Writing’s on the wall for outdated employment contracts

Playing musical chairs with an employment contract can be risky business.

This usually happens when an employee doesn’t return a signed contract when starting a new job, and their employer allows them to work regardless. Other times an employee will change into a different role, but their existing contract remains in place.
While these situations may seem innocent enough, the recent decision of the Fair Work Commission in Simon v NGS Group Pty Ltd [2019] FWC 3442 demonstrates the problems with an outdated employment contract.

The contract conundrum

Mr John Simon was an employee of NGS Group Pty Ltd, a signage business in Heidelberg, Victoria. He started as an apprentice in 2000, and eventually progressed into a key sales role.
He was issued a variety of employment contracts throughout his tenure, the most recent of which was for the position of Sales/Key Account Manager. He was paid an annual salary of $90,363, and entitled to the use of a vehicle and mobile phone.

Sometime in late 2017, the sales teams’ performance deteriorated, with Mr Simon bearing some of the responsibility. He eventually received a formal warning about having a $300,000 account now reduced to less than $20,000. The company was rightfully concerned about the impact of this account, with Commissioner Wilson later finding that this would have been a significant hurdle for him to overcome.

Meanwhile Mr Simon alleged that the work environment had become toxic, and had lodged several bullying complaints with the company about other staff members, particularly in the sales team. This culminated in him receiving medical treatment for work related stress, and taking extended sick leave towards the end of 2018.
In May 2018, Mr Simon initiated discussions with the company about potentially returning to a position as a Sign Writer. It was understood that this would lead to a reduction in his hourly rate of pay, although the company anticipated that he would work overtime to make up the difference.

It was this factual background that preceded an exceptionally unorthodox approach to negotiating Mr Simon’s new salary.

The problem was that it wasn’t made entirely clear what that the other employee was being paid. Moreover, when Mr Simon subsequently went on leave he started to be paid at the rate of $36 per hour, or $71,136 per annum. This was nearly $20,000 less than his position as Sales/Key Account Manager.

On 21 August 2018, during a meeting with the company, Mr Simon was issued an employment contract for the new role of Sign Writer.

It was made clear that he would be paid $36 per hour. Mr Simon expressed dissatisfaction at the new salary because he was still required to perform some of his sales responsibilities, and he was significantly more experienced compared to the other employee.

The company, however was not inclined to negotiate and Mr Simon was told, “I don’t give a **** if you’ve been here for three months. Just read over and sign the contract.” The Commissioner was critical of the company, and went so far as to state that these comments were “intensely intimidatory.”

Mr Simon refused to sign, and continue to receive the reduced rate of pay without having signed the new contract.

Send in the lawyers

Commissioner Wilson considered it apparent that because of the performance issues and bullying complaints that had been received, returning Mr Simon to the sales role would be the least desirable outcome for all parties.

Indeed Mr Simon’s lawyers wrote to the company, and advised that the company’s offer had been rejected. They indicated that Mr Simon would return to his existing position of Sales/Key Account Manager unless a more suitable offer was put forward.

When no response was received to this correspondence, Mr Simon’s lawyers wrote to the company two more times. They indicated that in failing to return Mr Simon to the sales role, he would be entitled to treat the reduction in pay as a repudiation of his employment contract.

On 21 December 2018, Mr Simon’s solicitors wrote to the company, and informed that he had accepted the company’s repudiation of the employment contract.

The short version

The company reduced Mr Simon’s pay without his agreement. Mr Simon alleged that this was in breach of his employment contract as a Sales/Key Account Manager, which entitled him an annual salary of $90,363.

When Mr Simon’s lawyers raised this issue and the company did not restore his rate of pay, Mr Simon alleged that the company had in effect, terminated his position. The Commissioner agreed with this assessment, and found that the company had terminated his employment effective 21 December 2018 when the repudiation was accepted by Mr Simon.

Commissioner Wilson balanced all of these matters, and found that Mr Simon had been unfairly dismissed.

Taking into account the “overall fragility” of the employment relationship, Mr Simon’s bullying complaints, and performance issues, the Commissioner considered that Mr Simon would have remained employed for a further 4 months.

The Commissioner also applied an additional 10% to this, on account of his length of service and unresolved bullying complaints. The company was ordered to pay Mr Simon $36,280.

Lessons to be learned

Mr Simon’s case is a reminder that employment contracts need to reflect the reality of the situation. If employees change roles, particularly when they move backwards in pay, it is important that employment contracts are varied by agreement.

In many cases (like with Mr Simon), an employee can in fact not be demoted without their consent. What’s more if that an employee contract does not necessarily need to be written down, making it even more perilous when these situations arise.

If you require assistance updating your existing employment contracts, or are unsure whether they are right for your business, call 1800 572 679 to speak with one of our workplace relations advisors.