Australia: Key lessons from the Amcor employment case

On 20 March 2012 Justice Vickery of the Supreme Court of Victoria handed down a decision in Hodgson v Amcor Ltd; Amcor Ltd & Ors v Barnes & Ors [2012] VSC 94. The judgment followed 35 days of hearing, during which a number of separate issues were heard.

The focus of this article is the claims made in that proceeding by the previous Group General Manager (GGM) of Amcor's Fibre Packaging business, Mr James Hodgson (Hodgson). Hodgson claimed that he was owed various amounts under his contract of employment as a result of the termination of his employment by Amcor on 1 October 2004. Amcor defended Hodgson's claims on the primary basis that Hodgson was disentitled to the amounts claimed by reason of serious misconduct.

Many of the rulings in the Court's decision provide useful guidance for employers.

An employee surplus to requirements may not necessarily be redundant

One of the matters dealt with by the Court was a claim for redundancy pay by Hodgson. Hodgson's written employment contract did not expressly provide a period of notice in the event of redundancy. However, Amcor had a Redundancy Policy, which was expressed to apply to 'all staff members (including senior management)'. The existence of the Redundancy Policy was well known to staff and was invariably applied in circumstances of redundant employees. The Court accepted that the Redundancy Policy formed part of Hodgson's employment contract.

Hodgson argued that he was retrenched as a result of Amcor's decision to reduce the number of its group general managers from six to five and later four, following a restructure and merger of the Australian and New Zealand cartons businesses into the Fibre Packaging Division, which resulted in the position of GGM of each of these divisions no longer being required and the creation of one new GGM position. Amcor had told Hodgson that, as a result of this restructure, he was 'surplus to requirements'.

However the Court ruled that these changes did not cause the role occupied by Hodgson to be modified, in such a way as to alter the fundamental nature of the position. In particular, there was no redistribution of job functions in relation to the GGM Fibre Packaging position with the result that Hodgson was left without any duties to perform.

The Court accepted that Hodgson had become surplus to requirements in the sense that he had no role or duties to perform for Amcor after the restructure. However that was because someone else had taken his role, not because it had been made redundant. Amcor had elected to replace Hodgson in his role with another displaced GGM on the basis of differences in management style.

Offering a separation agreement to an employee may constitute notice of termination

The Court also considered the issue of whether a letter from Amcor to Hodgson containing an offer to reach a separation agreement amounted to notice of termination.

On 5 August 2004 Amcor management told Hodgson that Amcor would terminate his employment 'later' in 2004. It is a generally accepted legal principle that notice of termination of employment issued by an employer does not take effect if the employee receiving that notice could not reasonably understand what the employer intended to be his or her last day of employment.

On 11 August 2004 Amcor issued Hodgson with a letter which was entitled 'separation arrangements' and referred to the earlier discussion regarding the conclusion of Hodgson's employment relationship with Amcor. The 11 August letter proposed terms for separation. Those terms included a post- employment restraint, various payments and other benefits, and the granting of a release by Hodgson. The letter included a draft deed of release which referred to a termination date of 1 October 2004.

Hodgson's employment contract provided for him to be entitled to 12 months' notice, with a right of Amcor to make a payment in lieu of 'any such notice'.

The Court ruled that the 11 August letter constituted valid notice of termination, regardless of whether Hodgson signed the deed of release or accepted the proposed terms. The Court made this ruling because:

  • the 11 August letter included references to the conclusion of the employment relationship with Amcor and the terms in the offer sought to give effect to that outcome;
  • in receiving the 11 August letter and attachments, it should have been abundantly clear to Hodgson that his employment with Amcor was over;
  • the fact that the documents also conveyed an offer did not alter the fundamental nature of the notice. The notice would stand even if Hodgson did not accept the additional terms offered to him; and
  • one of the attachments clearly indicated that Amcor would pay 12 months' pay in lieu of notice.

When it comes to termination on notice, employers need to exercise their choices carefully

Hodgson did not accept the separation terms offered by Amcor on 11 August 2004. Despite this, both Amcor and Hodgson acted as if his employment with Amcor would end on 1 October 2004.

However, on 29 September 2004 Amcor wrote to Hodgson stating that if he did not accept its separation terms by 1 October 2004, Amcor would exercise its contractual right to require him to serve 12 months' 'gardening leave'. Hodgson did not accept Amcor's separation offer and on 1 October 2004 he resigned as a director of various Amcor subsidiary companies, returned Amcor property and did not return to work after that day.

The Court recognised that a valid notice of termination issued by an employer cannot later be withdrawn without the consent of the employee to whom it was given, even where the period specified in the notice has not expired.

Applying that principle, the Court ruled that once Amcor had given Hodgson valid notice unilaterally on 11 August 2004, it could only withdraw that notice with Hodgson's consent, which consent was not given. Therefore, Amcor's letter of 29 September 2004 had no legal effect.

The Court ruled that by deciding on 11 August 2004 to give Hodgson notice of termination that would take effect on 1 October 2004 and offering him payment in lieu of notice, Amcor had waived its contractual right to put Hodgson on 'gardening leave'.

If an employer has the right to summarily dismiss an employee, they should use it or lose it!

Amcor counterclaimed against Hodgson's assertion that he was entitled to certain payments under his contract of employment on the basis that he was disentitled to the amounts claimed by reason of serious misconduct.

Amcor attempted to dismiss Hodgson summarily on 13 December 2004 on grounds of Hodgson's involvement and participation in the illegal cartel conduct being undertaken between Amcor and Visy between 2000-2004. However, the Court ruled that Amcor had already given notice of termination to Hodgson on 11 August 2004 taking effect on 1 October 2004. Irrespective of that notice of termination, the Court ruled that even if Hodgson was still employed by Amcor as at 13 December 2004, Amcor had waived any entitlement it may have had to summarily dismiss Hodgson from his employment by reason of his involvement in the anti-competitive conduct. That was because at the time that Amcor originally issued notice of termination on 11 August 2004, each of Hodgson's superiors well knew of Hodgson's alleged involvement and participation in the illegal cartel conduct.

The Court found that Hodgson had concealed information useful to Amcor derived from his involvement in an unrelated but competitive business and secretly entered into agreements to purchase 2 Amcor businesses, while at the same time acting on behalf of Amcor to sell those businesses. The Court ruled that this conduct was repugnant to the employment relationship. Therefore, if Hodgson had been employed by Amcor as at 13 December 2004, this misconduct would have justified Hodgson's summary dismissal on that date, even though Amcor was not aware of this conduct and did not rely on it as at 13 December 2004.

However, by giving Hodgson notice on 11 August 2004 effective 1 October 2004 Amcor took the risk that if it later discovered (as it ultimately did) that Hodgson had been guilty of misconduct justifying summary dismissal when notice was given, it could not later rely on that as a basis for termination or require Hodgson to repay notice payments made or forfeit his right to notice payments.

When is an employee obliged to confess wrongdoing or 'dob in' fellow employees'

Generally speaking, an employee owes their employer implied duties of loyalty, honesty, confidentiality and mutual trust. These arise under the employment contract.

If an employee engages in conduct in respect of an important matter (not trivial) and the conduct is incompatible with their fulfilment of these duties, or is destructive of the necessary confidence between the employee and the employer, then the employee will be in breach of their common law duties and the employer will have grounds for summary dismissal.

If the employee is in a position where his/her personal interest (or those of others) may conflict with the duties of loyalty, honesty, confidentiality and mutual trust owed to the employer then the employee must tell the employer the relevant facts and circumstances. If after being told of the conflict the employer consents to the employee engaging in the conduct, the employer cannot later seek to treat the conduct as justifying summary dismissal.

While an employee is under a duty to disclose to the employer a potential or actual conflict of interest, in order to allow the employer to take steps to protect its business from future harm, an employee is not obliged to 'fess up' about past wrongdoing. Nor is an employee subject to a general duty to report the misconduct of fellow employees, except in certain circumstances when this is required under the employee's contract. That might be implied if the employee is in a managerial position.

In this case the Court found that a group of senior employees, including Hodgson, did not disclose their involvement in the purchase of 2 Amcor businesses. The Court found that this failure destroyed the necessary 'confidence' essential to the relationship of employer and employee and was a breach of the employees' duties to Amcor.

By not disclosing their involvement in the purchase of the businesses, Amcor was unable to take steps to prevent them from influencing the sale process by, for example, putting in place an 'information barrier' restricting the flow of information about the sale to any of these managers, dismissing the managers, managing the sale process in a different way or even cancelling the sale altogether.

The fact that these managers did not have any material influence on the terms of the sale agreements or the manner of sale in each case was irrelevant.

The Court also found that Hodgson secretly provided consultancy services to an unrelated business, which would have assisted that business to expand its operations in direct competition with Amcor. The Court found that Hodgson did not inform Amcor of the relevant facts at any time, despite having a conflict of interest between his duty to Amcor and his personal interest. The fact that Hodgson may have been obliged to keep the future plans of the competing business confidential only served to highlight the conflict that Hodgson had placed himself in by his conduct. The Court found that by withholding this useful information from Amcor, Hodgson, as one of its senior managers, engaged in conduct which was incompatible with the fulfilment of his duty to Amcor, and was destructive of the necessary confidence between Amcor and him.

Key lessons from the Amcor case

  • A job becomes redundant when it ceases to exist because the employer no longer desires to have the job performed by anyone. This can occur where the duties of the job have changed to such a degree that for all practical purposes the original role no longer exists. It can also occur where the employer still requires the duties attaching to a job to be performed, but decides to redistribute those duties among other employees with the effect that for all practical purposes the original role no longer exists i.e. the employee in that role is left with no duties to discharge.
  • Redundancy will not arise where the termination of employment is carried out solely because of any personal act or default of the employee or for any consideration peculiar to that employee.
  • If an employer does not intend for a separation offer to constitute notice of termination it should make this clear in the offer i.e. 'This letter and our discussion today does not constitute notice of dismissal. It is merely an offer to make a separation agreement which you are free to accept or reject. While you are considering this offer we expect that your employment will continue.' In the alternative, any proposed separation offer should be made on a 'without prejudice' basis.
  • Employers need to be very clear about which right they propose to exercise when terminating an employee on notice i.e. whether they require the employee to serve some or all of the notice at work, at home on 'gardening leave', or wish to make a payment to the employee in lieu of notice.
  • If an employer alleges that an employee has committed serious misconduct sufficient to dismiss summarily i.e. without notice or payment in lieu of notice, Courts will impose a high standard. Acts of dishonesty or similar conduct destructive of the mutual trust between the employer and the employee can justify summary dismissal, but trivial breaches will not.
  • An employer can justify summary dismissal of an employee upon grounds which the employer did not rely on when it dismissed the employee, where the employer later learns of facts that provide proper grounds for summary dismissal. However, if an employer has decided to dismiss an employee on notice or payment in lieu of notice, the employer cannot later seek to reframe the termination as a summary dismissal on the basis of new information acquired by them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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