INSIGHT

Damages for employer's repudiation of employment contract

By Simon Dewberry
Employment & Safety Franchising Industrials Litigation

In brief

The Victorian Supreme Court has awarded a former executive $423,445 in damages after the employer repudiated his employment contract. Associate Tegan Ayling and Lawyer Rhiannon Zanetic report.

How does it affect you?

  • Employers (or employees) repudiate employment contracts if they show an intention to no longer to be bound by the contract or to fulfil the contract substantially inconsistently with their obligations.
  • The damages awarded to the employee may not be limited to the period of notice the employee was otherwise entitled to under their employment contract.
  • The likely length of future employment will be relevant, which will be assessed in a hypothetical situation where the employer's repudiatory conduct did not occur.

Background

In a decision earlier this year, the Court of Appeal confirmed that Crowe Horwath Australia (CHA) repudiated its employment contract with Mr Loone, a Managing Principal with CHA. In that decision, the Court of Appeal did not enforce the post-employment restraints in that contract. See our article on this decision here.

The repudiatory conduct included CHA's failure to follow its own bonus assessment scheme. In particular, CHA told Mr Loone that it was going to alter the bonus scheme set out in his employment contract. It then failed to assess his bonus in accordance with the revised scheme.

Damages decision

In this case, the court was deciding on the damages to be awarded to Mr Loone.

Mr Loone argued that damages should be calculated on the basis that he would have remained at CHA for one more year if CHA had not repudiated the contract (ie he was entitled to damages of one year's pay, plus bonus). CHA disagreed and said that it was more likely that CHA would have terminated Mr Loone's employment after one month and paid him six months' pay in lieu of notice. CHA had the right to terminate Mr Loone's employment on six months' notice under his employment contract.

The court calculated Mr Loone's damages by determining how long he would have stayed employed if CHA had not repudiated his employment contract. This required a comparison between a hypothetical situation in which CHA's repudiatory conduct had not occurred and the situation that actually occurred. The court decided that, had CHA not engaged in the conduct, Mr Loone would have stayed employed for another year.

The court recognised that although an employer may have a right to terminate an employee's employment, this does not necessarily mean it would have exercised that right in a hypothetical scenario. In this case, CHA was unlikely to have terminated Mr Loone's employment in accordance with his employment contract.

The amount of damages included one year's salary and a bonus that would have been payable if the employment had continued.