Decision on Termination Procedures a Big Win for Employers

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Introduction
The Supreme Court of Victoria has shed light on an issue raised in Barker v Commonwealth Bank of Australia [2012] FCA 942 regarding whether employers must adhere to their own policies and procedures when dismissing an employee.

The uncertainty in this area created particular difficulty for employers when determining what their obligations were when dismissing senior employees not covered by the unfair dismissal provisions of the Fair Work Act 2009 (Cth).

The Court's decision in Arthur Zafiriou v Saint-Gobain Administration Pty Ltd [2013] VSC 377 (24 July 2013) is a good news story for employers. It confirms that an employer's policies or procedures cannot fetter an employer's right to terminate a contract if the contract expressly provides for termination by the giving of notice and the policy or procedure is inconsistent with that express term.

The Facts
Mr Zafiriou had been employed by Saint-Gobain as a senior executive for 23 years when his employment was abruptly terminated for unsatisfactory work performance.

Mr Zafiriou's employment contract provided that either he or Saint-Gobain could terminate the contract by giving four weeks notice. The termination clause in Mr Zafiriou's contract did not require that there be any reason to give notice of termination.

Mr Zafiriou argued it was an implied term of his contract that Saint-Gobain did not depart from its own policies and procedures in terms of his employment. Mr Zafiriou argued this requirement meant that his employment could only be terminated if Saint-Gobain first complied with its disciplinary and termination procedures. Those procedures required Saint-Gobain to give him a number of warnings and opportunities to improve his performance before terminating his employment.

The Decision
Justice Emerton noted that Mr Zafiriou had not sought to rely on the protection of statute, but rather relied on Saint-Gobain's policies and procedures. She held that, unlike statutory requirements, the requirements of the policies and procedures must give way to the termination clause if they are inconsistent with it. To impose a requirement that Saint-Gobain engage in a performance management process before giving notice under the termination clause would be to take away the right expressly conferred by the contract to bring the employment relationship to an end.

It was held, therefore, that no requirement for performance management, expressed or implied, in Saint-Gobain's policies and procedures could override or otherwise circumscribe Saint-Gobain’s right to terminate Mr Zafiriou’s employment by giving him four weeks notice pursuant to the termination clause.

In her decision, Justice Emerton provided a number of useful guidelines as summarised below.

  • The incorporation of a policy or procedure into an employee’s contract of employment will depend on the nature of the policy, the language in which it is expressed, and its practical operation to support the inference that the parties intended that it was to have contractual effect.
  • Whether a policy is incorporated in a contract of employment will depend not only on whether it is expressed to apply to the employee or category of employee, but also on whether its terms are capable of applying to such an employee.

Justice Emerton concluded that even if she was wrong about the inconsistency between the termination clause and the requirements in Saint-Gobain's policies and procedures, Mr Zafiriou's claim could not succeed because Saint-Gobain's disciplinary procedure was not intended to apply and did not apply to an employee of Mr Zafiriou’s seniority.

Significance for Employers
The legal position regarding the circumstances in which employers need to follow their own policies and procedures when terminating employment contracts (which was left open following the decision in Barker) has now been clarified.

The Supreme Court has held that adherence to policies and procedures may not be required when terminating a contract in accordance with its express terms if the policy terms are inconsistent with the contract. Additionally, the Supreme Court has indicated there may be some relief for employers whose policies and procedures are stated to form part of their employment contracts.

Going forward, this decision means that employers can make decisions to terminate employment contracts with greater clarity on the implications and interaction of employment policies on that decision, particularly in relation to the employment of senior, non-award employees. As always, however, it is important that employers ensure that employment contracts contain clear termination clauses and that any statutory requirements (including procedural fairness obligations imposed by the Fair Work Act 2009 (Cth) in respect of employees covered by unfair dismissal provisions) are met.

Further Information
Zafiriou v Saint-Gobain Administration Pty Ltd [2013] VSC 377 (24 July 2013)