Key employment contract clauses prove their utility

The recent Federal Court decision in Haros v Linfox [2011] FCA 699 has dismissed a claim by a former executive that Linfox had misled him during the recruitment process, both in the nature of his role with the company and the security of his employment.

The recent case emphasises the importance for employers of having a sound employment contract. When the contract is being negotiated, it is essential for parties to consider the insertion of ‘entire understanding’ and ‘no reliance’ clauses.

These clauses allow the employer, during potential disputes, to rely on the clause to establish that the contract forms the entire agreement between the parties and, in effect, supersedes all negotiations, representations, warranties or commitments in relation to the employment.

This limits the risk (without entirely eliminating it) of employees relying on other statements or representations regarding the employment.

The facts

Linfox had engaged the services of Mahlab recruitment agency to procure the services of a suitable business manager. Mr Haros was a general manager at Mobi Living Pty Ltd when he began discussions with Mahlab regarding the position at Linfox.

The general manager of Linfox met Mr Haros. The nature of the business was explained as well as the role of business manager. Further to this, Mr Haros met the chairman of the board of directors at Linfox, Mr Fox.

It was in the course of these meetings, at the recruitment stage, that Mr Haros claimed misleading descriptions were made about the job.

Allegedly, Linfox employed him on the basis that he would be the sole manager, responsible for commercial functions at Avalon near Geelong, and in two or three years’ time, once he proved himself capable in the business manager position, he would likely progress to the position of general manager.

Prior to Mr Haros commencing employment as business manager at Linfox, the general manager resigned and another Linfox manager was appointed acting general manager.

Once he started at Linfox, Mr Haros found other line managers were responsible for commercial functions at Avalon airport and that he was to report to some of them rather than directly to the general manager. Mr Haros then proposed a restructuring of the managerial hierarchy to the chairman of the board of directors, which left another manager displeased and issuing an ultimatum - either he leave, or Mr Haros leave.

In response to this, Mr Haros was told by Linfox that his position had been made redundant.

During the hearing, Linfox admitted the position of business manager had not been made redundant but the company had given that reason since it was the easiest way to end Mr Haros’ employment.

Alleged representations to Mr Haros

Mr Haros alleged that during the recruitment stage, Linfox made the following representations:

• The security representation - that Linfox wanted to employ him for at least three years;
• The exclusivity representation - that Linfox did not employ anyone other than the general manager to perform management or performance of activities in the business manager role;
• The longevity omission - that Linfox might resile from the security representation in the event that the general manager resigned; and
• The exclusivity omission - that Linfox failed to inform him that it had already employed others in the capacity of business manager.

On the security representation, Justice Tracey analysed the language used to communicate with Mr Haros during the recruitment process and flagged that words such as ‘opportunities’ and ‘potential’ were used repeatedly.

His Honour held that with the use of such language, there was nothing in the negotiations that could be classified as an assurance or representation that Linfox intended to employ Mr Haros as a business manager “for at least approximately three years.”

In addition to this, the applicable contract did not contain a three-year term or any minimum term, but instead prescribed a three-month probationary period. These provisions of the contract were inconsistent with the alleged representation that Linfox intended to employ Mr Haros for at least three years, and His Honour rejected the security representation put forward by Mr Haros.

With regard to the exclusivity representation, His Honour noted that it was understood that Mr Haros was not advised about the commercial work being undertaken by the other managers, but that it could not reasonably be suggested Linfox, by failing to mention that commercial work was ongoing at Avalon, thereby implied that the company did not employ anyone other than the general manager to perform such work. This representation was not accepted by the court.

On the longevity omission, since the security representation had not been made, this omission was not found as there was no representation from which it might resile.

In relation to the exclusivity omission, Justice Tracey flagged that it was difficult to see how this omission had the potential to mislead or deceive Mr Haros.

This was because Linfox had clearly established the business manager role and position and there was nothing in the evidence that proved Linfox was anything other than genuine in seeking to employ a business manager to perform a wide range of work at Avalon, evidenced by the fact that Mr Haros never complained of having insufficient work.

The contract

Mr Haros, as pointed out by Justice Tracey, was an astute lawyer with relevant experience in employment law. His claims that there was misleading conduct by Linfox were not evident in the contract.

This was because:

• He did not seek employment for a fixed term and did not negotiate anything regarding his probationary period;
• He was offered, and accepted, the terms and conditions of his employment as a business manager, which was freely negotiated;
• He carefully reviewed the draft contract sent by Linfox and even suggested certain amendments;
• He signed the contract, and this was not a mere formality.

In addition to this, the draft contract contained an ‘entire understanding’ clause, which provided that the letter set out the entire understanding and agreement between the parties, and a ‘no reliance’ clause which provided that all negotiations, representation, warranties or commitments in relation to the employment were superseded by this employment contract.

These clauses assisted Linfox in its position that the letter and draft contract set out the entire understanding and agreement between the parties.

The contract was signed freely by Mr Haros and the court relied, with some significant weight, on this evidence to come to its decision.

Decision

Justice Tracey held that Linfox had not made any representations to Mr Haros over the recruitment period. In the alternative, if the pleaded representations were made, Justice Tracey noted that those representations were not misleading or deceptive.

His Honour found that the applicant was not entitled to any further compensation for loss of employment other than the amount provided for in the contract.

Joe Catanzariti is the lead partner for the National Clayton Utz Workplace Relations, Employment and Safety Practice Group as well as the national HR partner for the firm. He is a trusted adviser to many of Australia’s largest private sector companies and government departments, advising on all aspects of employment law and workplace relations.

Clayton Utz

http://www.claytonutz.com/