Earlier this month, the Federal Court handed down its decision in the appeal in Cohen v iSOFT Group Pty Limited, dealing with the interpretation of employment contracts for long-term employees. The Fair Work Act 2009 did not apply to this dispute as the employee (Dr Cohen) was based primarily overseas. Broadly, the facts were as follows:
Dr Cohen had worked for SW International Systems (SWI) in Singapore from the late eighties and in 1998 entered into a new contract with them.
In 1999, SWI became a subsidiary of the first respondent (iSOFT) and became known as IBA Health Asia Holdings Pte Limited. At this time Dr Cohen's brother, Gary, became the chairman of iSOFT.
In February 2000, Dr Cohen and iSOFT entered an agreement with a term of 3 years (2000 agreement). Although the agreement expired on 15 February 2003, Dr Cohen continued to work for iSOFT on the same terms.
In February 2006, the CEO of iSOFT sent Dr Cohen a letter dealing with the terms of employment that would apply upon his relocation to India. The letter stated that it was an "addendum to [his] original employment contract with IBA Health (Asia) Pte Limited" and that "all other terms of the Executive Services Agreement, as amended, will continue in full force and effect" (2006 agreement).
The reference to the 2000 agreement being with IBA Asia was clearly incorrect. When Dr Cohen and iSOFT executed the 2006 agreement, they both knew that its origins were in the 2000 agreement (between iSOFT and Dr Cohen). The Court was satisfied that the 2006 agreement simply amended and supplemented the 2000 agreement.
iSOFT then merged with a UK company in 2008. Dr Cohen agreed to remain in India but relocate to Chennai and, in June 2008, he entered into a secondment agreement under which iSOFT maintained that Dr Cohen now worked for iSOFT Health (Asia) Pte Ltd (iSOFT Asia) (2008 agreement).
iSOFT argued that the 2000, 2006 and 2008 agreements should be construed separately.
Dr Cohen argued that each of the 2000, 2006 and 2008 agreements should be construed together. The implications were significant - his notice period and leave entitlements under the 2008 agreement, which had not been amended under the 2006 and 2008 agreements, would be significantly greater if continuity were maintained.
The 2008 agreement consisted of a letter from the Group HR Director setting out the terms and conditions of his employment at Chennai and stating that the parties to the agreement were "IBA Health" and Dr Cohen. The letter contained numerous references to "IBA" (although that term wasn't defined) and to the terms of his employment which would "remain the same as [his] current terms and conditions".
The Court found that because the 2008 agreement used the concepts of continuation and retention of Dr Cohen's entitlements, the document would make no commercial sense if it intended to introduce a new employer. The Court also found it significant (in Dr Cohen's favour) that the letter was from the Group HR Director rather than someone who worked for iSOFT Asia.
It was also relevant that, following the 2008 agreement, Dr Cohen received various letters from the CEO of iSOFT (his brother) inviting him to participate in an employee incentive plan that was only available to employees of iSOFT, referring to him as a "key employee of IBA Health Group Ltd" and reviewing his salary.
Dr Cohen's brother stepped down as Chairman and CEO of iSOFT in late September 2010. The Court found that the letters, and the brother's evidence regarding the incentive scheme, supported Dr Cohen's claim that he was employed by iSOFT.
It was ultimately found that the 2008 agreement was indeed a supplement to the existing employment contract (a combination of the 2000 and 2006 agreements) between iSOFT and Dr Cohen.
On 17 June 2011, Dr Cohen was informed that his position as Chief Technical Officer would no longer exist and he was made redundant.
iSOFT gave Dr Cohen 3 months' notice because it wrongly believed that the 2000 and 2006 agreements had come to an end and therefore they were only required to give "reasonable notice". However, following the Court's finding that the 2008 agreement was simply an amendment and continuation of the 2000 and 2006 agreements, Dr Cohen was awarded 6 months' pay in lieu of notice (the explicit entitlement under the 2000 agreement, which had never been varied). The difference between 3 and 6 months equated to over $100,000.
The Court applied the same reasoning to his annual and long service leave entitlements, requiring iSOFT to pay him over $250,000 in accordance with a term of the 2000 agreement that was never varied.
It is important to note that whilst the initial 2000 agreement was drafted by lawyers, both the 2006 and 2008 agreements were drafted without legal assistance. It is conceivable that, had iSOFT taken legal advice regarding the later agreements, they could have avoided significant legal fees, costs awards and compensation. That said, much may have turned on the fact that there was a major restructure of shareholders and officeholders of iSOFT following its merger with the UK company - including the brother's resignation as executive chairman and CEO.
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