Home When does a written employment contract cease to apply in an employment relationship?

UpdatesSep 24, 2020

When does a written employment contract cease to apply in an employment relationship?

An employee may serve their employer in a variety of different roles during an employment relationship. This is common in the case of professional or managerial employees.

4 mins read

By Charles Power

An employee may serve their employer in a variety of different roles during an employment relationship. This is common in the case of professional or managerial employees. If the employee enters into a written employment contract at the outset to govern their employment in their starting role, but does not sign any agreement subsequently dealing with their new role or roles, it might be said that the original written contract is no longer binding and has been discharged. If this is the case, the employment relationship at the time of termination would be governed by a new or different contract, albeit not yet in writing.

This has implications for the employee’s notice entitlement. The notice entitlement might be spelled out in the original contract, but if that no longer applies, a term of reasonable notice might be implied into the unwritten employment contract.

This was successfully argued by a dismissed employee in Roderick v Washington H Soul Pattinson & Company Limited (No 2) (2020). The employee signed a written contract in 2006 when she was first employed as Chief Financial Officer. The employee was appointed Finance Director in 2014 and given a draft new employment contract. The draft contract also contained provision for a 3 month notice period. However this was not signed by the employee. In 2018, the employee was dismissed with immediate effect and given 3 months’ salary purportedly in lieu of notice (even though neither the original contract nor the draft made provision for the employer’s right to pay in lieu of notice).

The employer argued that the fact the new contract was not signed meant the parties intended for the original contract to continue to apply. However the Court rejected that argument because:

The Court ruled that the parties intended the employee’s employment as Finance Director would be governed by a new contract and the original contract would no longer apply. Therefore, at the time of her purported termination, the original contract no longer governed the employment relationship and the employee was entitled to reasonable notice.

The Court determined that reasonable notice was 12 months and awarded the employee more than one million dollars in damages to compensate for the lost salary and incentives the employee would have earned if that notice had been served.

Copied