18 Jul 2013

When does altering an employment contract amount to repudiation?

by Michael Byrnes

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

To what extent can you vary an employee's duties and responsibilities before you have signalled that you no longer intend to be bound by the employment contract? Justice Sackar's recent decision in Paul Fishlock v The Campaign Palace Pty Limited [2013] NSWSC 531 is a useful reminder of the relevant principles.

Fishlock's employment contract

In 2003, Paul Fishlock commenced employment with The Campaign Palace as Chairman/Executive Creative Director (a title used interchangeably with Chairman/National Executive Creative Director).

In September 2010, there was a vacancy for the Sydney Creative Director, who had reported to Fishlock. The Campaign Palace management considered Reed Collins, but he was only interested in joining the firm if he could be the creative lead nationally.

This presented the management team with a problem, which they discussed between themselves via email:

  • Collins was "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."
  • "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."
  • "How do we give Reed the title and keep Paul engaged?"

They decided to go ahead with hiring Collins as the National Chief Creative Officer and an announcement was made without notifying or consulting Fishlock.

Understandably, Fishlock queried this. In response, he was simply told:

"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."

Fishlock's solicitors then sent the Campaign Palace a letter identifying its conduct as wrongful repudiation of Fishlock's employment contract, and that he accepted the repudiation. He then took legal action, seeking a declaration that The Campaign Palace had repudiated the employment contract, and damages.

Did Collins replace Fishlock?

Fishlock was not required to report to Collins, or told his role had changed or that he should not attend management, leadership or board meetings. Nonetheless he asserted that he had the ultimate creative responsibility for The Campaign Palace, and Collins had in effect been given his job. Collins' ultimate responsibility over both offices clearly indicated that Collins was the creative future for the company.

The Campaign Palace responded that it did not have one single creative head. Despite his title, in reality Fishlock was simply one of a number of creative directors that individually had responsibility for their own portfolio of clients. He did not have reporting lines altered, nor lose any of his responsibilities, duties, clients or projects. His job title had changed, but that was to avoid confusion with Collins' role. The Executive Chairman however 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. 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. Fishlock would no longer be the creative head of the business as that would become Collins' the role and responsibility.

Did the employer repudiate 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:

  • 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
  • sometimes 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".

Justice Sackar found The Campaign Palace regarded Fishlock as the ultimate creative head of its Melbourne and Sydney offices and appointed him as such. By hiring Collins, it signalled to Fishlock that it no longer intended to regard him as its creative head with the duties, responsibilities and status he once had. This had the effect of repudiating the employment contract between The Campaign Palace and Fishlock. Fishlock was therefore entitled to accept the repudiation when he did and terminate the contract, and was entitled to damages.

Lessons for employers

As Justice Sackar noted:

"In a rapidly changing world, it would be uncommon for the parties to a contract of employment to envisage no change in aspects of the job. But employers' perceptions as to what are the important aspects of jobs they have promised employees and later wish to change may not coincide with the perceptions of the employees, nor of independent observers, such as courts to which the employees might, in due course repair. Serious, non-consensual intrusions upon the status or responsibilities, as well as upon the remuneration, attaching to a job may well be held to amount to a repudiation of the contract of employment, and their actuality will not be denied merely by the retention of the job's title."

So where does that leave employers? Generally:

  • an employee's duties and responsibilities are just as important, if not more important than, the employee's title and remuneration;
  • varying an employee's duties and responsibilities may amount to a repudiation of the employment contract, particularly if it will materially impact upon the employee's status within the organisation and/or the industry; and
  • where possible, you should discuss the change with the employee and attempt to reach an agreement.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.