’s other arguments, the Court emphasised that an undertaking for an employee to be bound by company policies in an employment contract only makes sense if it is implied that the employer will also be bound.  In doing so, the Court stated:

“…the proposition that the employee might be bound to accept whatever the redundancy policy provided for him or her in the circumstance or [sic] redundancy, but that the employer was not bound to offer that provision, does not strike me as one which the court should be quick to adopt.”

The contractual language of the redundancy policy, which imposed compliance obligations on both parties, also supported a finding in favour of Mr James.

AAA was ordered to pay James $2,932,692.31 for lost redundancy pay, plus interest calculated from the date when the redundancy payment should have been made.  The court reserved judgment on costs.

Note for employers

Now is the time to review your standard employment contracts and develop an understanding of their interaction with company policies.  The Fair Work Commission already demands, in exercising its unfair dismissal jurisdiction, that companies comply with the procedural elements of their policies when dismissing or disciplining employees.  However, this case indicates that Courts will go further and ensure that employee entitlements  under a company policy will be honoured in its entirety. 

Your proactive contract and policy review may save significant legal legal costs down the line.

For more information on employer obligations and employee entitlements during retrenchments, contact Peter McNamara at peter.mcnamara@cml.com.au

You can find the full case here:  http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWSC/2015/243.html?stem=0&synonyms=0&query=title(%222015%20NSWSC%20243%22)