Variation and Repudiation of Employment Contracts – Litigation, Employment, Industrial, Commercial, Intellectual Property and Technology Lawyers
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Variation and Repudiation of Employment Contracts

Variation and Repudiation of Employment Contracts

The recent case of Benge & Anor v Bluescope Steel (AIS) Pty Ltd (No.2) [2020] FCCA 515 is an interesting summary of the law in relation to the variation of employment agreements. The case focused on issues on unilaterally varying employment agreements, repudiation of employment agreements and consent to repudiation of employment agreements.

Crawford de Carne Lawyers were on the record as solicitors for the Applicants in a judgment that was in the Applicants’ favour.

Facts

The facts can be broadly summarised as the following:

a. The Applicants were two salaried employees of the Respondent, who worked in the Coke and Ironmaking Department at the Port Kembla Steel Works (PKSW). The annualised salaries of the Applicants included pre-paid overtime. Each of their employment agreements provided for a singular annual salary review.
b. A Key Message Board (KMB) announcement dated 4 September 2015, provided the Respondent’s intention to remove the pre-paid overtime component from the annualised salaries of employees.
c. During September 2015, each Applicant separately wrote to the Coke Plant Asset Development Manager of the Respondent, making complaints about the proposed variations to their employment agreements.
d. In separate correspondence during December 2015, the Applicants wrote to management staff of the Respondent. They provided they did not accept, and disagreed with, the variations to their employment agreements.
e. From 10 January 2016, the Respondent ceased paying the Applicants annualised salaries that included pre-paid overtime.
f. The Applicants continued the employment relationship with the Respondent after 10 January 2016.

Findings

Unilateral Variation of Employment Contracts

The Respondent provided that it had a general right outside of the terms of the employment contracts to unilaterally reduce the salaries of the Applicants. However, the Federal Circuit Court rejected this view, providing that a contract cannot be varied unilaterally, but can only be varied by bilateral agreement and with the formation of a further contract.

The Court went on to provide authorities for this position, including, relevantly, the case of Tanaka v Tokyo Network Computing P/L [2003] NSWSC 1114. In this case, the employer had reduced the salary of its Chief Executive Officer by 10% because of its financial position. The Court cited Bryson J who provided: “It is no less a repudiation of the contractual obligations because in the company’s circumstances a reduction was unavoidable.

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Consent to Variations

The Respondent argued that by continuing to work, the Applicants had consented to the variation to their employment contracts. The Court found the Applicants never consented to an annualised salary variation and this was known by the Respondent.

Repudiation

The Court looked in detail at the authority related to the repudiation of contracts of employment, specifically in relation to the reduction of remuneration by an employer. The Respondent argued that the Applicants had consented to the variations, however, the Court found that:

a. The remuneration provided the employment contracts to the Applicants was a fundamental term of the employment contracts.
b. By removing the pre-paid overtime from their employment contracts, the Respondent repudiated the Applicants’ contracts of employment.
c. The Applicants did not have to, and did not, accept or consent to the Respondent’s repudiation.
d. The Applicants continued their employment under the employment contracts, which meant that they were still entitled to be paid the pre-paid overtime component.
e. The Applicants’ continued employment after 10 January 2016 did not constitute consent to the removal of pre-paid overtime from their employment contracts.

The Court summarised points of law included:

a. Repudiation is a question of fact. An actual and subjective intention to repudiate is not required.
b. A repudiatory breach does not bring the employment contract to an end. The innocent party does not have to accept the repudiation.
c. A unilateral reduction in the employee’s remuneration, or a threat to do so in the future, is almost always a serious breach and a repudiation of the contract of employment (Actrol Parts Pty Ltd v Coppi (No.2) [2015] VSC 694)
d. Where an employer unilaterally reduces the employee’s remuneration, and repudiates and breaches the contract of employment, by not consenting to the variation, the employee can recover the total wages they should have been paid under the original contract. (Burdett-Coutts v Hertfordshire County Council [1984] IRLR 91).

Remedies

The Court provided that the Applicants entitlement to pre-paid overtime under their annualised salaries were within section 323 of the Fair Work Act 2009 (Cth) (FW Act). Section 323 of the FWAct provides:

Method and frequency of payment
(1) An employer must pay an employee amounts payable to the employee in relation to the performance of work:
(a) in full……

The Applicants continued to be entitled to be paid their annualised salaried in full. This included the pre-paid overtime component, despite Applicants not necessarily performing overtime each week.

If you have any questions about employment contracts, please feel free to contact one of our staff.

Written by Angus Macpherson.


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