A case for regular human resource audits: Federal Court awards executive over $3 million due to breach of contract

A case for regular human resource audits: Federal Court awards executive over $3 million due to breach of contract

Workplace laws are constantly changing and it is vital that human resource managers understand the impact of these changes on their business. A misunderstanding of workplace law can lead to a costly and time-consuming workplace dispute.

A recent case before the Federal Court highlights the importance of engaging experienced human resources professionals to conduct regular human resource audits to ensure that organisations are meeting their legal obligations under workplace law.

An executive was hired by a mining company, in the roles of chair and chief financial officer for an initial term of five years, commencing from 1 May 2008. The contract was renewable with at least six months’ notice on substantially the same terms for perpetuating five-year periods. The executive’s starting salary was $US240,000 a year, plus such additional benefits as a car allowance, and his contract included provisions to increase his salary by 20 percent each year. 

The executive’s remuneration was dropped to $US120,000 per year in 2009, after he was told that due to the global financial crisis the company could not continue to pay such high salaries. He was told that his salary would catch up on the arrears at the next capital raising in November 2009. The arrears were not met at that capital raising, nor were they met in the following one.

The company terminated the executive’s employment in June 2010 on the grounds of misconduct. The employer alleged the employee made untrue statements signifying his dishonesty sufficient to justify summary dismissal. The employee took legal action against the company for allegedly breaching his employment contract and the Fair Work Act.  

The Federal Court found the allegation of misconduct to be unproven and that minimum workplace standards applied to him as an employee. Consequently, the employer was found to have breached their contract by failing to correctly pay his salary, superannuation and leave entitlements and awarded the employee more than $A3.7 million. 

iHR Australia strongly believes that a human resources audit can prevent organisations from becoming involved in such costly and time-consuming legal disputes. Serving as a pre-emptive measure, and HR audit is an independent, objective and systematic review of an organisation’s HR function that can assist in further fostering a workplace culture of continuous improvement and help identify organisational successes.