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December 2020

Large payout for executive who was dismissed without reasonable notice

Large payout for executive who was dismissed without reasonable notice

The Case

Roderick v Washington H Soul Pattinson & Company Limited (No 2) (2020)

Between 2006 and 2018, Washington H Soul Pattinson and Company Limited (WHSP) employed Ms Roderick. Ms Roderick was initially employed as the Chief Financial Director but was appointed to the Finance Director position in 2015. Ms Roderick had a written employment contract for the Chief Financial Director position when she commenced in 2006 (the 2006 contract). In 2015, when Ms Roderick became the Finance Director, a draft contract was prepared but never signed.

In 2018, WHSP terminated Ms Roderick’s employment, saying she was “not the right fit”. WHSP later employed a lower paid and less senior person for the role. In terminating Ms Roderick’s position, WHSP paid Ms Roderick 3 months in lieu of notice, pursuant to the 2006 contract.

WHSP later argued that Ms Roderick’s employment was terminated for poor performance and this was the reason for not paying any incentive payments.

Ms Roderick commenced proceedings in the Supreme Court, claiming damages for:

  • 24 months’ notice;
  • a long-term incentive; and
  • a short-term incentive.

The Verdict

The Supreme Court found that the 2006 contract did not apply to the Finance Director position. There had been a significant increase in duties since that agreement. For example, in the new position, Ms Roderick became the director of 12 companies. The 2006 contract did not contain a term specifying that the terms of the contract would continue even if the position and duties were altered. The new draft contract had been sent by WHSP to Ms Roderick, and her remuneration increased, indicating an intent that the terms and conditions of employment would change.

The Court found that Ms Roderick was entitled to a payment of 12 months’ reasonable notice, less the 3 months received, being a payment of $568,180. This was determined on the basis of:

  • Ms Roderick’s age, seniority and long work history;
  • Ms Roderick being a board member;
  • employment termination being without notice or warning;
  • the unlikelihood of receiving a reference from WHSP; and
  • the difficulty for her to obtain comparable employment.

Ms Roderick was entitled to her short-term incentive of $318,560 and long-term incentive of $218,590, the Court found. It also found there was no evidence she had been dismissed for poor performance.

While the incentives were discretionary, the Court found that any “decision as to payment is only discretionary in the sense of assessing [Ms Roderick’s] performance against the KPIs” and there is an implied contractual obligation to “exercise any discretion conformably with the purpose of the scheme, and not to choose arbitrarily or capriciously or unreasonably to not pay money, irrespective of whether the agreed parameters had been achieved”.

The Court said that WHSP’s decision not to pay Ms Roderick the incentives when her employment was terminated was unreasonable and arbitrary given there was only a matter of days before the end of the relevant financial year.

The Lessons

It is important to pay employees their full employment entitlements on termination of employment. If there is not an up-to-date written employment contract governing the terms and conditions of employment, you should obtain legal advice about the specific circumstances before commencing with the employment termination.

While bonuses and incentives can be discretionary, that discretion cannot be exercised capriciously. An employer cannot obtain a benefit from an employee meeting their KPIs and then unreasonably withhold a bonus or incentive payment on the grounds “it is discretionary”.

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