The common law of contract plays a deep and utterly fundamental role in workplace relations law and practice since the contract between an employee and an employer is rooted in contract and thus the legal principles which apply to it. Although the statutory scheme of unfair dismissal (if jurisdictionally applicable, which is the case for most Australian employees and employers) hovers over and is paramount to the rights the parties may have to terminate the agreement without the agreement of the other, when can an employment contract be terminated other than by any express or implied period of notice, a specifically nominated event or by mutual agreement?
To terminate a contract at common law in these circumstances, there must have been either a breach of an essential term, a sufficiently serious breach of a non-essential term or a repudiation of the contract by the other party.
The first two of these three context are reasonably self explanatory but what does the third mean?
The following passage explains.
“As explained by Gleeson CJ, Gummow, Heydon and Crennan JJ in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd, (2007) 223 CLR 115 the ordinary remedy for breach of contract is an award of compensatory damages, not termination of the contract. There are cases, however, where damages are not an adequate remedy and it would be irrational and unjust to hold an innocent party to his or her contractual obligations when the other party has defaulted. There are two circumstances in which the remedy for breach may include termination by the innocent party: (1) ‘where the obligation with which there has been a failure to comply has been agreed by the contracting parties to be essential’; and (2) ‘where there has been a sufficiently serious breach of a non-essential term’, also called an ‘intermediate and innominate term’.
In my view, the provision of a fully maintained motor vehicle formed an essential part of the remuneration and salary package that Mr Coppi enjoyed pursuant to the contract of employment. Unilateral reduction of an employee’s remuneration or interference with an employee’s salary package by an employer is no small matter, as explained in Cantor Fitzgerald International v Callaghan EWCA Civ 622;  2 All ER 411 (‘Cantor Fitzgerald International’) by Judge LJ (Nourse and Tuckey LJJ agreeing):
Where however an employer unilaterally reduces his employee’s pay, or diminishes the value of his salary package, the entire foundation of the contract of employment is undermined. Therefore an emphatic denial by the employer of his obligation to pay the agreed salary or wage, or a determined resolution not to comply with his contractual obligations in relation to pay and remuneration, will normally be regarded as repudiatory. …
I very much doubt whether de minimis has any relevance in this field. If the amount at stake is very small, and the circumstances justifying a minimal reduction are explained to the employee, then the likelihood is that he would be prepared to accept new terms by way of mutual variation of the original contract. However an apparently slight change imposed on a reluctant employee by economic pressure exercised by the employer should not be confused with a consensual variation, and in such circumstances an employee would be entitled to treat the contract of employment as discharged by the employer’s breach.
In the present case the amount in issue was not in the context of the overall package very great, although the sums at stake were not trivial. However the refusal to pay was deliberate and determined, motivated by a desire improperly to pressurise the defendants into harder work. The decision wholly undermined the contract of employment and constituted a repudiatory breach.
Citing this and other authorities, Irving states that ‘[a] unilateral reduction in the employee’s remuneration is almost always a serious breach [of the contract of employment] and a threat to do so in the future is almost always a repudiation’. The authorities bear this statement out. I have already referred to Cantor Fitzgerald International. There is also Foggo v O’Sullivan Partners (Advisory) Pty Ltd EWCA Civ 622;  2 All ER 411 (‘Cantor Fitzgerald International’). where unilateral refusal to pay a contractual bonus was held to be a repudiatory breach. Then there is Chapman v Goonvean and Rostowrack China Clay Co Ltd EWCA Civ 1;  2 All ER 1063. where Lord Denning MR held that removing the contractual benefit of free bus transport to and from work was a repudiatory breach of contract. I would also refer to Rigby v Ferodo Ltd (1988] ICR 29 (House of Lords) where Lord Oliver (Lord Bridge, Lord Fraser, Lord Brightman and Lord Ackner agreeing) started with the common ground that the unilateral imposition by an employer of a reduction in the agreed remuneration of an employee constitutes a fundamental and repudiatory breach of the contract of employment which, if accepted by the employee, would terminate the contract forthwith.
On these principles, the unilateral withdrawal by Actrol of Mr Coppi’s use of the Mazda dual-cab utility constituted a repudiatory breach of the contract of employment and I so conclude. In my view, the provision of the motor vehicle, in particular, was an essential term or condition of the contract. If it is necessary so to find, the breach represented by the unilateral withdrawal of the vehicle was not trivial. It evinced an intention not to be bound by the contract and gave rise to a right of termination (by acceptance of the repudiation) on the part of Mr Coppi. At the very least, the provision of the motor vehicle was an intermediate term of the contract and the breach was so substantial as to be repudiatory. The additional withdrawal of the iPhone supports my conclusion as to the repudiatory nature of Actrol’s conduct because it is further evidence that Actrol did not intend to be bound by the contract.
While I have concluded that Actrol did have a contractual right to place Mr Coppi on paid leave during the period of resignation notice and did not have the right unilaterally to withdraw the motor vehicle (and iPhone), one must not lose sight of the overall character of what Actrol did. What Actrol did was to place Mr Coppi on paid leave during the period of resignation notice and unilaterally withdrew his motor vehicle and iPhone, leaving him to be driven to the railway station by a management employee. No provision of the contract of employment – express or implied – permitted Actrol to place Mr Coppi on leave during the period of resignation notice in a way that reduced his remuneration or interfered with his salary package and that is what depriving him of his motor vehicle (and iPhone) amounted to. That is the true character of what Actrol did and its actions in so doing were plainly repudiatory.”
Actrol Parts Pty Ltd v Coppi (No 2) (2015) VSC 694 delivered 9 December 2015 per Bell J