Bishop v In-Tellect Pty Ltd
[2010] VCC 1223
•17 September 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL – EXPEDITED DIVISION
Case No. CI-09-04879
| JEREMY BISHOP | Plaintiff |
| v | |
| IN-TELLECT PTY LTD | First Defendant |
| and | |
| DOMINIC PERRI | Second Defendant |
| and | |
| GARY LOWE | Third Defendant |
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| JUDGE: | HIS HONOUR JUDGE GINNANE |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 24 - 27 May 2010 |
| DATE OF JUDGMENT: | 17 September 2010 |
| CASE MAY BE CITED AS: | Bishop v In-Tellect Pty Ltd & Ors |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 1223 |
REASONS FOR JUDGMENT
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Catchwords: CONTRACT – employment – whether employer offered to allocate shareholding in employer to employee – termination of employee – failure of employer to provide a written warning about performance – breach of contract – loss of a chance of maintaining employment – damages.
TRADE PRACTICES – whether misleading or deceptive conduct – whether promise by employer to allocate shares in employer to employee – conduct not proved – Trade Practices Act 1974, s.52.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A McDonald | McDonald Murholme |
| For the Defendant | Mr A McNab | GSM Lawyers |
| HIS HONOUR: |
1 The plaintiff, Mr J Bishop, sues his former employer, In-Tellect Pty Ltd and Mr D Perri and Mr G Lowe, its directors and shareholders, for damages arising from breaches of his employment contract and for breaches of an agreement to provide him a shareholding in the company and misleading and deceptive representations made in trade or commerce in contravention of the Trade Practices Act 1974 (Cth).
2 In-Tellect is an Information Technology service provider to clients. Mr Bishop was its Sales Manager. He was dismissed on 21 August 2009.
Issues 3 The issues in the proceeding are:
(a)
did In-Tellect enter into an enforceable agreement with Mr Bishop to arrange the transfer of 15 per cent of its shareholding to him?
(b)
did In-Tellect engage in misleading or deceptive conduct in contravention of the Trade Practices Act 1974?
(c) did In-Tellect breach the employment contract in dismissing Mr Bishop? (d) if yes to (c), what damages has Mr Bishop suffered? 4
On 24 March 2003, Mr Bishop commenced employment as “Business Development Manager” with ANI-Intellect Pty Ltd pursuant to a contract of employment which was contained in a six-page letter. The agreed remuneration was to be a base salary of $86,000 per annum (fixed after a probationary period) plus additional monies fixed by a commission structure. Sales commission was to be at 8 per cent of the first $50,000 gross profit per month cumulative, paid monthly, giving “on target earnings” of $134,000, plus 15 per cent of gross profit over $50,000 per month cumulative, paid monthly.
5
During the course of employment, the business was transmitted from ANI- Intellect to the first defendant, In-Tellect Pty Ltd. On 1 September 2004, Mr Bishop was offered, and accepted, employment with In-Tellect, with his current position continuing. His letter of appointment stated that his base salary was $86,000 plus superannuation, together with sales commission. He had a sales quota of $55,000 gross profit per month cumulative, or $660,000 per year. The letter stated that his current position would carry over to the new company “as per your original letter of offer with some changes made to the salary package”.
6
Mr Bishop’s title was changed to “Sales Manager” after the departure of another employee engaged in sales.
7
Mr Bishop’s contract of employment was terminated at a meeting held between him and Mr Risby on 21 August 2009. Subsequently, In-Tellect paid Mr Bishop four weeks’ salary, together with outstanding entitlements and some commissions up until the end of the notice period.
8
Mr Bishop alleges that In-Tellect has breached four separate terms of the employment contract; a ‘performance review’ term, an ‘unsatisfactory performance’ term, a ‘training term’ and a ‘trust’ term.
9
By reason of the alleged breaches of the employment agreement and the share ownership agreement, Mr Bishop argues that he has suffered loss and damage, including not less than one year’s gross remuneration, including salary, commission, allowances, profit share and superannuation. In addition, Mr Bishop seeks damages for the reliance upon the alleged representation that he was to receive a 15 per cent stake in the In-Tellect business.
Issue 1: Did In-Tellect enter into an enforceable agreement with Mr Bishop to arrange the transfer of 15 per cent of its shareholding to him?
10 Mr Bishop’s evidence was as follows. He assumed the job title ‘Sales Manager’. In March 2006, he requested an increase in remuneration by raising his commission rate from 8 per cent to 10 per cent of all sales. About a week later, Mr Perri responded and, according to Mr Bishop, stated that:
“Recognizing that I was a loyal, hardworking and performing employee that they would like to offer me a 15 per cent shareholding in the business because they wanted to make it for the long term and to be part of the business’ growth and future.”[1]
[1] Transcript (“T”) 21
11 Mr Bishop stated that he accepted the offer and shook hands with Mr Perri, who informed him that the process of share transfer would take some months to finalise due to the structure of the company as a unit trust. Mr Bishop understood that the plan was to create a new unit trust to incorporate his ownership, and he expected “that the shareholding agreement would be finalised within 6 months approximately after [the] discussions in March 2006”.[2]
[2] T 23
12 The agreement was never put in writing and Mr Bishop alleges that the defendants instead arranged for 15 per cent of net profits of In-Tellect to be paid on an annual basis to him in lieu of the shareholding. Mr Bishop received two payments: one, approximately $11,700 on 30 June 2007 and the other, approximately $16,700 on 30 June 2008. These payments were made to Gymnastics Victoria as a donation on behalf of Mr Bishop. The payments approximately equate to 15 per cent of net profits of In-Tellect for the 2006- 2007 and 2007-2008 financial years.
13 Mr Perri said that he had no recollection of making the offer of share ownership and testified that it could not have been possible at the time it was said to be made in March 2006. At that time a dispute was occurring over the existing share structure between the owners of the business. The dispute was whether Mr Perri or Mr A Rowley, a former director and share owner of In-Tellect, was to leave the business. This was resolved at a later date, with Mr Rowley agreeing to resign and transfer his share ownership.[3]
[3] T 147-148 and T 213
14 Mr Perri did, however, confirm that he often had general discussions about involving staff in the ownership of the business, and that he was always looking for possibilities to “reward [the] staff for motivation or for excellent work.”[4] However, he stated that these discussions were always fleeting and at no point was any formal offer made to Mr Bishop or any other employee. Mr Perri stated that the 15 per cent bonuses paid to Mr Bishop were sums designed as an incentive to work harder, but had nothing to do with potential ownership of the company. He had made up the figure himself.[5]
[4] T 149
[5] T 152; T 229
15 Mr Lowe, too, testified that the 15 per cent bonus was something that Mr Perri decided:
“It was a number that he came up with to be able to provide a framework to be able to make bonus payments to staff, including [Mr Bishop], for the view of an enticement for people to basically work harder, generate more revenue and hence profitability for the business.”[6]
[6] T 421
16 Mr Lowe stated that at no point was he aware that Mr Bishop had been offered a 15 per cent share in the business, and said that at no point did Mr Bishop ever say to him that that was the case.[7]
[7] T 383
17 According to Mr Bishop, in the middle of 2007, he raised the issue of the shareholding with Mr Lowe, and stated that it was taking a long time to be finalised. Mr Lowe informed him that he was disappointed at the hold up and said:
“What we would like to do is that while we’re waiting for the shareholding to be finalised, we’d like to give you a 15 per cent bonus which is equated against net profit because of your patience in having to wait this time.”[8]
[8] T 23
18 According to Mr Bishop, he discussed the shareholding issue every three to four months with either Mr Lowe or Mr Perri.[9] He stated that he received bonuses in lieu of that shareholding because it had not been finalised.[10]
[9] T24
[10] T 53
19 In cross-examination, Mr Bishop stated that he did not know the value of In-Tellect and that:
“No doubt during discussions with accountants then, more information
would be gleaned with regards to the value of the business.”[11]
[11] T 52
20 Mr Bishop stated that there was no agreement about his right to sell the shares and that:
“No doubt if it had progressed to providing a shareholding agreement,
there would be clauses with regard to sale of the shares.”[12]
[12] T 56
21 In April 2008, Mr Bishop, together with Mr Lowe and Mr Perri, met with Mr Crew, In-Tellect’s accountant, for lunch to discuss its business affairs. Mr Bishop alleges that Mr Crew asked him whether he was still interested in being a shareholder or whether he preferred the annual bonus instead. Mr Bishop reconfirmed his desire for share ownership, and Mr Crew acknowledged this.
22 Mr Crew gave evidence that a number of issues were discussed at the lunch meeting in light detail, including ways to pay Mr Bishop to minimise taxation obligations, staff employment, methods of paying bonuses and the like. Mr Crew confirmed that employee-share schemes were discussed, and stated that he advised that such a scheme was not possible due to the unit trust structure of the business.[13]
[13] T 376
23 After the meeting, Mr Crew received a telephone call from Mr Bishop’s accountant, who enquired about his client becoming a part owner in the business. Mr Crew replied that he could not give any information as he was not aware of Mr Bishop taking any ownership of the company. The accountant was not called as a witness.
24 In-Tellect referred to emails sent by Mr Bishop to a friend in June 2009 in which it argued that there was no indication that he had accepted a shareholding in the company. In-Tellect also referred to an email that Mr Bishop sent to his accountant on 9 April 2009 as indicative of the lack of agreement that had been reached. I do not consider that these emails take the matter much further.
Submissions about the First Issue
25 Mr Bishop’s case in essence was that a share ownership agreement had been reached with Mr Perri and that the evidence supported that conclusion. In- Tellect disputed that an agreement had been reached.
26 Counsel for In-Tellect referred to the judgment of Kirby P in Biotechnology Australia Pty Ltd v Pace[14] concerning whether an express term in an offer of employment gave “the option to participate in the company’s senior staff equity sharing scheme”. His Honour stated:
“… On the one hand there is the natural desire of courts to uphold, and not to frustrate, a contract between the parties. On the other hand is the unwillingness of courts to uphold contractual terms which are unacceptably ambiguous or uncertain. Courts will not enforce contracts with such provisions that suggest that agreement between the parties as to essential terms, even though apparent, was illusory.[15]
. . .
The court will endeavour to uphold the validity of the agreement between the parties: … . The court will attempt to avoid frustrating the wishes of the contracting parties so far as those wishes may be ascertained from the agreement between them. …
. . .
But the court will not do so, where, in effect, it is asked to spell out, to an unacceptable extent, that to which the parties have themselves failed to agree. …”
[14] (1988) 15 NSWLR 130
[15] Ibid 132
27 The need for agreement on critical terms was stated by Menzies J in Thorby v Goldberg,[16] as follows:
“‘It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential or critical terms, have been agreed upon. So, there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties. …’.”
[16] (1964) 112 CLR 597at 607, and see Lau v Bob Jane T-Marts Pty Ltd [2004] VSC 69 at [60]-[61]
Decision on the First Issue
28 I consider that no enforceable agreement was reached between Mr Bishop and In-Tellect by which it agreed to arrange the transfer to him of a shareholding of 15 per cent.
29 There are two distinct issues: First, did Mr Perri make the offer of which Mr Bishop gave evidence? Second, if the offer was made and accepted, was it sufficiently certain to constitute a binding contract?
30 I am not satisfied that Mr Perri did make an offer as outlined in the evidence of Mr Bishop. I consider that there was probably some discussion about remuneration and possible shares being issued to employees, at some future point, but nothing definite was agreed. The dispute existing in the company at the relevant time made it unlikely that a shareholding would have been offered. I accept Mr Lowe’s evidence that Mr Bishop had never raised the shareholding issue with him. This was despite Mr Bishop and Mr Lowe being friends. Mr Bishop accepted the bonuses. It is that true that the bonuses were calculated at 15 per cent of gross profit, but that did not represent a de facto dividend, which would have been calculated on net profit.
31 I accept Mr Crew’s account of the tenor of the discussion at lunch in April 2008. That discussion rather suggests that the parties were discussing forms of profit sharing, rather than discussing how to implement an allocation of 15 per cent shareholding.
32 The fact that Mr Bishop did raise the shareholding in the termination interview in August 2009 does support the conclusion that he believed that he had been made an offer. Some of the emails that he sent to advisers also support that conclusion.
33 However, I am not persuaded on the balance of probabilities that Mr Perri made such an offer.
34 I also consider that, if contrary to my conclusion, such an offer was made and accepted, it was not sufficiently certain to constitute a binding contract. Important terms of such an agreement were not agreed. Mr Bishop agreed that he was not made aware of any information to determine the value of the shares in March 2006 or at any other point. No share valuation was ever undertaken nor was there any discussion as to share price. Mr Bishop therefore did not know the value of what on his case he was being offered,
35 No discussion occurred about the rights that Mr Bishop would have to dispose of the shares. The right to sell shares was never discussed.
36 At best, any offer of shares would have been an agreement to attempt a future agreement and as such is unenforceable.
Conclusion on first issue
37 Mr Bishop has not established that an agreement was reached whereby In- Tellect would arrange for the transfer to him of 15 per cent of its shares.
Issue 2: Did In-Tellect engage in misleading or deceptive conduct in contravention of the Trade Practices Act?
38 Mr Bishop claims that in making the statements about share ownership, which are the basis of his contract claim, the defendants engaged in misleading or deceptive conduct in breach of s.52 of the Trade Practices Act 1974 as they “did not formalise the 15 per cent ownership in the defendant”. The representations are pleaded to have been as to future matters and that the defendants did not have reasonable grounds for making them. Reliance is placed on s.51A of the Trade Practices Act. Mr Bishop alleges that he acted in reliance on the representations by his continuation in his employment with In-Tellect in lieu of an increase in remuneration, and that by his reliance he has suffered loss and damage.
39 This cause of action applies only to corporations and can only be brought against In-Tellect. No claim against the individual defendants was made under s75B of the Trade Practices Act.
40 I am prepared to assume that a representation by Mr Perri to Mr Bishop about a shareholding in In-Tellect when he was seeking a pay rise, was capable of being conduct in trade or commerce: cf Concrete Constructions (NSW) Pty Ltd v Nelson[17] and O’Neill v Medical Benefits Fund of Australia.[18]
[17] (1990) 169 CLR 594
[18] (2002) 122 FCR 455
41 However, in deciding the first issue, I have not been persuaded that an offer of shareholding in the terms that Mr Bishop alleges was made. As this was the basis of the conduct relied on in the Trade Practices claim, I also do not accept that claim.
42 I also do not consider that Mr Bishop acted in reliance on any promises about shareholding by continuing in employment, instead pursuing a pay rise. Mr Bishop did receive substantial bonuses for the years 2007 and 2008.
Decision on the Second Issue
43 Mr Bishop has not established that In-Tellect breached the Trade Practices
Act.
Additional related claim
44 Mr Bishop also pleaded a claim in estoppel based on the representations said to have been made about share ownership. This claim was not developed in argument. In any event, I am not satisfied that the representations relied on were made for the same reasons that I have given for not accepting the share ownership contract claim.
Issue 3: Did In-Tellect Breach the Employment Contract in dismissing Mr
Bishop?
Issue 4: If yes to Issue 3, what damages has Mr Bishop suffered?
45 Mr Bishop’s claim in this regard stems from the alleged breaches of the March 2003 employment contract.
46 The employment contract relevantly provides:
“Reviews
Your performance requirements, remuneration package, quota and other terms of engagement will be reviewed from time to time with at least one review within each 12 month period.
Unsatisfactory Performance or Conduct
All employees are required to perform to a satisfactory level and conduct themselves in a professional manner. If at any time the management of ANI-Intellect forms the view that areas of the employee’s performance or conduct are not satisfactory, ANI-Intellect will provide written details to the employee, setting out reasonable time frames during which ANI- Intellect expects those areas to be improved to the required standard. Failure to achieve the required standards within the allowed time frame may result in dismissal.
Training
ANI-Intellect is committed to the continued development of yours skills and knowledge in areas that will be of benefit to both ANI-Intellect and yourself. To this end ANI-Intellect will provide training where appropriate.
General
The contractual relationship between ANI-Intellect Pty Ltd and its employees is founded on trust. From time to time Terms & Conditions of Employment may be changed. Future changes to ANI-Intellect’s Terms & Conditions of Employment will apply to your appointment. It is also important to note that a positive mental attitude on your part forms part of this employment contract.”
47 Mr Bishop’s letter of appointment provided that because he was an employee of more than three years' employment, he was, on termination of his employment, entitled to four weeks’ notice or pay in lieu thereof.
Breach of Contract arising from Termination
48 The evidence concerning the termination of Mr Bishop’s employment was as follows. Mr Bishop stated that initially, things went well. However, business was fairly tough and challenging for a period of nine months when two directors left in 2004.[19] The company was in considerable financial difficulty, but reduced its costs by moving to less expensive office accommodation. He held discussions with a Sydney based company, but declined their offer of a position in their new Melbourne office, because of the promises that had been made to him about the shareholding in In-Tellect.
[19] T 25
49 In September 2008, In-Tellect engaged Mr D Knowles to consult on the future direction of its business. For one day per week Mr Knowles conducted a review of In-Tellect, examining its business figures and consulting with all employees to gain insight into its strengths and weaknesses.
50 In December 2008, Mr Knowles delivered his recommendations to Mr Risby and Mr Lowe. These included advice that In-Tellect appoint a general manager, who would oversee both the sales and technical aspects of the business. Mr Risby also advised the directors that his investigations revealed that Mr Bishop was not performing as a salesman and that the company would be better off without his services.
51 In-Tellect followed Mr Knowles’ recommendation to engage a general manager, and appointed Mr J Risby in March 2009. Mr Risby also conducted a review of the In-Tellect business. This included the task of drafting a sales budget for the upcoming financial period. As part of drafting this new budget Mr Risby reviewed the structure of Mr Bishop’s commissions. Mr Risby felt that the commission structure in place was not the most appropriate for a number of reasons. Commissions were being paid on gross profit figures that did not take into account the overheads required. Secondly, commissions were being paid with a formula that gave a flat rate to both existing business and new business. Mr Risby felt that commissions paid on existing business should be reduced and that commissions paid on new business should be increased to add incentive for Mr Bishop to attract new customers.
52 Around this time, Mr Risby asked Mr Bishop to provide him with a list of clients that he had brought into the organisation since commencing with In-Tellect in March 2003. After Mr Bishop had done so, Mr Risby showed the list to Mr Perri, who stated that some of the clients on the list were not in fact brought into the organisation by Mr Bishop. Mr Risby and Mr Perri then consulted client records together and found that only six of those clients on the list could be attributed to Mr Bishop. Mr Risby stated that this confirmed to him the need for Mr Bishop to have his commission structure altered to reward him for bringing in new business.
53 Mr Risby gave evidence that he openly declared his intentions to alter the commission structure to everybody, including Mr Bishop, prior to finalising the budget. He did this on a number of occasions to everybody in the vicinity of the open-plan office.
54 In-Tellect was concerned that Mr Bishop was being paid a level of commission that he did not bring in. He was being paid on gross profit, whereas up to 70 per cent of gross profit was subsumed in overheads.
55 Late in the final days of the 2008-2009 financial year, Messrs Risby, Lowe, Knowles and Mr Bishop attended a “closed-door” meeting where the budget was finalised and the revised commission structure was formally proposed and agreed to. A few days later, when Mr Risby was about to upload the new budget in to In-Tellect’s computer system, Mr Bishop informed Mr Risby that he did not agree to his new commission structure. According to Mr Risby, Mr Bishop stated “you can’t mess with my income” or words to that effect. Mr Bishop in his evidence contested that he used the words “mess with”, and stated that he wouldn’t use that language in a professional environment. Mr Risby could not recall his response to Mr Bishop’s objection. Mr Risby said that he did not need to respond as he had formed the opinion by this stage that Mr Bishop’s employment ought to be terminated.
56 When Mr Risby communicated the terms of the new commission structure to Mr Bishop he objected to it. This disagreement was never settled as by that time, Mr Risby had formed the view that Mr Bishop’s employment ought to be terminated due to poor performance.
57 Mr Risby’s evidence about Mr Bishop’s performance was as follows. When he commenced with In-Tellect, he took a “watch and listen” approach for the first few weeks, during which he consulted with both employees and clients to better understand the business. From these initial observations, Mr Risby formed the view that Mr Bishop was not performing his job to a good standard. Complaints had been received from customers and employees, including the delivery team of In-Tellect, who considered that Mr Bishop was not providing adequate information in regard to sales. This lack of communication meant that the delivery team had no confidence in making production commitments, as future sales were uncertain. Mr Knowles had identified a similar issue in his review of the In-Tellect business, and had told Mr Risby of it before he commenced work with In-Tellect.
58 In response to this concern, Mr Risby arranged for a ‘sales pipeline’ document to be prepared. Mr Risby provided it to Mr Bishop before he formally commenced with the business. The purpose of the sales pipeline was to enable Mr Bishop to provide sales information, projected forecasts and targets to streamline the sales and delivery processes. Mr Bishop undertook this task, but according to Mr Risby and other witnesses, he did so in a poor fashion. According to Mr Risby, the information that Mr Bishop provided lacked appropriate detail and foresight of future demand. Mr Risby took it upon himself and developed his own sales pipeline.
59 Throughout this five-month period, Mr Risby attended about five or six client meetings alongside Mr Bishop. He observed Mr Bishop’s sales technique and judged it to be poor. According to Mr Risby, Mr Bishop was not playing an active role in the client meetings, instead preferring the engineers in attendance to do most of the product explanation and pitch.
60 Mr Bishop gave evidence of discussions with Mr Risby after his commencement as general manager in April 2009. He stated that initially there appeared to be an issue with sales, but that after a couple of months the issue was clarified as to how new work was to be handled by engineers to deal with a backlog of IT projects.[20]
[20] T 32
61 Mr Bishop referred to an email from Mr Risby to Mr Knowles of 3 March 2009 which was copied to him. This email contained no criticism of performance, but rather suggested that Mr Risby and Mr Bishop might work together to review the sales pipeline and develop sales. He gave evidence that he had attracted a number of customers in the previous twelve months.
62 A number of In-Tellect’s witnesses gave evidence that was critical of Mr Bishop’s performance. A number of these criticisms related to a failure to bring in new sales.[21]
[21] Some of the criticisms were expressed in derogatory terms: see T171-2
63 Mr Perri stated that his performance was poor and that there had been complaints from clients. He was not generating new sales. In late 2008, Mr Knowles recommended his termination. The budget he produced was unsatisfactory. Mr Risby saw him with clients and he was not a good salesman. Mr Lowe, who was a personal friend, confirmed this.
64 Mr Knowles, who stated that he had employed 800 to 900 people, gave evidence that he was in an inappropriate job for someone of his abilities, and that he was not capable of performing the role of sales manager.
65 Mr Bishop received warnings from Mr Perri that his performance in understanding customers’ needs was not good enough.[22] In September 2008, Mr Perri informed him that they wanted new clients. Mr Perri did not terminate his employment after the recommendation of Mr Knowles, but decided to give him the opportunity to perform. [23]
[22] T 164
[23] T 175
66 Mr Risby formed the opinion that Mr Bishop’s employment should be terminated. He formed that view based on a:
“[A] combination of a lack of sales management capability, not a particularly good sales approach, a fairly inflated salary based on commissions that a lot of them had been inherited and in fact he was still getting paid commissions from accounts that refused to deal with him, and some of the comments I got back from the staff”.[24]
[24] T 279
67 Mr Risby met with Mr Bishop on 21 August 2009 and told him that his contract of employment was to be terminated. He told him that the business needed an opportunity to seek a more relevant business development manager and that he thought that his performance was not on par with the job that was required to be done. He stated that he had considered making Mr Bishop an offer of a position as an account manager, but he did not think he would accept it and Mr Bishop confirmed that to be the case. Mr Risby informed him that he was to be paid four weeks’ pay in lieu of service, including his remaining entitlements and commissions. He asked Mr Bishop how he wanted to communicate the termination to the employees of In-Tellect, and offered him the opportunity to resign. Mr Bishop rejected this offer and asked Mr Risby to tell the truth.
68 Mr Bishop subsequently prepared typed notes of the meeting which record discussion about the reasons for dismissal, with Mr Risby stating that the termination was due to performance and also mentioning cost. When Mr Bishop stated “Oh…so that’s the real reason”, Mr Risby responded “no that’s not the reason it’s because of performance”.
69 Mr Bishop did raise the question of his shareholding but Mr Risby stated that he was unaware of it.
70 Mr Risby then informed Mr Bishop that he would calculate all his remaining entitlements and send the calculations to him in an email. He did this on the following Monday in a long email setting out the entitlements that he would receive and offering to act as his referee.
71 Mr Risby issued a Separation Certificate for Mr Bishop which contained a requirement to tick a box if employment was terminated due to unsatisfactory work performance. That box was ticked as well as the box titled “other”. More details were required to be given on the Certificate and Mr Risby wrote: “Lower than required new customers attracted to the business and unable to agree upon sales targets and related commission.”
72 In addition, evidence from Mr Risby and other In-Tellect witnesses established that a substantial reason for Mr Bishop’s termination was the view that his work performance was not satisfactory.
73 Mr Bishop received no prior written warning as envisaged by the Unsatisfactory Performance or Conduct term in the employment contract. The question for my determination is whether he has suffered any damage as a result of the failure to comply with the written warning requirements of the contract. Mr Risby was unaware of Mr Bishop’s right to receive a performance warning.
Consideration of the breach of contracts claims
74 Mr Bishop’s case is that In-Tellect breached each of the terms of the contract set out above. He also claims that he should receive one years’ pay in order for the contract to be validly terminated. In-Tellect disputes these claims.
75 The Reviews Clause stated that there would be at least one review of performance requirements, remuneration package, quota and other terms of engagement within each twelve-month period. These reviews appear not to have occurred, although Mr Bishop himself raised remuneration issues from time to time. I would construe this clause as containing a statement of employer’s intent rather than an enforceable contractual obligation. I also do not consider, that if the term is an enforceable obligation in contract and has been breached, that Mr Bishop has established that any damage flows from that breach.
76 The Training Clause depends on establishing that training is appropriate. Under that clause, the scheduling of training appears primarily to have been a matter for the employer to determine. I do not consider that Mr Bishop has established a breach of that clause or, that any damage has flowed from any such breach if it occurred.
77 The General Clause emphasising that the employment relationship was based on trust is primarily aspirational. I do not discount its importance, but I do not regard it as containing legally enforceable obligations.
78 In any event, I do not consider that Mr Bishop has established this breach of contract. Both Mr Bishop and Mr Risby gave evidence that Mr Risby offered Mr Bishop the opportunity of resigning in substitution for termination as an offer to end the relationship more amicably and preserve the perceptions of clients. Mr Bishop rejected this option and advised Mr Risby that clients ought to know that he was terminated. There is no evidence that Mr Bishop was demeaned to clients in any way.
79 The Unsatisfactory Performance or Conduct clause is in a different category. It states what In-Tellect will do if, at any time, the management forms the view that areas of the employee’s performance or conduct are not satisfactory. The employee is to receive written details with reasonable time frames to improve to the required standard. If he does not, he may be dismissed. This clause provides the employee with important safeguards which are not regular provisions of private sector employment.
80 In-Tellect did not observe this clause. It is easy to downplay the importance of this clause and argue that compliance with its provisions would not have altered the outcome for Mr Bishop. I do not consider that to be a correct approach, as it constructs an outcome on an incorrect basis – following a course of conduct that occurred without Mr Bishop receiving written warnings of management’s perceptions of his performance.
81 In-Tell submitted that Mr Bishop had not been dismissed on grounds that would have attracted the operation of this clause. I do not accept this submission. While the disagreement between Mr Bishop and Mr Risby about a new commission rate certainly played a part in Mr Bishop’s dismissal, so too did the views Mr Risby and others held about his work performance.
82 Mr Bishop lost the chance to improve his performance to the level management required.
83 In assessing the value of that lost chance, I take into account two matters: First, that perceived poor performance was only one of the reasons for Mr Bishop’s dismissal. The high level of commission that he received was another. Second, Mr Bishop did not consider that his performance was not up to standard.
84 The reasons for termination given in the Employment Separation Certificate[25] suggest that, particularly in light of the financial circumstances of In-Tellect at the time of termination, Mr Bishop’s employment could not have continued without the revised commission rate. It may be that his attitude on both these issues may have altered if he had received a written warning in accordance with the clause.
[25] Plaintiff’s Court Book 42
85 At the least, I consider that if In-Tellect had served a written notice as required by the contract it would have been a circuit breaker and made it likely that Mr Bishop would not have been dismissed in August 2009. What would have thereafter happened is a matter of conjecture. Mr Bishop gave evidence that he would have discussed performance issues in a professional way and sought to rectify them if there was an issue.[26] He was not given that opportunity.
[26] T 46
86 Although there is uncertainty as to what would have happened if Mr Bishop had received the required written notice, I consider that Mr Bishop is entitled to damages for In-Tellect’s breach of contract in not providing him with it. Mr Bishop lost the chance of reaching some solution to In-Tellect’s concerns. However, I consider in the light of In-Tellect’s concerns about Mr Bishop’s suitability for the position that he held, that he was unlikely to have been able to achieve such a solution. In-Tellect would probably have still terminated his contract of employment after the period specified in the written notice had expired would probably
87 I assess the value of the lost chance at three months’ remuneration, including commissions. I make that assessment because, if the warning notice had been sent, it is probable that the decision to dismiss Mr Bishop, even if he had refused to agree to alter his commission payments and deal with performance issues, would have been postponed for at least that period of time.
88 I have taken into account the principle that in assessing damages, the date when the contract would have come to an end must be ascertained on the assumption that the employer would have exercised any power he may have had to bring the contract to an end in the way most beneficial to himself. That is to say, that he would have determined the contract at the earliest date at which he could properly do so.[27]
[27] Bostik (Aust) Pty Ltd v Gorgevski (No 1) (1992) 36 FCR 20 at 32
89 I consider that the approach of Wilcox CJ in Nicholson v Heaven & Earth Gallery Pty Ltd[28] is applicable and that I need to assess the value of the chance that Mr Bishop lost to retain his employment. I consider that that lost chance amounts to three months’ remuneration.
[28] ibid at 247
90 I do not consider the Unsatisfactory Performance or Conduct clause prevents the employer exercising the right to terminate the contract of employment. I therefore do not accept Mr Bishop’s argument that he is entitled to a greater period of termination payment than four weeks.
91 Rather, the issue is, if that right is exercised without compliance with other clauses of the contract of employment, such as the Unsatisfactory Performance or Conduct clause what damages has the employee suffered because of the breach.
92 The three month period I award is additional to the one month’s remuneration required to terminate the contract validly. This is because that one month’s remuneration would be payable at the time the decision was made to dismiss the employee. The additional three month’s that I have awarded is an assessment of the probable additional period that Mr Bishop would have been employed if the procedures in the Unsatisfactory Performance or Conduct clause had been observed.
Decision of Third and Fourth Issues
93 I find that In-Tellect breached the contract of employment with Mr Bishop by not observing the requirements of the Unsatisfactory Performance or Conduct clause of the contract of employment. I assess the damages that Mr Bishop has suffered as a result of that breach at three month’s remuneration, including the commissions that would have been earned during those three months.
Additional Damages
94 Mr Bishop claimed in evidence that he had not received the same level of commission for the month’s notice in respect of which he received pay in lieu, as he had for on average in previous months.[29] Upon Mr Bishop’s termination he received a payment of $700 for commission he would have earned within the 4 week notice period. In examination in chief, Mr Bishop disputed this payment and stated that on average he would receive around $3800 per month in commissions. He also said that in the two months leading up to his dismissal he had received approximately $4000 and $5600 of commissions for each month.[30]
[29] T43
[30] T 43-44
95 It was not entirely clear where this claim was left at the end of the case and I propose to hear the parties further about it.
Mitigation
96 In-Tellect did not establish that Mr Bishop had failed to mitigate his damages or that he had engaged in other employment. He gave evidence that he contacted a number of recruitment agencies. He has been on the Newstart allowance and has met regularly with his contact at the Salvation Army to discuss his attempts to obtain employment. He stated in evidence that he “most vigorously had tried to find alternative employment”.[31]
[31] T 46
97 The authorities suggest that benefits such as the Newstart allowance paid during the period of damages awarded should be deducted from the damages.[32] I will follow that approach.
[32] See Sappideen, O’Grady and Warburton ‘Macken’s Law of Employment’ (6th ed.) p 411
Conclusion
98 One part of Mr Bishop’s claims succeeds. He has established a breach of his contract of employment by the failure of In-Tellect to observe the Unsatisfactory Performance or Conduct clause. He is entitled to three months’ remuneration additional to the one month’s pay that he received. The three months’ remuneration will include the commission that he would have earned during those three months. Any Newstart allowance that he received during those three months must be deducted from those damages.
99 Mr Bishop’s other claims have not been established.
100 I will hear the parties about the calculation of the damages that I have awarded to Mr Bishop, about interest and costs.
101 I will also hear the parties about any claim that Mr Bishop may have for additional commission payable as part of the month’s pay in lieu of notice that he received.
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