As a result, your retained profit share and unvested options will be forfeited following the termination of your employment."
21 Mr Byrne says that before 30 October 2008 Macquarie did not give him any prior notification that his employment might be terminated or give him an opportunity to respond to reasons relied on by Macquarie or provide an opportunity to remedy any alleged deficiencies or to investigate the alleged deficiencies.
22 In substance, Mr Byrne says that the true meaning and effect of the employment contract is that retained profit share allocations were only forfeited, and the vested or unvested share options only lapsed, if the employee actively initiated cessation of employment with Macquarie, for example, in the form of a voluntary resignation. He says that under the Employment Agreement the retained profit share allocations and the share options have not been forfeited and did not lapse upon the termination by Macquarie of the employee's employment whether for cause, or without cause. He says that in breach of the employment contract Macquarie has refused to pay or acknowledge liability to pay him an amount equal to his retained profit share allocations as at 4 December 2008, despite due demand having been made by him. Mr Byrne also alleges that in further breach of his employment contract, Macquarie has wrongfully determined that the share options have lapsed, and he seeks compensation.
23 In the alternative Mr Byrne seeks to rely on s 7 of the Contracts Review Act 1980 (NSW) ("Contracts Review Act") and alleges that if on its true construction the agreement operates to cause forfeiture of the retained profit allocation or lapse of the share options then the employment contract is unfair, unjust and unconscionable, and that he has suffered an unjust consequence or result. On this ground Mr Byrne says that he is entitled to an order for payment consequent on variation of the employment contract pursuant to s 8 of the Contracts Review Act.
24 Accordingly, the substantive issue between the parties is whether, on the true construction of the employment contract, the ESOP and the Profit Share Retention Policy, Mr Byrne is entitled to retained profits and unvested options in circumstances where his employment is "ceased" by Macquarie.
Submissions and Reasoning on Construction
25 Mr Byrne submits that Macquarie's employment contracts are commercial contracts and must be given a construction which is practical in the commercial sense.
26 Secondly, he relies on the contra proferentem rule and says that the Agreement and the option plan have been drawn up by Macquarie, and, accordingly, the ambiguous provisions inserted by it should be construed favourably to Mr Byrne.
27 Further, he says that the contract is to be construed by reference to what a reasonable person in the parties' position would have understood it to mean, both in the circumstances and in the context. In addition, Mr Byrne submits that post-contract conduct is not admissible for the purpose of determining the meaning of expressions used in the contract.
28 Mr Byrne submits that the expression "if the employee ceases employment" requires, as a matter of syntax, that the person initiating the cessation of employment be the employee, before the forfeiture or lapse can come into effect. The subject of the expression "ceases employment" is the "employee" and therefore it follows as a matter of plain English grammar that the cessation must take place as a result of the action or initiative of the "employee".
29 In support of this approach, reference is made to a decision of the Kansas Court of Appeal in General Surgery v Suppes 24 Kan App 2d 753 [1998]. That case related to a restraint of trade covenant which provided that the doctor agreed that, should she cease employment she would not engage in the practice of medical within 25 miles of the city limits. Her employment was subsequently terminated, whereupon she started medical practice within that area. She was sued for breach of the covenant in the employment contract. The Kansas Court of Appeal found that there had been no breach of the restrictive covenant and construed the expression "should she cease employment" as logically meaning if she ended the relationship she might not continue to practice in the area. However, if she did not end the relationship, she was not compelled to practice elsewhere. The Court there applied the principle that a non-competition covenant in an employment contract should be strictly construed against the employer.
30 Mr Byrne submits that the present case is in all material respects the same as that of Suppes because the verb "cease" was there used, as in the present case, in a transitive sense with the "employee" as the only subject and "employment" as the direct object.
31 It is common ground that one purpose in retaining a portion of an employee's profit share allocation is to provide an incentive to employees to remain in the employ of Macquarie and forfeiture of the retention sum without due cause would frustrate that purpose. However, Mr Byrne submits that the allocated profit retained by Macquarie has been "earned by him".
32 In further support of this approach Mr Byrne refers to a decision of the Fifth Circuit in the United States in Coleman v Graybar Electric Co Inc 195 F 2d 374 (5th Cir, 1952). In that case the employee accepted a salaried position with the defendant company together with a bonus based on his sales during the calendar year 1948, to be paid on 1 April 1949 if he then remained in the defendant's service. Prior to the payment date the employee was discharged without stated cause.
33 The court noted that the stated purpose of the compensation plan was to provide an incentive to continue service with the company and that this was consistent with the plan's provision that in order to receive a bonus the employee must remain in service through to 1 April. The Court noted that the plan included a provision denying a bonus if the employee leaves or ceases to be in the employment of the company before the April date. The court decided that a construction which arbitrarily deprived the employee of his earned bonus without any proper cause and as a matter of arbitrary choice, would be inconsistent with the purpose of the plan and in the absence of clear language should not be adopted.
34 Taking a similar approach in the present case, Mr Byrne submits that the Court should refuse a construction which would allow Macquarie to forfeit his retained profit share allocation because it had the right to terminate his employment at any time on the giving of four weeks' notice. Such a construction, Mr Byrne submits, would be inconsistent with the stated purpose of the retention policy, which was to assist in retaining high-performance employees. Mr Byrne says that he has earned the right to the profit retention moneys and that to deprive him of this entitlement without cause would be harsh, unfair and unconscionable. That the construction contended for by Macquarie would lead to an unreasonable result is, Mr Byrne submits, a further indication that it should not be adopted.
35 The merits of the cessation of employment are not before me on this preliminary construction question.
36 Neither of the cases advanced are of assistance in this case, since the language of the contract and the contractual context is different. In the Coleman case the language was "leaves or ceases to hold the employ". In the Suppes case there had been a finding that the employee had not breached the employment contract.
37 Finally, it is submitted that if the employer wished to provide that the retention moneys should be forfeited regardless of whether it was terminated by the employer or the employee, then it would have been a simple matter to expressly make a provision to this effect and this has not been done. However, it would also have been simple both to have read the word "terminated" after the word "employee". This submission does not assist Mr Byrne in my view.
38 I note that there is a minor difference in the wording of the two primary questions in relation to ceasing employment. The Profit Share Retention Policy states: "… if the employee ceases employment with Macquarie", whereas the ESOP states: "… each option lapses [if the] Relevant Participant (employee) … ceases to be an employee." However, no attempt to draw a relevant distinction in relation to the forfeiture of profits and the lapsing of options provisions was made by the parties.
39 The construction advanced by Mr Byrne faces a number of difficulties.
40 Firstly, as a matter of language, the reference is to the fact that the employee ceases employment with the bank. There is no limitation to the cessation being based on an initiative of either party and in particular no indication that it is necessary to have a "termination" by the employee in order for there to be a forfeiture. As a matter of ordinary English usage, to cease employment envisages a situation where the employment comes to an end or ceases to exist for whatever reason. It is common ground that one relevant meaning of the expression "cease" is to "stop". In the present case, the employment has "stopped" and the consequence is that the employee ceases his employment with the bank. The construction urged by Mr Byrne requires the insertion of a provision to the effect that the ceasing of employment must be as a result of an initiative of the employee, whereas the expression is silent on this aspect. No sound basis is provided for this significant substantial change in the language of the provision.
41 Secondly, it is important to read the provision having regard to the whole of the contractual arrangements and the language used in the profit share policy as a whole. It is not enough to focus only on the precise expression in isolation. The policy includes provisions dealing with "death or total and permanent disability" which are used in the context of the provision concerning the employee ceasing employment with the bank. In the case of total and permanent disability the provision reads:
"In the case of the death of an employee or that employee's Total and Permanent Disability (TPD), the retained profit share allocation will vest to the employee or their estate."
42 This provision can be seen as an exception to the forfeiting of retained profit share allocations which would occur on the employee ceasing employment with the bank. In the case of death the employment will cease but this will not be as a result of the initiative of the employee. Such a provision is only necessary if the entitlement would otherwise cease. The reference to vesting in the case of death is directed to make it clear that there is no forfeiture under the provision concerning the ceasing of employment. Likewise, in the case of total and permanent disability, the employment can be terminated by the employer or the employee and this is another exception consistent with the construction of the expression so that it applies in circumstances where the employment comes to an end as a result of the action of the employer.
43 A similar line of reasoning applies in relation to the lapse of the options under clause 5.6 of the ESOP. Here, the option lapses, subject to a determination of the Committee under clause 2.8, where the employee dies or ceases to be an employee during the vesting period. The Committee can modify or vary the exercise period and also the conditions of vesting, having regard to whether the employee ceased to be an employee by reason of death, retirement, ill health, accident or redundancy, and whether the event occurred during or after the vesting period. This exception clause contemplates the cessation of employment for a number of reasons, which are not limited to voluntary actions or initiatives at the instance of the employee. The reference to the employee "ceasing" to be an employee for a range of reasons not limited to the employees initiative is consistent with an interpretation that an employee can cease employment in circumstances where his employment is terminated by an act of the employer. In other words, the concept of an employee ceasing employment is sufficiently broad to cover circumstances where the cessation occurs by matters outside the control of the employee.
44 This indication is inconsistent with the construction advanced by Mr Byrne.
45 At the hearing there was some debate as to whether the purpose and policy of the retention provisions and forfeiture was forward-looking or backward-looking. Mr Byrne submitted that weight should be given to the fact that he had already earned the profit allocation that had been retained, and the options, although they had not vested. In response, Macquarie contends that the provision is forward-looking, and is designed to ensure that the employee stays with the company in the future, by providing an incentive in the form of retained allowances which would lapse on cessation of employment.
46 The policy of retention, in my view, can be effected by providing for a retention allowance and the forfeiture of that benefit in the event of cessation of employment.
47 Thirdly, the retained profit share and the share option provisions were the subject of communications, notifications and earlier agreements in similar terms prior to the relevant contractual provisions here under consideration. In the course of these communications expressions similar to the concept of cessation for any cause were used. For example, in a letter of 16 May 2005 notifying him of his remuneration review on 16 May 2006 the bank states that:
"The Bank's policy is to retain 25% of profit share in excess of A$50,000 which is released in three equal instalments in the second, third and fourth years after allocation subject to you remaining employed on the Crystallisation Date for each respective year." [emphasis added]
48 The reference to "remaining employed", and in a later paragraph, to allocations being conditional including the requirement that you "remain employed" with the Bank are not determinative but are consistent with forfeiture taking place in circumstances where there has been no act or initiative on the part of the employee. In another document entitled "Profit Share Policy (Macquarie-wide)" updated 30 March 2007 it is stated:
"If an employee's employment with Macquarie ends before the date profit share crystallises (Crystallisation Date), they will forfeit their profit share allocation." [emphasis added]
49 Again, this usage of the expression, namely "if the employee's employment ends" is also consistent with the cessation taking place for any reason and by either party.
50 In the documents leading up to the agreements and policies under consideration, there is a reference by way of a note to the statement that:
"Profit share and profit retention policies can be changed with or without notice at Macquarie's discretion."
51 Also, in notifications of the remuneration reviews for 2007 and 2008, for example, there is reference in footnotes to the statement that:
"Profit share allocations are conditional including the requirement that you remain employed with Macquarie up to and including the relevant Crystallisation Dates: ……" [emphasis added]
52 In these notifications the reference is to "remaining employed", and this is consistent with the simple fact of the employment relationship ending, and it is not limited to termination by the employee.
53 Macquarie contends the equivalence in usage between the expressions "employer ceases employment" and the other references to "remaining employed" and "employment ending" indicates that at the time the parties entered into the arrangements they understood, by reference to previous dealings between them in relation to the employment, that the expression referring to the employee ceasing employment was in fact a general reference to the employment being terminated, ceasing to exist for whatever reason.
54 Moreover, it is accepted on behalf of Mr Byrne that the options could lapse and the retained profit allocation could be forfeited in the event that the employer, for proper cause, terminates the employment. This concession indicates that the reference to ceasing employment in the critical provisions is not restricted to circumstances where there is a termination by the employee so that there is a strong indication from this concession that the cessation of employment is not controlled by the identity of the party who brings about the cessation of employment.
55 For the above reasons, I prefer the construction advanced by Macquarie as to forfeiture and lapse.
Strike Out Applications
56 There are two strike out applications before me.
57 Mr Byrne submits that if the provisions of the Profit Share Retention Policy and the ESOP operate to deprive him of retained profit share allocations and of the unvested share options, then the provisions are "unjust" within the meaning of the Contracts Review Act. He submits that insofar as the employment contract was unjust he has suffered an unjust consequence within s 7 of the Act by losing retained profit share allocations and the lapse of share options. Accordingly, he seeks an order for payment under s 8 of the Act consequent on variation of the contract to avoid, as far as practicable, an unjust consequence or result.
58 In its defence, Macquarie says that Mr Byrne is not entitled to relief under the Contracts Review Act because it was entered into in the course of, or for the purposes of a trade or profession carried on by him and the granting of relief would be contrary to the express exclusion provided for by s 6(2) of the Contracts Review Act. In addition, Macquarie submits that by reason of the Workplace Relations Act 1996 (Cth) ("Workplace Relations Act") and the Regulations made pursuant to it (r 1.4 of the Workplace Relations Regulations 2006 (Cth) the operation of the Contracts Review Act is excluded in relation to an employee or employer.
59 Mr Byrne has filed a motion to strike out these defences. Macquarie has filed a motion to strike out the paragraphs of the statement of claim that seek to rely on the Contracts Review Act provisions.
60 The principles which apply in relation to strike out applications are well settled. The moving party must establish in a case such as he presents that there is plainly no reasonable cause of action or defence such as could give rise to a real issue to be tried: see General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at 130.
61 The first submission for Macquarie in its strike out application is that under s 6(2) the Contracts Review Act does not apply where the contract is entered into in the course of, or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person.
62 Macquarie says that the employment contract of Mr Byrne was entered into in the course of, or for the purpose of a trade or profession carried on by him or proposed to be carried on by him, namely, as an Associate Director Equity Derivatives Trader. Mr Byrne submits that as an employee of Macquarie Bank he did not enter into the contract for the purpose of a business to be carried on by him, but rather for the purpose of, or in the course of, a trade or business carried on by Macquarie as an investment banker. Mr Byrne relies on a decision of Young J in Bolton Gems Pty Ltd v Gregoire (10 November 1995, unreported, Young J, Eq Div). In that case, his Honour held that a defendant who was a sales representative for gems in the jewellery business carried on by the plaintiff was not employed in the course of, or for the purpose of, a trade or business carried on by him, but rather was employed in the course of, or for the purpose of, the business carried on by his employer. Accordingly, he decided that the defendant sales representative could not rely on the provisions of the Contracts Review Act. A similar approach was taken by McClelland J in Toscano v Holland Securities Ltd (1985) 1 NSWLR 145 at 149, and by Rogers J in Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 at 176.
63 Having regard to these authorities, which are only first instance decisions and are in a different factual context, I am not persuaded that the paragraphs in the statement of claim relying on the Contracts Review Act ought to be struck out. It follows that the paragraphs in the defence which contend that s 6(2) excludes the operation of the Act in the present case are not beyond argument. Accordingly, I decline to strike out the pleadings and defence insofar as they concern the operation of s 6(2).
64 In relation to the operation of the Workplace Relations Act as excluding the application of the Contracts Review Act in this case, I am also not persuaded that the point is sufficiently unarguable to warrant a strike out.
65 Macquarie submits that the Workplace Relations Act is part of the law of New South Wales and as such it operates in relation to the contract of employment in the present case, to exclude the application of ss 7 and 8 of the Contracts Review Act. Macquarie refers to the provisions of s 17(4) of the Workplace Relations Act which provides that it applies to exclude the laws of a State in relation to a law that a Court or Tribunal finds is unfair.
66 Section 17(3) of the Contracts Review Act applies where the law of the State is the proper law of the contract. In the case of the employment agreement of Mr Byrne it is reasonably arguable that the law of New South Wales is the proper law. The parties have agreed on that law as governing the position and the employment has substantial links with New South Wales. The law of New South Wales will in turn include the Workplace Relations Act which operates to exclude the operation of the Contracts Review Act.