Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSCA 181

Crowe Horwath (Aust) Pty Ltd v Loone [2017] VSCA 181 - VSCA 2017 case summary — Zoe

[141]

[Counsel] put to Mr Loone in cross-examination that his file note was evidence that he had already decided to leave CHA by 30 June 2016. Mr Loone responded:

I had made the decision, Mr Moses, that I couldn't stay and I had to work out whether I was actually going to implement that decision.

He also gave evidence:

At that stage I'd made a decision that I did not want to stay. I was then intending to take some time with my wife to work out - it's quite a significant decision - to decide whether I'd actually implement that and, if I did, at what particular time, meaning would it be - would I give it a few months, would I do it straightaway. We discussed quite a number of different options that I was going to consider with my career.

Mr Loone commenced one week's annual leave on 4 July 2016. He returned to the workplace on 11 July 2016. On the morning of 12 July 2016 he advised Mr Roberts of his decision to leave. He gave the following evidence as to the main factors that caused him to arrive at the decision to leave:

The main factors were they changed my role so significantly, I didn't have the autonomy that I'd asked for and accepted in 2012 when I became the Managing Principal, and that I just didn't have the decision-making capabilities to make a difference in the office. In addition to that, obviously my remuneration was also changing very significantly ... Because they were excluding the Davey acquisition profitability in the size of the pool.

On the morning of 12 July 2016, Mr Loone sent Mr Roberts an email in the following terms:

Dear Bruce

As per our phone discussion, I wish to confirm my decision to leave Crowe Horwath with immediate effect.

There is nothing personal in my decision, and I greatly value the friendships with you and my work colleagues forged over many years.

As discussed with you, I am leaving because Findex have not fulfilled their obligations to me under my employment contract, and after taking a short break, I will be embarking on a plan to build a new business.

My decision has been made because of the numerous events, especially in regard to the implementation of the Family Office program and the new Remuneration and Equity models.

Findex's new management and operating models are not what I agreed to when I was offered and signed on as Managing Principal for Launceston in 2012. They have resulted in a fundamental change to the management discretion I sought and was given by WHK at that time, and I believe the calculation of my remuneration is also an unacceptable major change.

I cannot accept what has occurred, and have determined to leave straight away.

I will clear out my office today and ask only that I keep my mobile phone ... which is the only number I have used for almost 20 years.

As discussed, I will advise the Principal group at a meeting we had pre-planned for this morning.

Could you please call to discuss any other matters that need to be addressed today.

Kind regards

Anthony.

At the conclusion of Mr Loone's cross-examination, the following exchange took place between myself and Mr Loone:

His Honour: Thanks. Can I just ask you, Mr Loone, if you hadn't made the decision before 30 June that you were going to leave, what was the catalyst for you to actually make the decision which you did convey on 12 July?

Mr Loone: This very page we're looking at, Your Honour. It was like the final straw. It was where they - Mr Wilkins had said to Mr Roberts, and Mr Roberts then said to me, that the Davey acquisition was not going to be included which amounted to a minimum of $200,000 to the Launceston principal group, and I felt that was the last straw. I had been accumulating some intent to think about the future beyond Crowe Horwath, but really I hadn't made the decision to absolutely leave and to do something about it until I went away with my wife and talked it over, because it had such an impact on our family.[47]

[143]

By leaving on 12 July 2016 rather than waiting another six weeks, Mr Loone passed up the opportunity to receive a bonus of approximately $100,000 which would have been paid at the end of August. As to why Mr Loone did not simply stay in employment until the end of August and receive that bonus, he stated:

This goes back to the timing of - I decided I didn't want to stay and one of the considerations that I discussed with my wife was do I just hang out for a period of time, get my bonus, but when that meeting occurred on 1 July, I just thought I can't stay here, I don't trust them, and I left.

As at 30 June 2016 Mr Loone had made a decision that he would be leaving CHA. However, he had not made a decision as to the exact timing of his departure. This is not surprising given that, as at 30 June 2016, he had a legitimate expectation that he would be receiving a bonus payment. Further, as at 30 June 2016, he was not aware that the size of that bonus payment would not take into account his involvement in the DFG acquisition and/or the contribution of that acquisition to the profitability of the Launceston office.

[Counsel] put to Mr Loone in cross-examination that his evidence that he decided to leave CHA on 12 July 2016 was a lie. [Counsel] put to Mr Loone that he had already made a definite decision that he would be leaving by 30 June 2016. I do not accept [counsel's] submission that Mr Loone lied when giving evidence that he only made the decision to leave Crowe Horwath upon his return from leave on 11 July 2016. I accept Mr Loone's evidence that he had made a decision by 30 June 2016 that he would be leaving at some stage in the future but had not made a definite decision as to the timing of his departure. I accept his evidence that the 'final straw' which prompted the decision to leave as conveyed to Mr Roberts on 12 July 2016, was his telephone discussion on 1 July 2016 when he was told of the exclusion of the DFG acquisition from the Launceston bonus pool. The fact that Mr Loone had made a decision as at 30 June 2016 that he would be leaving CHA at some point in the future did not preclude Mr Loone from relying upon the advice he received on 1 July 2016 as a basis for terminating the Contract.

Mr Loone telephoned Mr Roberts at about 9.30 am on 12 July 2016:

I said to him that I was ringing to tell him that I was leaving, that I felt Findex and Crowe Horwath had not fulfilled their obligations to me and they'd changed my role, changed my REM, as in my remuneration, and I no longer had the autonomy that I'd signed on for and I couldn't accept that ... Mr Roberts said to me that there were others in the same boat and he accepted that - he said that he agreed that all of those things had changed.

The email which Mr Loone forwarded to Mr Roberts on the morning of 12 July 2016 made specific reference to changes to his remuneration:[48]

My decision has been made because of the numerous events, especially in regard to the implementation of the Family Office program and the new Remuneration and Equity models. ... I believe the calculation of my remuneration is also an unacceptable major change.[49]

[178]

Mr Loone was responsible for setting the strategy in the Launceston office. Strategic decisions included setting goals for the next three year period. This included strategic decisions as to service lines 'and how we wanted to operate as a business, what our key messages were to both our staff and to our clients'. Strategy also meant 'things like training; it meant, obviously, recruitment and staff management; it meant incentive programs; it meant overhead management, all of those types of things'. However, with the introduction of CHA's 'one best way' approach across all 112 offices 'everything had to fit in with that'.

Prior to January 2015, Mr Loone had full autonomy to spend money in the Launceston office without seeking approval. From late 2015, all expenditure had to be authorised via the Task Project Request System. In addition, he would sometimes have to present a business case for expenditure. By early 2016, Mr Loone had no authority to authorise any expenditure. All decisions had to go through the Task Project Request System.

From late 2015 human resources, marketing and finance functions no longer reported to Mr Loone or worked under his authority and oversight. From late 2015 Mr Loone no longer had authority in respect of budgeting, 'the budgeting process was consolidated back to head office and, apart from some consultation, a little bit on wages, there was nothing'.

Prior to late 2015 Mr Loone had complete oversight in regards to debtor management which he delegated to Principals in the Launceston office. From late 2015 the discretion in respect of debtor management was governed by a tight policy on work in progress. A Head of Credit was appointed in respect of these matters who was located in Sydney.

Prior to late 2015 Mr Loone was personally involved in high level appointments and final decisions regarding staff recruitment. He delegated the vetting of candidates to Principals in the Launceston office. Mr Loone would then see the last two or three candidates and make a decision. Mr Loone not only had authority to hire people, but also to dismiss staff as well. From late 2015 Mr Loone's authority to recruit and terminate staff was 'effectively taken away'. Thereafter Mr Loone had to submit a request for permission to appoint someone. If the request was approved the Talent Acquisition Team would place the advertisements, undertake the initial interviewing and create a short list of potential candidates. The final selection had to go back to the Talent Acquisition Team for approval.

Prior to late 2015 performance management of staff was Mr Loone's responsibility. He delegated each member of staff's performance reviews to be conducted by their relevant Principal, as each Principal was responsible for a team of 12 to 18 people. After late 2015, the HR department, which was based in Hobart, ran performance management and they reported directly to head office.

Prior to late 2015 Mr Loone set key performance indicators for staff in the Launceston office. As part of this responsibility he developed position descriptions for staff and built an incentive model to reward people that fulfilled these tasks. Post late 2015 Mr Loone no longer had any real say in these matters. There was a national remuneration committee appointed and the incentive for staff had to be approved by this committee.

Prior to late 2015 Mr Loone had responsibility for training and development of staff in Launceston. He delegated this responsibility to two Principals in Launceston. After late 2015 this responsibility was centralised in Sydney and thereafter all training was standardised, even in regards to staff that may have particular strengths and skill-set gaps.

Prior to late 2015 Principals had credit cards to meet travel expenses and Mr Loone had oversight of this expenditure. After late 2015 all travel expenditure had to be approved by the regional chief executive.[54]

[191]

1. Senior Client Service Manager.

2. Senior Adviser Support Manager.

Mr Loone's evidence regarding the presentation on 9 June 2016 was largely unchallenged. During the meeting he was told that a person would be introduced that would look after accounting teams and that position would 'mostly' be a regional position. Previously, administration and accountants were supervised by team Principals in the Launceston office who in turn reported to Mr Loone. Under the Family Office Initiative there would be a 'pool structure' where these persons would be supervised by a regional appointment and the Principal (and the Managing Principal in supervising the Principal) would no longer have a role.

The Family Office Initiative established two discrete reporting structures: client services and adviser support. Prior to the Family Office Initiative, client services staff took direction from their team Principal and from Mr Loone as Managing Principal. This was also the case of adviser support staff. Under the new structure, in the case of client services, staff would be under the direction of a person in a new position, Regional Senior Client Service Manager. In the case of adviser support, staff would report to a person known as Regional Adviser Support Manager. The Managing Principal's responsibility for the areas of client services and adviser support would be removed.

One of the slides on 9 June 2016 was entitled 'Managing Partner Role'. The slide confirmed that the Managing Partner 'does not manage staff on the Client Service Pathway'. Mr Roussos stated in respect of this slide that the Managing Partner role was 'to be removed of a lot of the administrative and management functions so that they could then spend a lot more time in a client-facing role'. Previously 60 per cent of Mr Loone's role as Managing Principal involved administrative and management functions and only 40 per cent involved dealing with clients.

One of the slides presented on 9 June 2016 was entitled 'P & L Responsibility - Partners/Principals. The slide was presented by Mr Jovanovich and Mr Owen Maher, CHA executives. They explained that a Managing Partner's profit and loss responsibilities would be confined to gross margin and indirect revenue of the families at the Launceston office. Gross margin was confined to the revenue of the family, less wages of the advisers in the family. In contrast, Mr Loone, as Managing Principal was 'responsible for the full profit and loss, which would have been revenue, wages, overheads, a typical profit and loss right down to the net operating profit line', and this was in connection with a firm, not a family. Mr Loone stated that this was 'quite a significant change because it removed the staff management component of my role' and 'it meant the efficiency improvements and those sort of things out of developing those position descriptions and incentive models, that was all taken out of my hands. It was now being done at a corporate level'. The effect of the change was that he would no longer be responsible for managing overheads and expenses and trying to get a better net profit.

The Family Office Initiative was scheduled for implementation in the Launceston office on 1 August 2016. During the presentation on 9 June 2016, Mr Loone was presented with detailed information regarding the impact of the Family Office Initiative on the Launceston office. Viewed objectively, the information provided on 9 June 2016 could have left Mr Loone in no doubt that the Family Office Initiative would have a profound impact upon the work he performed personally on a daily basis, and upon his management responsibilities in respect of the staff of the Launceston office. At the heart of the initiative was the objective of significantly increasing the amount of time which fee earners such as Mr Loone would have to engage in fee earning activities. In order to facilitate this, management responsibilities of other staff was to be taken away from Mr Loone.

The question for determination is not whether the Family Office Initiative made good business sense. Rather, it is whether Mr Loone was entitled to have formed the opinion that CHA no longer intended to be bound by fundamental provisions of the Contract. This question is to be answered in the affirmative. The presentation on 9 June 2016 in respect of the Family Office Initiative would have conveyed to a reasonable person in Mr Loone's position renunciation by CHA of a fundamental obligation under the Contract. He was being stripped of his management responsibilities in respect of all of the administrative and support staff in the office. His profit and loss responsibilities were being significantly wound back. His management responsibilities in respect of employees in client facing roles were being significantly eroded by the creation of the new position of Senior Adviser Support Manager.[56]

[213]

Clause 1.4 conferred upon CHA the right to require Mr Loone to occupy a position other than the position of Managing Principal if it consulted with him in relation to the change and the other position was at least equivalent in status and remuneration. Whilst it is clear that Mr Loone was provided with information regarding the implementation of the Family Office Initiative, there was no meaningful consultation regarding this change. The obligation to consult in cl 1.4(a) is a personal obligation as between Mr Loone and CHA. The Launceston office was but one of 112 offices of CHA nationally and in New Zealand. CHA had a 'one best way' policy, which involved standardised practices throughout all of its offices. There is a significant tension between the requirement under cl 1.4(a) to personally consult with Mr Loone regarding changes which impacted upon his position, and the implementation of the Family Office Initiative throughout all offices in the CHA network. At no stage was Mr Loone given a meaningful opportunity to contribute to the decision as to whether or not the Family Office Initiative would be implemented in the Launceston office. The provision of information regarding the implementation of the Family Office Initiative did not constitute consultation as required by cl 1.4(a) of the Contract.

If I am wrong in the conclusions set out above and the provision of information to Mr Loone did constitute consultation within the meaning of cl 1.4(a), the position which he was to occupy post the implementation of the Family Office Initiative was not of at least equivalent status to that which he had previously occupied. The significant diminution in the responsibilities which he would undertake under the new structure translated into a reduction in status.

I accept CHA's submission that there is no evidence that Mr Loone was told that post the implementation of the Family Office Initiative he would cease to be the senior employee in the Launceston office. However, this is not determinative of whether the position he would occupy post the implementation of the Family Office Initiative was of at least equivalent status. The reference to status in cl 1.4(b) embraces not only the seniority of the position, but the management responsibilities vested in the occupant of the position.[67]

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