News & Events

A $1.59 million reason to avoid wrongful dismissal

Submitted By Firm: Corrs Chambers Westgarth

Contact(s): John Tuck

Author(s):

Tracy Caspersz (Counsel) & Cara Leavesley (Associate)

Date Published: 9/22/2014

Article Type:

Share This:

In this In Brief, we discuss the Western Australian Supreme Court decision in Heugh v Central Petroleum Limited [2014] WASC 311 (5 September 2014).

In this case, the former Managing Director (Heugh) of an oil and gas exploration company was awarded over $1.59 million for unlawful termination of his contract of employment.

THE FACTS

Heugh was the Managing Director of Central Petroleum Limited (Central Petroleum). His role included the responsibility for investigating and negotiating farmout agreements.

In February 2012, contrary to Heugh’s recommendation, the Central Petroleum Board resolved that his farm-out agreement duties were to be re-assigned to another employee (Shortt). The following day, Heugh sent Shortt two letters:

  • The first alleged that Shortt lacked an adequate level of professionalism.
  • The second informed Shortt of the Board's resolution and asked whether he would like to take on these additional responsibilities or if he thought some alternative arrangement might be more suitable.

The Board wrote to Heugh informing him that in attempting to circumvent the Board’s decision to re-assign the farmout responsibilities to Shortt, Heugh had placed unacceptable pressure on Shortt. Heugh had thereby breached his employment contract and the company’s Code of Conduct.

The letter from the Board required Heugh to remedy the alleged breaches within 14 days. The remedy would be considered complete if the Board received written assurance that Heugh would comply with his duties including public support of any direction of the Board in the future, and if he proffered a written apology to Shortt in the form attached to the letter.

Heugh signed the written assurance, and withdrew the written warning to Shortt. However, he provided Shortt with an apology in a different form to the one proposed by the Board.

One month later, the Board took measures to remove Heugh as an employee, director and Managing Director of Central Petroleum, by seeking his voluntary resignation. Heugh refused to resign.

Central then terminated Heugh’s employment under clause 14 of his employment contract, which was in the following terms (emphasis added):

The Company may at its reasonable discretion terminate the Employment: (a) if at any time the Executive ... (iii) commits any serious or persistent breach of any of the provisions contained in this Agreement and the breach is not remedied within 14 days of the receipt of written notice specifying the breach from the Company to the Executive to do so.

Some time prior to his termination, Heugh had engaged a private investigator to investigate Shortt, using Central Petroleum’s funds but without the permission of the Board. He had not disclosed this matter to the Board. However, this matter was not relied upon by Central Petroleum as a ground for terminating Heugh’s contract.

THE ARGUMENTS

At trial, it was accepted that Central Petroleum had terminated the contract of employment. Heugh argued that the company was not entitled to terminate his employment and in doing so breached and repudiated his contract because:

  • Heugh did not breach his contract;
  • if he did, the misconduct was not sufficiently serious or persistent to give rise to termination;
  • he had remedied the alleged breaches to Central Petroleum’s reasonable satisfaction;
  • Central Peteroleum failed to exercise its discretion to terminate the contract reasonably, as required by the express terms of clause 14.1.

In its defence, Central Petroleum argued that it was entitled to terminate Heugh’s employment because of:

  • his misconduct in circumventing the Board’s farmout decision and placing unacceptable pressure on Shortt;
  • Heugh’s further misconduct in hiring the private investigator to investigate Shortt at Central Petroleum’s expense without disclosing this to the Board (the company sought to rely on this alleged misconduct at trial, notwithstanding that it was not relied upon at the time of terminating Heugh’s employment).

THE DECISION

Le Miere J held that Heugh committed a serious breach of the contract when he sought to put pressure on Shortt to not accept responsibility for farmouts in future, and thereby undermined the Board’s resolution. His Honour dismissed Heugh’s argument that the Board was pursuing a pre-determined plan to marginalise Heugh and ultimately remove him from his position.

However, Le Miere J went on to hold that Central Petroleum wrongfully terminated Mr Heugh’s employment because Heugh had remedied his serious breach of the contract; alternatively, termination of the contract was not a reasonable exercise of discretion by the company.

SERIOUS BREACH WAS REMEDIED

Le Miere J observed that:

  • Clause 14.1(a)(iii) of the contract provided that Heugh could ‘remedy’ the breach within 14 days which, as a matter of construction, meant to put matters right for the future - not to obviate or to nullify the effect of a breach so that any damage done already was made good.[1]
  • The contract did not specify any particular method for remedying a breach.[2] Whether or not a breach has been remedied is a question of fact. Central Petroleum could not limit what could be done by specifying the steps to be taken to remedy the breach[3] (such as when it specified the form of the apology it required Heugh to make to Shortt).
  • The purpose of apologising in this situation was to heal any hurt to Shortt and repair their working relationship.[4] The apology proposed by Central Petroleum was inappropriate.[5]
  • Heugh remedied the serious breach when he acted as he did and, therefore, the termination was not supported by clause 14(a)(iii) of the employment contract.[6]

COMMON LAW RIGHT OF SUMMARY DISMISSAL DISPLACED BY CONTRACT

In the alternative, Le Miere J observed that the contract specified grounds for termination, and the steps required to effect termination, and no others. Therefore, it displaced the common law right to summarily dismiss. One ground for termination under the contract was ‘gross misconduct’, which was a narrower concept than misconduct at common law.[7]

NO REASONABLE EXERCISE OF DISCRETION TO DISMISS UNDER THE CONTRACT

Central Petroleum did not have an unrestrained discretion to terminate the contract. The purpose of qualifying the company’s decision to terminate by the requirement that it be ‘reasonable’ was to ensure that the company did not do so without giving proper consideration of all relevant matters.[8]

The requirement of reasonableness has both a subjective and objective element: the subjective element focused on the Board’s reasons for terminating, while the objective facts to be taken into account included Heugh’s position, history and the circumstances of his breaches of the contract.[9]

The apology proposed by Central was grovelling and it was unreasonable to expect Heugh to sign it.[10] The decision to terminate the contract was not the exercise of a ‘reasonable’ discretion.[11]

NO RELIANCE ON OTHER MISCONDUCT

Heugh’s failure to disclose the engagement of the Private Investigator was held not to be a further ground for dismissal because an employee is not under a duty to disclose their own breaches of contract.[12]

In any event, on the evidence, Central was aware of that matter before the dismissal and elected not to raise it. Central thereby waived its right to rely upon this reason in a post-termination context.[13] Central Petroleum was also obliged under the contract to notify Heugh of any proposed breaches and give him an opportunity to rectify them, which it did not do.

DAMAGES

Le Miere J ordered Central Petroleum to pay Mr Heugh $1,598,298 in damages, which included:[14]

  • $1,176,238 – loss of remuneration for the remaining period of his fixed-term contract;
  • $45,000 – loss of opportunity to earn higher remuneration from salary reviews;
  • $53,127 – unpaid long service leave entitlements;
  • $245,883 – loss of opportunity to renew the contract;
  • $78,050 – interest.

According to a recent media release Central Petroleum, in consultation with its insurers, is considering whether to bring an appeal against Le Miere J’s decision.

LESSONS FOR EMPLOYERS

The drafting of executive contracts presents employers with a number of challenges. The significance of an executive’s role in the organisation and their high levels of remuneration are important reasons for ensuring that these contracts are carefully drafted to protect the employer’s interests.

The decision in Heugh v Central Petroleum illustrates that:

  1. Without a contractual provision about the manner and form for remedying breaches, an employer may be found to have repudiated the contract if it dismisses an employee - relying on a term permitting termination of the contract if a breach is not remedied - just because the employer is not satisfied with how the employee has tried to remedy the breach. If the employee makes the tactical decision to “accept” the repudiation, the employer will be exposed to damages for unlawful termination of the contract.
  2. Contracts that are prescriptive about the grounds, and the steps that must be taken, to terminate them may displace the common law right to summarily dismiss the employee for misconduct. Contractual definitions of ‘gross’ or ‘serious’ misconduct may be narrower than the common law notion of misconduct justifying summary dismissal. Employers should be wary that this may make it more difficult to dismiss an employee for misconduct.
  3. If an employer becomes aware of misconduct and does not act upon it, the employer may be held to have waived its right subsequently to rely on the misconduct as justifying a dismissal. To try and avoid this outcome, employers should have systems to identify any misconduct by employees and expressly reserve all rights in respect of any misconduct at the time that it is discovered.

[1] [2014] WASC 311 at [78]-[79].

[2] [2014] WASC 311 at [78].

[3] [2014] WASC 311 at [80].

[4] [2014] WASC 311 at [86].

[5] [2014] WASC 311 at [90].

[6] [2014] WASC 311 at [86] and [108].

[7] [2014] WASC 311 at [87].

[8] [2014] WASC 311 at [89].

[9] [2014] WASC 311 at [90].

[10] [2014] WASC 311 at [90].

[11] [2014] WASC 311 at [90]-[91].

[12] [2014] WASC 311 at [101] and [104].

[13] [2014] WASC 311 at [105]-[106].

[14] [2014] WASC 311 at [109]-[134].

Find a Member

View or print a complete ELA member list »

Client Successes

Altra Industrial Motion Inc.

Altra Industrial Motion Inc. has multiple locations in the U.S., as well as Central America, Europe, and Asia. The Employment Law Alliance has proved to be a great asset in assisting us in dealing with employment issues and matters in such diverse venues as Mexico, Australia, and Spain. We have obtained excellent results using the ELA network for matters ranging from a multi-state review of employment policies to assisting with individual employment issues in a variety of foreign jurisdictions.

In one instance, we were faced with an employment dispute with a former associate in Mexico that had the potential for substantial economic exposure. The matter had been pending for over a year, and we were not confident in the employment advice we had been receiving. I obtained a referral to the ELA counsel in Mexico, who was able to obtain a favorable resolution of the dispute in only a few days. Based on our experiences with the ELA, we would not hesitate to use its many resources for future employment law needs.

American University in Bulgaria

In my career I have been a practicing attorney, counsel to the Governor of Maine, and CEO of a major public utility. I have worked with many lawyers in many settings. When the American University in Bulgaria needed help with employment litigation in federal court in Syracuse, New York, we turned to Pierce Atwood, the ELA member we knew and trusted in Maine, for a referral. We were extremely pleased with the responsiveness and high quality of service we received from Bond Schoeneck & King, the ELA's firm in upstate New York. I would not hesitate to recommend the ELA to any employer.

David T. Flanagan
Member of Board of Trustees 

Arcata Associates

I really enjoyed the Conducting an Effective Internal Investigation in the United States webinar.  We are in the midst of a rather delicate employee relations issue in California right now and the discussion helped me tremendously.  It also reinforced things that you tend to forget if you don't do these investigations frequently.  So, many, many thanks to the Employment Law Alliance for putting that webinar together.  It was extremely beneficial.

Lynn Clayton
Vice President, Human Resources

Barrett Business Services, Inc.

I recently participated in the ELA-sponsored webinar on the Employee Free Choice Act.  I was most impressed with that presentation.  It was extremely helpful and very worthwhile.  I have also been utilizing the ELA's online Global Employer Handbook.  This compliance tool is absolutely terrific. 

I am familiar with several other products that purport to provide up-to- date employment law information and I believe that this resource is superior to other similar compliance manuals.  I am delighted that the ELA provides this free to its members' clients.

Boyd Coffee Company

Employment Law Alliance (ELA) has provided Boyd Coffee Company with a highly valued connection to resources, important information and learning. With complex operations and employees working in approximately 20 states, we are continually striving to keep abreast of specific state laws, many of which vary from state to state. We have participated in the ELA web seminars and have found the content very useful. We appreciate the ease, cost effectiveness and quality of the content and presenters offered by these web seminars.  The Global Employer Handbook has provided our company with a very helpful overview of legal issues in the various states in which we operate, and the network of attorneys has helped us manage issues that have arisen in states other than where our Roastery and corporate headquarters are located in Portland, Oregon.

Capgemini Outsourcing Services GmbH

As an international operating outsourcing and consulting supplier Capgemini has used firms of the Employment Law Alliance in Central Europe. We were always highly satisfied with the quality of employment law advice and the responsiveness. I can really recommend the ELA lawyers.

Hirschfeld Kraemer

Stephen HirschfeldAs an employment lawyer based in San Francisco, I work closely with high tech clients with operations around the globe. Last year, one of my clients needed to implement a workforce reduction in a dozen countries simultaneously. And they gave me 48 hours to accomplish this. I don't know how I could have pulled this off without the resources of the ELA. I don't know of any single law firm that could have made this happen. My client received all of the help they needed in a timely fashion and on a cost effective basis.

Stephen J. Hirschfeld
Partner 

Hollywood Entertainment Corporation

As the Vice President for Litigation & Associate General Counsel for my company, I need to ensure that we have a team of top-notch employment lawyers in place in every jurisdiction where we do business. And I want to be confident that those lawyers know our business so they don't have to reinvent the wheel when a new legal matter arises. With more than 3400 stores and 35,000 employees operating in all 50 U.S. states and across Canada, we rely on the ELA to partner with us to help accomplish our objectives. I have been delighted with the consistent high quality of the work performed by ELA lawyers. I encourage other in-house counsel to use their services, as well.

Ingram Micro

Ingram Micro is the world's largest technology distributor, providing sales, marketing, and logistics services for the IT industry around the globe. With over 13,000 employees working throughout the U.S. and in 35 international countries, we need employment lawyers who we can count on to ensure global legal compliance. Our experience with many multi-state and multi-national law firms is that their employment law services are not always a high priority for them, and many do not have experts in many of their offices. The ELA has assembled an excellent team of highly skilled employment lawyers, wherever and whenever I need them, and they have proven to be an invaluable resource to our company.

Konami Gaming

Our company, Konami Gaming, Inc., is growing rapidly in a very diverse and highly regulated industry. We are aggressively entering new markets outside the domestic U.S., including Canada and South America. I have had the recent opportunity to utilize the services provided by the ELA. The legal advice was both responsive and professional. Most of all, the entire process was seamless since our Nevada attorney coordinated the services and legal advice requested. I look forward to working with the ELA in the future, as it serves as a great resource to the legal community.

Jennifer Martinez
Vice President, Human Resources

Nikkiso Cryo, Inc.

Until recently, I was unaware of the ELA's existence. We have subsidiaries and affiliates throughout the United States, as well as in Asia, the Middle East and Europe. When a recent legal issue arose in Texas, our long-time Nevada counsel, who is a member of the ELA, suggested that this matter be handled by his ELA colleague in Dallas. We are very pleased with the quality and timeliness of services provided by that firm, and we are excited to now have the ELA as an important asset to help us address employment law issues worldwide.

Palm, Inc.

The ELA network has been immensely important to our company in helping us address an array of human resources challenges around the world. I strongly encourage H.R. executives who have employees located in many different jurisdictions to utilize the ELA's unparalleled expertise and geographic coverage.

Stacy Murphy
Former Senior Director of Human Resources

Rich Products

As the General Counsel for a company with 6,500 employees operating across the U.S. and in eight countries, it is critical that I have top quality lawyers on the ground where we do business. The ELA is an indispensable resource. It has taken the guesswork out of finding the best employment counsel wherever we have a problem.

Jill K. Bond
Senior Vice President/General Counsel, Shared Services and Benefits

Ricoh Americas Corporation

We have direct sales and service offices all over the U.S., but have not necessarily had the need in the past for assistance with legal work in every state where we have a business presence. From time to time, we suddenly find ourselves facing a legal issue in a state where we have no outside counsel relationship. It has been a real benefit to know that the ELA has assembled such an impressive team of experts throughout the U.S. and overseas.

A few years ago, we faced a very tough discrimination lawsuit in Mississippi. We had never had to retain a lawyer there before. I was absolutely delighted with the Mississippi ELA firm. We received an excellent result. They will no doubt handle all of our employment law matters in Mississippi in the future. I have also obtained the assistance of several other ELA firms around the U.S. and have received the same outstanding service. The ELA is a tremendous resource for our company.

Roberts-Gordon LLC

Our affiliated companies have used the Employment Law Alliance in connection with numerous acquisitions, and have always been extremely pleased with our ability to obtain the highest quality legal advice on due diligence issues from jurisdiction to jurisdiction. We have found the Employment Law Alliance firms to be not only first rate with respect to their legal advice but also responsive and timely in assisting us with federal and state law issues critical to our due diligence efforts. We consider the Employment Law Alliance to be an important part of our team.

Rockwell Collins, Inc.

We have partnered with many ELA firms on the development and execution of case management strategies with very positive results. We have been very pleased with the legal advice and counsel provided by the law firms we have utilized who are affiliated with the Employment Law Alliance. The ELA firms we have worked with are customer focused, responsive, and thorough in their approach to handling labor and employment law matters.

Elizabeth Daly
Assistant General Counsel

Sanmina-SCI

Sanmina-SCI has facilities strategically located in key regions throughout the world. Our customers expect that we will provide them with the highest quality and most sophisticated services in the marketplace. We have that same expectation for the lawyers with whom we do business. With operations in 17 countries, we need to be certain that we have a team of lawyers working together to address our employment law needs worldwide. The ELA has delivered exactly what it promised-- seamless and consistent high quality services delivered in each locale around the globe. It has quickly become a key asset for our human resources department.

Starwood

We own, manage, and franchise hotels throughout the U.S. and in more than 90 countries. With more than 145,000 employees worldwide, ensuring that we comply with the complex web of local labor and employment laws in every one of these jurisdictions is a daunting task. The Employment Law Alliance has served as an important resource for us and we have benefited greatly from its expertise and long reach. When a legal dispute or issue has arisen in some far-flung place, Employment Law Alliance lawyers have always provided responsive, practical, and cost-effective assistance.

Wilmington Trust Corporation

Wilmington Trust has used the ELA to locate firms in California, Washington State, Georgia, and Europe. Our experience with the ELA lawyers with whom we have worked has always been one of complete satisfaction and prompt, practical advice.

Michael A. DiGregorio
General Counsel