Failure to formalise dismissal of accountant for breach of contract costs company a pretty penny
In most cases, the detail of an employment contract are not disputed between the parties. However, the importance of a well-drafted and enforced employment contract is critical when employment relationships break down and, as in the case below, end up in the Supreme Court.
An accountant wanting to buy out his employer, who was suspended and sent on “home leave” for alleged failure to honour the sale of business transaction and misdirecting company funds, has received seven months’ salary because his employer failed to formally dismiss him, the Victorian Supreme Court has found.
The judge expressed puzzlement that the small printing business did not formally dismiss the accountant in July 2013, rather than suspending him for an alleged breach of his contract and fiduciary duties when he deposited funds for the purchase of the business into an account that had nothing to do with the employer or its directors.
The judge found that the accountant’s employment status was not formally determined until his employer repudiated his employment contract in February 2014, despite the employment relationship breaking down in July the previous year.
Despite the accountant being marched out of the workplace, being told to go on leave and that he was suspended, the judge said she was not satisfied that this could be “construed as a termination of employment, notwithstanding the very decisive factors (non-payment of salary, confiscation of passes, toggles and the like) to the contrary.”
The judge ruled that, whilst there was correspondence between the employer’s and [the accountant’s] lawyers about the status of the employment relationship, there was no agreement between the parties that [the accountant’s] employment had been terminated on 11 July 2013 or at all.
“The company could easily have formally terminated [the accountant’s] employment, but, for whatever reason, chose not to,” the judge said, rejecting the employer’s submissions that it dismissed the accountant in July, finding the employer’s main focus at the time was the sale of the company and seizing back control.
The accountant and his associates had agreed to purchase the company from its director and his wife for $4.25 million, but the deal went sour once an upfront payment of $1.3 million for shares failed to materialise.
The company might have harboured legitimate concerns about the accountant’s conduct, including the transfer of the shares, the re-direction of funds, alleged spending on credit cards and the drawing of wages, but there was no evidence that the employer relied on, or communicated this to the accountant, as reasons for his dismissal.
The judge ruled that the accountant was not sacked but suspended. She said excluding him from the workplace and confiscating his car and mobile phone appeared to constitute an unlawful suspension, particularly given there was no right to do so in his employment contract.
While unlawful suspension did not entitle the accountant to receive wages during the period of his suspension, the judge said that the court “ought to have some regard to the remuneration that would have been payable” had his employment continued.
The judge ruled the accountant was entitled to an amount equivalent to seven months’ salary, which was to be calculated on the basis of an annual salary of $121,089, together with long service and annual leave.
On a brighter note for the employer, the judge ruled that $700,000 disputed between the employer and the accountant, a self-represented litigant, was actually a loan from the employer to the accountant, not a payment to the accountant for services rendered.
Drawing up an employment contract that states the terms of employment, as agreed by the employer and the employee, is good practice. iHR Australia offers services that include the review of existing contracts or development of new contracts for your organisation.
When an employee accepts an offer of employment (oral or written), a contract of employment has been established. Under this contract, both the employer and employee have certain rights and obligations.
Developing a written contract is recommended, especially when:
• Parties may subsequently need evidence to their understanding of the employment terms
• The employee is not covered by an industrial instrument such as an award or enterprise agreement
• Providing an entitlement above the relevant award or agreement
• Offsetting an award entitlement against an over award payment etc.
• Representation and advocacy in tribunals, as required
• Advice and interpretation of applicable legislation
• Adherence to the Fair Work Act 2009
• Adherence to good faith bargaining requirements and scope orders.
iHR Australia will review any existing contracts, relevant awards and legislation when developing new contracts for your organisation. Depending on your needs, more than one contract template may be required to cover different awards and/or cater for high-income employees, as defined by the Fair Work Act 2009.