Hong Kong: Breach of Redeployment Policy Leads to Damages Award

Last Updated: 3 October 2012
Article by Rowan McKenzie

The Federal Court in Australia has very recently awarded A$317,500 (approximately HK$2,555,000) to a former employee of a large bank after finding that there had been a serious breach of its redeployment policy. Even though the policy was set out in a non-contractual HR manual, the Court implied a term of mutual trust and confidence into the employment contract and held that the serious breach of the policy by the bank amounted to a breach of this implied term of mutual trust and confidence, entitling the employee to the damages award.

Facts

Stephen Barker worked for Commonwealth Bank of Australia for 28 years, progressing his way through the bank until he reached the position of executive manager, in charge of a number of client portfolios.

In 2009 Mr Barker's segment of the bank underwent a restructuring, the result of which was a reduction in the need for executive managers from five to four. Mr Barker was informed on 2 March 2009 that had he had been selected for redundancy and was told to work out the day, clear his desk and return company property (including his mobile phone). His access to work email was suspended and he was placed on paid leave. He was told at the meeting and also assured in a letter given to him at the meeting that the bank's preference was to redeploy him and that he would be contacted shortly about this.

On 26 March 2009 Mr Barker received an email from a member of the bank's Career Support team with details of a vacant position within the bank and a statement that they had "been attempting to contact [Mr Barker] for some weeks now regarding offering redeployment support". Evidence showed that the Career Support team had been emailing his work address (which had been suspended) and calling his work mobile phone (which he had returned), despite the fact other staff at the bank had been in communication with him during the month of March using his personal email account.

On 9 April 2009 the bank wrote to Mr Barker informing him that he was being terminated by reason of redundancy, effective that day. His severance payment had been made a couple of days prior.

Mr Barker brought a claim alleging that the various policies in the bank's HR manual were terms of his contract and so a breach of the redeployment policy amounted to a breach of contract.

Decision

The Court determined that whilst the bank's policies were not terms of Mr Barker's contract, there was present in his contract an implied term of mutual trust and confidence which could be breached by conduct that is likely to destroy or seriously damage the relationship between employer and employee. A serious breach of one of the bank's policies could be conduct sufficient to reach this threshold. On a detailed review of the redeployment policy, the Court held that the bank's action (or rather lack of action) constituted such a serious breach of the policy and so breached the implied term of mutual trust and confidence.

The Court considered the three possible ways the bank's policies could be incorporated as part of the contract of employment: (i) as express terms, (ii) as a result of practice and usage within the bank and (iii) through an implied term of mutual trust and confidence.

  1. Express terms – the introduction of the HR manual containing the bank's policies included a statement that "the manual is not in any way incorporated as part of any substantial award or agreement entered into by the bank, nor does it form any part of an employee's contract of employment". This, support by the redeployment policy's use of vague language such as "where practicable" and "as appropriate", was enough to satisfy the Court that the policies were not directly part of his contract.
  2. Practice and usage within the bank – Mr Barker attempted to argue that the policies were implied as a matter of fact into his contract. However, the business efficacy test was not satisfied (Mr Barker's contract operated reasonably and effectively without the bank's policies) and there was no evidence of the bank's policies being treated as if they were incorporated into other employees' contracts.
  3. Through an implied term of mutual trust and confidence – the Court stated that it is well established in England that an implied term of trust and confidence exists in the contract between employer and employee. Whilst the judge conceded the position is less clear in Australia, he looked to the decision of four Justices of the High Court in Koehler v Cerebos (Aust) Ltd [2005] 22 CLR 44 to hold that such an implied term did exist in the present case. He stated that under the freedom of contract principle it would be possible to exclude this implied term by the inclusion of an express term over-riding it. However, the judge does not address the difficulties of how such a term would be worded and the situations in which employees would actually agree to it.

The Court considered that a serious breach of a non-contractual policy would be sufficient to breach the implied term of trust and confidence. Turning to the case in hand, he then went on to consider whether the bank had breached its redeployment policy in a serious way.

The first time the bank contacted Mr Barker and raised with him the possibility of an alternative role within the bank was on 26 March 2009. That was over three weeks after he had been asked to clear out his desk and less than a week before the exit date initially proposed. It was also in relation to a role managers of the bank conceded he was unlikely to secure.

Whilst Mr Barker had done very little to seek redeployment (as he was obliged to do under the terms of the redeployment policy), this did not excuse the bank in the circumstances. The judge held that it was incumbent on the bank to take timely and meaningful steps to comply with its own policy. In failing to consult with Mr Barker, discuss retraining, seek redeployment options or develop a redeployment plan for him, the bank had not followed its redeployment policy. The judge held that the bank's "almost total inactivity within a reasonable period means that its breach of its redeployment policy was a serious breach and that it was in breach of the implied term of mutual trust and confidence".

Mr Barker proffered four possible available roles within the bank he believed he could fulfil. On hearing evidence, the judge concluded that only one of these was a real possibility so determined that, had the bank followed its redeployment policy correctly, Mr Barker stood a 25% chance of being redeployed.

Damages

Mr Barker claimed past economic loss of the equivalent of approximately HK$880,000. For future economic loss he estimated HK$9,280,000, which had been reduced by 30 per cent to take account of his residual earning capacity. The figures were not contested by the bank. The judge then took 25% of these figures (after deeming Mr Barker had a 25% chance of redeployment) to arrive at damages of approximately HK$2,555,000. Whilst Mr Barker had not been successful in obtaining a permanent role elsewhere, the judge was satisfied that he had made reasonable efforts to mitigate his loss.

In addition, Mr Barker sought damages for hurt, distress, loss of reputation (HK$1.6m) and aggravated damages (HK$800,000) for the manner of his dismissal, but the judge rejected both of these claims.

Key takeaways for employers

  • Employers should ensure that where a situation arises which comes within the scope of a company policy, that policy is engaged and followed as described in the policy itself. Even if the policy is stated to be non-contractual, a significant departure from the processes under it could lead to successful claims from employees.
  • Courts in the Asia Pacific region are becoming increasingly ready to imply a term of mutual trust and confidence into employment contracts. It would be possible to override this with an express term, but the wording and likelihood of employees accepting such a term would appear problematic.
  • If an employer suspends/removes an employee's access to work email or phone systems it must ensure notice of this step is communicated to all staff who may potentially need to reach out to such employee, to avoid unnecessary and potentially prohibiting delays in communication.

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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