Constructive unfair dismissal; the doctrine of repudiation

Conduct by an employer which is fundamentally inconsistent with the contract of employment of an employee will, if it amounts to repudiation, which is explained below, provide the employee with a common law right to either affirm the contract of employment or reject it. In the case of a contract of employment, this means that the employee, if he or she elects the second option and treats the contract as having been repudiated by the employer, may also treat the conduct of the employer as a termination of employment at the initiative of the employer otherwise commonly known as a constructive dismissal.

Repudiation

The salary of the Applicant formed a fundamental and essential term of his employment with the Respondent. The Respondent, by refusing to pay the Applicant the salary he was entitled to under the Sales/Key Account Manager Agreement, exhibited conduct that evinced a renunciation of the Applicant’s employment as a whole or a fundamental obligation under it, thus giving rise to repudiation: Gelagotis v Esso Australia Pty Ltd [2018] FWCFB 6092 at [119]. This degree of change to the Applicant’s employment and size of the breach was significant and profound: Keays v JP Morgan Administrative Services Australia Ltd [2012] FCAFC 100 at [81], resulting in a $19,227 decrease in the Applicant’s salary per annum constituting a 21.2% decrease in salary as well as a different motor vehicle.

  1. This repudiation gave rise to an option for the Applicant to either affirm the contract or to treat the contract as at an end by accepting the repudiation: Visscher v Giudice(2009) 239 CLR 361 at [53] – [55]; Byrne v Australian Airlines Ltd(1995) 185 CLR 410; Automatic Fire Sprinklers v Watson (1946) 72 CLR 435. This option to accept the Respondent’s repudiation was exercised by the Applicant by instructing the letter sent via his solicitors on 21 December 2018 bringing both the employment contract and employment relationship to an end. The employment relationship was therefore terminated at the initiative of the Respondent on the grounds of repudiation in accordance with section 386(1)(a) of the Fair Work Act 2009 (Cth).” 76 (footnotes omitted)

That which will constitute repudiation was considered by the High Court of Australia in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd 77 (Koompahtoo) in which Gleeson CJ, Gummow, Heydon and Crennan JJ said as follows:

“In its letter of termination, Koompahtoo claimed that the conduct of Sanpine amounted to repudiatory breach of contract. The term repudiation is used in different senses. First, it may refer to conduct which evinces an unwillingness or an inability to render substantial performance of the contract. This is sometimes described as conduct of a party which evinces an intention no longer to be bound by the contract or to fulfil it only in a manner substantially inconsistent with the party’s obligations. It may be termed renunciation. The test is whether the conduct of one party is such as to convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it. (In this case, we are not concerned with the issues that arise where the alleged repudiation takes the form of asserting an erroneous interpretation of the contract. Nor are we concerned with questions of inability as distinct from unwillingness.) Secondly, it may refer to any breach of contract which justifies termination by the other party. It will be necessary to return to the matter of classifying such breaches. Campbell J said this was the sense in which he would use the word “repudiation” in his reasons. There may be cases where a failure to perform, even if not a breach of an essential term (as to which more will be said), manifests unwillingness or inability to perform in such circumstances that the other party is entitled to conclude that the contract will not be performed substantially according to its requirements. This overlapping between renunciation and failure of performance may appear conceptually untidy, but unwillingness or inability to perform a contract often is manifested most clearly by the conduct of a party when the time for performance arrives. In contractual renunciation, actions may speak louder than words.

In the past, some judges have used the word “repudiation” to mean termination, applying it, not to the conduct of the party in default, but to the conduct of the party relying upon such default. It would be better if this were avoided.

. . .

For present purposes, there are two relevant circumstances in which a breach of contract by one party may entitle the other to terminate. The first is where the obligation with which there has been failure to comply has been agreed by the contracting parties to be essential. Such an obligation is sometimes described as a condition. In Australian law, a well-known exposition was that of Jordan CJ in Tramways Advertising Pty Ltd v Luna Park (NSW) Ltd who, in comparing conditions and warranties, employed language reflected in many statutory provisions. The widespread statutory adoption of the distinction between conditions and warranties, or essential and inessential terms, is an established part of the background against which the common law has developed. The Chief Justice of New South Wales said (references omitted):

“In considering the legal consequences flowing from a breach of contract, it is necessary to remember that (i) the breach may extend to all or to some only of the promises of the defaulting party, (ii) the promises broken may be important or unimportant, (iii) the breach of any particular promise may be substantial or trivial, (iv) the breach may occur or be discovered (a) when the innocent party has not yet performed any or some of the promises on his part, or after he has performed them all, and (b) when the innocent party has received no performance from the defaulting party, or has received performance in whole or in part; and to remember also that the resultant rights of the innocent party and the nature of the remedies available to him may depend upon some or all of these matters.

The nature of the promise broken is one of the most important of the matters. If it is a condition that is broken, ie, an essential promise, the innocent party, when he becomes aware of the breach, has ordinarily the right at his option either to treat himself as discharged from the contract and to recover damages for loss of the contract, or else to keep the contract on foot and recover damages for the particular breach. If it is a warranty that is broken, ie, a non-essential promise, only the latter alternative is available to the innocent party: in that case he cannot of course obtain damages for loss of the contract.

The question whether a term in a contract is a condition or a warranty, ie, an essential or a non-essential promise, depends upon the intention of the parties as appearing in or from the contract. The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and that this ought to have been apparent to the promisor. If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged upon any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, any substantial breach will ordinarily justify a discharge. In some cases it is expressly provided that a particular promise is essential to the contract, eg, by a stipulation that it is the basis or of the essence of the contract; but in the absence of express provision the question is one of construction for the Court, when once the terms of contract have been ascertained. In general, Courts of common law have been more ready than Courts of Equity to regard promises as essential. This is in part due to the fact that Courts of common law are in the main concerned with ordinary commercial contracts in which it is common to find provisions which are intended to be strictly and literally performed. It is now provided by s 13 of the Conveyancing Act 1919 (taken from the Judicature Act 1873 , 36 and 37 Victoria, Ch 66, s 25(7)) that stipulations in contracts, as to time or otherwise, which would not before the commencement of the Act have been deemed to be or to have become of the essence of such contracts in a Court of Equity shall receive in all Courts the same construction and effect as they would have heretofore received in such Court. This serves to make equitable liberality of construction supersede common law strictness, so far as is consistent with apparent intention, in fields where equity and common law overlap; but it does not affect the principle that effect must be given to the apparent intention of the parties as disclosed in the contract.”

What Jordan CJ said as to substantial performance, and substantial breach, is now to be read in the light of later developments in the law. What is of immediate significance is his reference to the question he was addressing as one of construction of the contract. It is the common intention of the parties, expressed in the language of their contract, understood in the context of the relationship established by that contract and (in a case such as the present) the commercial purpose it served, that determines whether a term is “essential”, so that any breach will justify termination.

The second relevant circumstance is where there has been a sufficiently serious breach of a non-essential term. In Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd, the English Court of Appeal was concerned with a stipulation as to seaworthiness in a charterparty. Breaches of such a stipulation could vary widely in importance. They could be trivial or serious. The Court of Appeal held that to the accepted distinction between “conditions” and “warranties”, that is, between stipulations that were in their nature essential and others, there must be added a distinction, operative within the class of non-essential obligations, between breaches that are significantly serious to justify termination and other breaches. This was a recognition that, although as a matter of construction of a contract it may not be the case that anybreach of a given term will entitle the other party to terminate, some breaches of such a term may do so. Diplock LJ said that the question whether a breach by one party relieves the other of further performance of his obligations cannot always be answered by treating a contractual undertaking as either a “condition” or a “warranty”. Of some stipulations “all that can be predicated is that some breaches will and others will not give rise to an event which will deprive the party not in default of substantially the whole benefit which it was intended that he should obtain from the contract; and the legal consequences of a breach of such an undertaking, unless provided for expressly in the contract, depend upon the nature of the event to which the breach gives rise”. 78” [Footnotes omitted]

The question of whether there has been a repudiation of the contract of employment is determined objectively, it is unnecessary to show a subjective intention to repudiate 79 and is a question of fact not law.80Relevantly, for the present purposes for there to have been a variation inferred by the conduct of the parties, it must be found that the conduct of the parties is capable of proving all the essential elements of a variation, including acceptance.81 The mere silence of an employee is not acceptance, and neither is the continued performance of duties by an employee on its own. The context of the continued performance of duties must be viewed as a whole and as a question of fact, with there being no acceptance where there has been an unequivocal rejection of the proposal coupled with continued performance.82 Repudiation may exist where an employer reduces the wages of an employee without the employee’s consent83 or where there is a serious non-consensual intrusion on the nature of the employee’s status and responsibilities in a way which is not permitted by the contract.84 Similarly, if an employer seeks to bring about a change in the employee’s duties or place of work which is not within the scope of the express or implied terms of the contract of employment, the conduct may evince an intention to no longer be bound by those terms. Therefore, in these circumstances if an employee does not agree to the change, which if agreed would amount to a variation of the contract, the employee may claim to have been constructively dismissed.

Consideration must first be given to whether there has been a breach of an essential term of the contract of employment. As set out above, the test of essentiality includes an assessment of whether the matter is of such importance to the promisee that they would not have entered into the contract without it. It is plain from the parties’ conduct construed objectively that the question of Mr Simon’s forward remuneration is to be regarded as essential; he plainly objected to performing the role at the rate on offer and was prepared to suffer continuing in the Account Manager role if mutual terms could not be achieved. NGS Group saw it as important to retain relativities between Mr Simon and its other employees and would not negotiate with him about the subject. The question of whether the breach is of a non-essential term does not arise in this matter.

What is clear from the narrative set out above is that Mr Simon explored the possibility of moving from an Account Manager role to that of a tradesperson but that he did not irrevocably or unconditionally commit to doing so. By the time Mr Simon returned from leave on 13 August 2018, neither he nor NGS Group had concluded the negotiation that needed to take place on the essential terms of the transfer and ongoing engagement. In particular, there is no doubt that he and NGS Group had not by that time concluded to a point of consensus their negotiations about the pay Mr Simon was to receive.

The proper characterisation of the duties Mr Simon performed when he returned from leave on 13 August 2018 is subject to some ambiguity, with Mr Simon saying that he “continued to perform sales duties which included Free on Board (FOB) out of China and managing shelving for several bottle shops”, but with him agreeing that upon his return he “performed the position of Tradesperson”. 85 Mr Hineman agrees that when Mr Simon returned from leave, he undertook the trades role, with his daily duties involving “manufacturing signs, installing signs, manual factory work and liaising with the Production Manager”. Mr Hineman argues that the continuing sales duties would not have taken more than an hour a week; that Mr Simon had the choice of whether he took on the FOB duties; that “[w]e thought it was good for him to keep a hand in sales in case he wanted to revert to the role” and that, with Mr Simon performing the trades role between 13 and 28 August 2018, Mr Simon “never mentioned to me, and I’m not aware he mentioned to anyone else, that he wanted to go back upstairs to the Account Manager role”.86

The overall circumstances in which Mr Simon explored the possibility of a movement from his Account Manager position is that he was failing to some extent, if not to a significant extent, in that job. He argues that he was subjected to bullying. NGS Group and its witnesses reject that possibility. Even so at the very least, two things are factually evident. Firstly, that Mr Simon was under such significant pressure in his job, or even perhaps life in general, that he asked Mr Hineman whether, if he stepped away from sales there might be a position elsewhere and NGS. He may have been very emotional and cried either in that or earlier conversations. 87 Secondly, on 28 June 2018 he received the written warning detailing his performance in the Account Manager role. Those factors at least explain why Mr Simon may have been motivated to consider alternatives. However, the consideration of alternatives is not to be regarded as a blank cheque – move me somewhere and pay me what you will.

Instead the proposition being put forward by Mr Simon must reasonably be seen to be something akin to an invitation to reach agreement about an alternative to the then prevailing Account Manager position. Contractually of course, for a variation of contract to have occurred such would need to have been subject to offer, acceptance, consideration of the terms and intention to create a legal relationship in the usual way, and once negotiations had concluded and agreement on terms reached, the Account Manager contract would be terminated and the new one commence. 88 Further, by mid-September, Mr Simon had informed NGS Group that he viewed resolution of the salary dispute as essential to the continuation of his relationship with the firm and that failing agreement, he expected to return to the Account Manager position.

The fact that there had been a change in duties on one date and a change in pay at another date is not especially unusual and does not stand for the proposition that receiving the pay rate $36 per hour was tantamount to Mr Simon accepting what was really only an offer of payment at that rate.

The evidence does not reasonably lead to a finding that Mr Simon at any time “accepted” the pay rate in the sense of being seen to contractually accept what was on offer by NGS Group. Instead the evidence shows unambiguously that by no later than 21 August 2018 Mr Simon indicated that he was not going to accept the amount offered. Contractually speaking, the logical product of a failure to reach agreed terms would be that there could be no acceptance and thereby no contract. In the first of three letters from Mr Simon’s solicitors, dated 11 September 2018, the following was unambiguously put forward on his behalf:

“Employment Contract

Our client has instructed us that he has now had an opportunity to review the employment contract dated 21 August 2018 for the position of Sign Writer. Given the unfavourable terms contained therein, our client rejects this offer of employment. Accordingly, once he is fit to do so, our client will return to his existing position as Sales/Key Account Manager in accordance with the existing agreement between the parties. Alternatively, he remains open to an improved offer from the company for the position of Sign Writer.” 89

[64] In this situation, the alternatives contractually available to NGS Group were to either do something that would get them to the point of consensus with Mr Simon or to take him at his word and return him to the Account Manager position once he was fit to do so. In the context of the storm that had been brewing for some time, the return of Mr Simon to the Account Manager position would probably be the least desirable of the alternatives available for either party since he was hardly flourishing in the role and by that time also had accused his manager and co-worker of bullying conduct. While that may be so, the cleft stick in which the Respondent was being squeezed made that essentially the only viable alternative if agreed terms for the transfer to a tradesperson position could not be reached.

Accepting that small business employers will frequently have difficulty accessing professional advice on the subject of employment negotiations or that they will sometimes endeavour to move poor situations forward without necessarily applying all the expectations of natural justice, transparency or contractual negotiations, any view held by Mr Welsh or Mr Hineman or any other manager of the NGS Group to the effect that Mr Simon could have been managed sideways by agreement should have been unambiguously dispelled with the receipt by the company of the second and third correspondence from Mr Simon’s solicitors respectively dated 20 September 2018 and 9 October 2018. There is no doubt from that correspondence of the seriousness in which Mr Simon viewed the situation, with it firmly putting the proposition that a failure to satisfy his concerns may be viewed by him as a repudiation of his contract of employment, in which case he may exercise his right to elect to accept it as a termination of employment by the NGS Group.

The letter of 20 September 2018 asked that NGS Group confirm that Mr Simon would continue to be employed in his Account Manager role and paid a salary of $90,363 and provided with a motor vehicle and a mobile phone. 90 The letter of 9 October 2018 was blunt; by paying Mr Simon in accordance with the terms of the proposed 21 August 2018 contract, this constituted:

“… a breach of a material term of our client’s existing employment contract and evinces an intention by NGS to no longer be bound by the terms of our client’s employment agreement or to fulfil it only in a manner substantially inconsistent with its obligations.

Such conduct conveys to a reasonable person in our client’s position that the company has renounced the employment agreement as a whole or a fundamental obligation under it: BearingPoint Australia Pty Ltd v Hillard [2008] VSC 115. That is, NGS has repudiated the employment agreement.

Our client will allow NGS an opportunity to remedy this breach by confi1ming by close of business on 12 October 2018 that the company will continue to employ him in the position of Sales I Key Account Manager on a salary of $90,363 per annum with a motor vehicle and mobile telephone with the existing flexible working arrangements to accommodate his responsibilities as a parent.

If we do not receive this confirmation by close of business on 16 October 2018 our client reserves his right to accept this repudiatory conduct as terminating his employment and will commence proceedings to recover his resulting loss.” 91

The point of this analysis is to indicate that there were, or should have been, multiple opportunities for NGS Group to understand that they were not in a position simply to convey to Mr Simon the impression that he had no choice other than to accept a payment of $36 per hour. Whether or not his contentions were legally correct, he very plainly was not having the proposition and wanted more. By not moving from their position of payment of $36 per hour for the trades role, coupled with a refusal to countenance Mr Simon to return to the Account Manager position, the NGS Group repudiated Mr Simon’s contract of employment.

Acceptance of repudiation

Conduct of an employer which repudiates the contract of employment does not by that act alone bring the contract of employment to an end. A repudiation of the contract by the employer gives the employee who is not in breach the option to decide whether to continue, that is to affirm the contract, or to treat the contract as at an end by accepting the repudiation. 92

NGS Group was on notice from Mr Simon in his solicitors’ third correspondence, dated 9 October 2018 that he reserved his right to accept the company’s conduct as a repudiation. 93 That eventuality came to pass through his solicitor’s further correspondence to the company on 21 December 2018 in which it was advised on behalf of Mr Simon that he considered himself to have been a victim of repudiatory conduct and that he accepted it as a termination of his employment. The letter communicated the following:

“We have provided your client with several opportunities to remedy this material breach and it has consistently failed or refused to do so. Your client has therefore evinced a clear and ongoing intention to no longer be bound by the terms of our client’s employment agreement or to fulfil it only in a manner substantially inconsistent with its obligations. Accordingly, our client herein accepts your client’s repudiatory conduct as terminating his employment and intends to commence proceedings to recover his resulting loss.

For the sake of clarity, our client now considers his employment to have ended at your client’s initiative and to have been dismissed within the meaning of section 386(1) of the Fair Work Act 2009 (Cth).” 94

Several weeks before Mr Simon’s acceptance of the repudiation, NGS Group proposed through its own solicitors a private mediation to be held on 14 December 2018. That was rejected by Mr Simon for reasons which included his reluctance to commit to the cost of private mediation until he had received a response to the earlier correspondence of 11 September 2018. 95 On 16 December 2018 NGS Group sought the return of the company vehicle provided to Mr Simon, which he facilitated. On 18 December 2018 Mr Simon was advised that his accrued personal leave would shortly be exhausted and invited advice “as to whether Mr Simon intends to access his accrued annual leave when this occurs”.96

The product of this consideration is a finding that on 21 December 2018 Mr Simon elected to accept NGS Group’s repudiatory conduct and treated his contract of employment as having been terminated. It follows that such acceptance on the part of Mr Simon was a termination on his employer’s initiative and that accordingly he has been dismissed within the meaning of the Act. While the Applicant raises an alternative argument to repudiatory conduct, being the matter of whether he was forced to resign, it is unnecessary for that matter to be determined in view of this decision’s finding on the matter of repudiatory conduct.”

Simon v NGS Group Pty Ltd ATF NGS Discretionary Unit Trust (2019) FWC 3442 delivered 5 June 2019 per Wilson C