Incorporation of Company Policies into Employment Contracts

Is a company’s redundancy policy deemed incorporated into an existing employment agreement?  This was the legal issue in Willis v Health Communications Network Ltd., [2007] NSWCA 313.  In a decision that has been considered a triumph for employers, the New South Wales Court of Appeals ruled that a redundancy policy being applied to employees did not automatically apply to a terminated employee whose employment agreement was silent on the incorporation of such policy.

The facts of the case are as follows:

1. In 1999, Health Communications Network Ltd. (HCN) employed Mr Willis as its Chief Financial Officer.  In 2005, HCN terminated his services and served him six months’ notice.  The following day, Mr Willis was informed that he was no longer required to work for the six-month period earlier given, and that his termination became effective immediately.   In lieu of the six months’ notice, HCN decided to pay Mr. Willis the equivalent of six months’ salary without superannuation on this payment or on the redundancy.

2. Mr. Willis initiated proceedings in the New South Wales District Court claiming that he was in fact made redundant by his termination.  He sought to recover a redundancy pay equivalent to 3.5 months’ salary and superannuation on the payment of six months’ salary in lieu of notice. His action relied on a redundancy agreement negotiated by employees in 2000. Though the redundancy agreement was not formally adopted and formally published by HCN, the company applied its terms upon employees whose employment agreements were terminated due to redundancy.

3. A perusal of the employment agreement of Mr Willis showed that it was dated on December 6, 1999 and that it expressly incorporated another document entitled, “Terms and Conditions of Employment”.  There was no mention of a separate redundancy agreement which was negotiated in 2000.  In 2005, the company issued a letter amending the employment agreement of Mr. Willis and reconfirming the other terms of the said agreement. There still was nothing in the letter amendment that expressly incorporated the redundancy agreement of 2000 into the contract of Mr. Willis.

4. Mr Willis claimed that although his contract and its letter amendment were silent on the redundancy policy of 2000, the same policy was deemed incorporated into his contract by virtue of the company’s practice of paying redundancy to affected employees.  Thus, he sought that the same policy be applied to his case.

5. The primary judge dismissed the claims of Mr Willis. He elevated his case to the New South Wales Court of Appeals.

The appellate court said that the employment agreement of Mr Willis was entered into before the company observed the redundancy policy of 2000. His contract and its letter amendment did not expressly incorporate the provisions of the redundancy policy of 2000 into its terms.  For such a policy to apply to him, Mr Willis should have given his express or implied consent to it.  Moreover, the provisions of the redundancy policy could not have been read into his contract as its absence did not affect the validity of his employment agreement.  Thus, the appellate court ruled that the redundancy policy did not apply to Mr Willis.

On the claim for superannuation, the appellate court noted that his employment contract expressly provided that superannuation was a component of his total remuneration without regard to how that remuneration was earned.  Therefore, the appellate court ruled that superannuation should have been applied to the payment in lieu of notice.

The ruling in this case is a departure from earlier jurisprudence that took into consideration a company’s customs and practices in termination pay.  It seems to declare that what is not included in a contract is deemed excluded.

Consequently, employers and employees are advised to review the terms of their employment contracts. If an employer wishes to apply new policies to employees with older agreements, it must expressly incorporate the new policy in the existing agreements.  On the other hand, employees are reminded that newer policies that affect other employees do not automatically apply to them.