Rick Lloyd v Commonwealth Bank of Australia Limited

Rick Lloyd v Commonwealth Bank of Australia Limited - [2006] NSWIRComm 129 - NSWIRComm 2006 case summary — Zoe

[17]

(iii) expenses kept within budget. 5 The respondent provided the applicant with a letter of offer of employment on 21 May 1996. This letter was followed by a letter from the respondent dated 22 May 1996 in similar terms to the 21 May 1996 letter, offering the applicant the position of Global Trading Manager, Spot Foreign Exchange. 6 On 10 July 1996, the applicant signed a contract of employment with the respondent. The applicant was, under the contract, to be paid a gross remuneration package of $250,000. In addition, under clause 10 of the contract, he was also eligible to participate in a performance payment (bonus) arrangement determined by the respondent on a year-to-year basis. This arrangement had been explained in some detail in the letters dated 21 and 22 May 1996 from the respondent, sent to the applicant. The relevant passages are extracted below: You will be paid gross annual salary of AUD 250,000 per annum plus employer superannuation (pension) contribution plus a guaranteed initial bonus payment of AUD 200,000 for the first year only to be paid in two tranches of AUD 100,000; the first in February 1997 and the second in September 1997. You will be eligible for aggregate annual bonus payments of up to twice base remuneration subject to performance benchmarks as discussed and agreed. For 1996/97 any incremental performance related payment over the guaranteed component would be paid in September 1997 at the same time as the second tranche of the guaranteed component. For subsequent years, consistent with current Institutional Banking policy any bonus payments will be on a partially deferred basis with 50% payable at the time the review of performance is determined (September) and the remaining 50% 12 months later. 7 The contract of employment on its face, distinguished between the applicant's gross remuneration package and the eligibility to participate in a "performance payment (bonus) arrangement determined by the Commonwealth Bank of Australia on a year-to-year basis": clauses 7 to 10. Under the relevant terms of the contract the applicant's gross remuneration package was in accordance with the schedule to the contract and was payable on a fortnightly basis: clause 8. It was also stated to be the subject of annual review having regard to specified indicators set out in the contract, namely, "work performance, demonstrated skills and competence and market rates of remuneration": clause 8. The first review was to take place on 30 June 1997: clause 8. 8 The schedule attached to the contract provided the following details of the applicant's gross remuneration package for the period 8 July 1996 to 30 June 1997 as follows: GROSS REMUNERATION PACKAGE $250,000 LESS value of non-cash benefits A Motor Vehicle $ B Car Parking $ TOTAL OF NON-CASH BENEFITS $NIL C Balance Payable as CASH COMPONENT $250,000 For superannuation contribution and benefit purposes, 'salary' is regarded as $ 250,000.

[27]

(i) 50% is payable at this review; (ii) 25% is payable at the 1999 review; (iii) 35% is payable at the 2000 review. Note that the total is greater than the bonus award. Deferred amounts are not vested and payments in year 2 and year 3 are subject to satisfactory performance and continued employment with the Bank to the date of payment. 15 The total bonus payable to the applicant reflecting his second performance review, taking into account all amounts payable was in fact $961,000, that is, $86,000 in excess of the bonus figure of $875,000, actually awarded. The rationale behind the payment of an amount in excess of the actual bonus amount awarded was explained by Leslie Cupper in his evidence who was, during the period of the applicant's employment at the respondent bank, the Group Executive, Human Resources. According to Mr Cupper, in 1998, there was a change to the arrangements for the payment of deferred bonuses. This change resulted in the deferred payment of the unvested portion of a performance based bonus being made over a two-year period, as opposed to a one year period. The additional $86,000 was granted to the applicant in order to compensate him for the extended period of deferral. The change in the deferral arrangements in 1998, according to Mr Cupper, was communicated by letter to all affected staff. 16 In March 1999, organisational changes within the division of Financial Markets resulted in a change to the applicant's role within the bank when he became the manager of the respondent's global foreign exchange section incorporating trading sales and options. The new position was wholly management oriented. 17 At the end of the third year of the applicant's employment, he again took part in a performance review, and, received a $600,000 bonus. His base salary was increased to $302,912. In a letter dated 27 August 1999 from Mr Riordan, the applicant was advised that receipt of the bonus (referred to in the letter as the "Above Base Component" (ABC)), would be arranged as follows:

[110]

Alternatively, in the event that it is found that the performance incentive payment arrangements in place from time to time are not incorporated into the contract of employment, the Applicant says that the contract is the arrangement, or related condition or collateral arrangement within the meaning of s 105 of the Act constituted by those performance incentive payment arrangements." 43 During oral submissions, I asked Mr Holmes of Queen's Counsel appearing for the applicant what contract he was relying upon. Mr Holmes proceeded to explain that the documentation current during the time of the applicant's employment with the respondent which dealt with the applicant's performance-based bonus arrangements formed part of the applicant's contract of employment. Mr Holmes also said in that context that the applicant relied upon, "...the contract of employment which required forfeiture of the bonus if you are not employed". 44 I intend to proceed upon the basis that the impugned contract comprises the applicant's contract of employment during his period of employment with the respondent between 8 July 1996 and 3 January 2002 as well as all documentation pertaining to the respondent's performance-based bonus scheme in force during that period, including the annual letters advising the applicant of the results of his performance review, the various letters and policies sent to the applicant advising him of changes and proposed changes to the scheme and the arrangements for the payment of such bonuses. It will be recalled from the factual background set out earlier in this judgment that the respondent's bonus scheme underwent a number of changes during the period of the applicant's employment. The applicant, insofar as the documentation reveals, was kept informed of those changes. The documentation revealed, for example, that sometime in 1998, new bonus deferral arrangements were put in place by the respondent in the Institutional Banking section. Deferred payments of the unvested component of the applicant's performance-based bonuses were to be made over a two-year period, as opposed to a one-year period. An additional amount, approximately 10%, was also paid to the applicant to compensate him for the extended period of deferral. Further changes to the scheme occurred in early 2001. The applicant was advised of these changes by letter in February 2001. One result of the changes was the introduction of the EPP-MEP scheme which required the applicant, and others, to apply half of their performance-based bonuses granted, towards the acquisition of the respondent's shares which, in turn, were subject to deferral arrangements. 45 In my view, the respondent's performance-based bonus scheme which required payment of a significant portion of the bonus granted to be deferred over a specified period, and which also stipulated as a condition of receipt that the applicant would be in the employment of the respondent at that time, was an integral part of the applicant's contract of employment. The bonus scheme was an important part of the respondent's policy for rewarding its employees. The performance of an employee was reviewed annually and if certain criteria were satisfied a bonus became payable upon the terms and conditions set down by the respondent. The applicant's contracts of employment referred to the applicant's eligibility to participate in such arrangements. The documentation referred to above represented the implementation of such arrangements or schemes and the amendments made to those arrangements from time to time by the respondent. 46 There can be no doubt that the applicant's contract of employment led directly to the performance of work by the applicant in the banking industry. This pre-requisite is of course necessary in order to bring the application under s 106 of the Act within jurisdiction: see, for example, Majik Markets Pty Limited v Brake & Service Centre Drummoyne Pty Limited (1991) 28 NSWLR 443 at 464-465; Production Spray Painting & Panel Beating Pty Limited & Ors v Newnham & Ors (1991) 27 NSWLR 644 at 654E; Solution 6 Holdings Limited & Ors v Industrial Relations Commission of New South Wales & Ors (2004) 60 NSWLR 558 at 572. 47 Even if the documentation evidencing the existence and operation of the performance-based bonus scheme were not an integral part of the contract of employment, they would, taken together with that contract, nevertheless be said to properly constitute an arrangement whereby work was performed in an industry. Support for this approach is found in the decision of Custom Credit Corporation v Goldsmith & Ors [1976] AR (NSW) 98 where the Full Bench of the Industrial Relations Commission in Court Session considered the meaning of an arrangement as used in s 88F of the Industrial Arbitration Act 1940 at 131, the Full Bench said:

[113]

The s 105 definition distinguishes between a "contract" and an "arrangement". The share sale agreement is an enforceable contract. It is not an arrangement and therefore cannot be a "collateral arrangement". 50 In contrast the applicant's contract of employment in the present circumstances led directly to the performance of work. The performance based bonus scheme may be properly characterised as either an integral part of the contract or as part of a wider arrangement of which the centrepiece is the contract of employment. On either construction both characterisations would bring the application within jurisdiction: see also Custom Credit Corporation at 134, 135. 51 The applicant belatedly put in issue during the proceedings that during each year when the applicant was performing work there was an implied term conferring a contractual right to a reasonable bonus. This bonus according to the applicant was determined upon the bona fide exercise of the discretion (to award a bonus) in accordance with past practice and other information available to the respondent at the time of his performance reviews. Moreover, once the discretion was exercised the bonus payment "crystallised" and the only remaining conditions were that the applicant continue to satisfactorily perform his duties up to the vesting dates, and, remain in employment. 52 The respondent disputed the existence of an implied contractual entitlement on the part of the applicant to his bonus payment, on three bases. First, it was said that the indicia for the implication of a contractual term or entitlement were not present: Codelfa Construction Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347. Secondly, the alleged contractual entitlement it was said was inconsistent with the existing contractual term as to the payment of remuneration, and, thirdly, the alleged implied entitlement ignored the express condition that the applicant had to be in employment at the time the bonus was paid. 53 The third basis is really only a variation of the first basis so that they may be dealt with together. In relation to the second basis I do not see an inconsistency between the term sought to be implied and an existing term as to the payment of remuneration (which latter term I take as being a reference to the applicant's base salary or remuneration). The point was not expanded upon by the respondent in submissions. In any event I have come to the view that the contract does not contain an implied term that the applicant had a contractual right or entitlement to a reasonable bonus. In Codelfa's case Mason J referred to the conditions necessary to ground the implication of an implied contractual term which were summarised in B.P. Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 286. These conditions are:

[123]

A capacity to retain all deferred commissions which become due and payable following the termination of employment must be a powerful incentive to successful agents to remain in the employ of the company, and not to seek to better themselves by accepting employment elsewhere. Thus stated, the clause amounts to a severe fetter on the private right of an agent to freely change his employment. 61 The applicant sought to draw a number of analogies between the circumstances in Lumby's case and the present circumstances. According to the applicant it is inherently unfair to perform work and be paid a performance-based bonus, a significant proportion of which is forfeited upon his resignation. Moreover, some employees of the respondent bank who resigned were in fact paid the unvested portion of their deferred bonus upon resignation. This has resulted in the applicant being a victim of selective discrimination. The evidence adduced during the proceedings effectively showed that the respondent preferred to remunerate its employees by means of variable "at risk" remuneration rather than by fixed remuneration, and then defer a substantial portion of the performance based remuneration. This had the result, not unintended, that the longer the applicant worked, the more he became "locked in": see Morgan v Coulson [1981] 2 NSWLR 801. The applicant referred to a number of exhibits tendered during the proceedings which showed, he said, the link between individual performance and the system of remuneration, that is, the bonuses (STI's) were funded by the individual's performance. Moreover, the amount representing the bonus payments had already been allocated to individual employees following performance reviews. 62 The applicant also directed the Court in submissions to stated elements of the respondent's IB Human Resources strategy which included, "actively retaining staff critical to ongoing business success". It was contended by the applicant that in pursuance of this strategy the respondent induced the applicant with a sizeable bonus to come to Australia and then imposed a condition on receipt of the bonus that he must continue in employment. The applicant also relied on evidence given by Mr Cupper concerning the respondent's rationale behind the deferred bonus scheme, one of which was, "...to restrain people going to competitors". The remaining two reasons were explained by Mr Cupper in the following way:

[147]

(f) the requirement for employees to be in employment at the vesting dates in order for the awards to vest was fundamental. 68 The respondent also contended that while it suited it to have variable "at risk" remuneration it also suited the applicant to have the opportunity to receive substantial bonuses in addition to his substantial base salary: see Hairman v FileNET at [130]. Nor, contended the respondent was there anything startling about "self funded" performance payouts. Sufficient revenue had to be generated in order to pay wages and bonuses however calculated. It was also not the case as had been contended by the applicant that the harder the applicant worked the more his deferred bonus was put at risk. In fact the applicant's bonus payments decreased to half during the relevant period. In relation to the applicant's contention that he suffered a reduction in earnings when he accepted employment with ABN Amro, the applicant had attempted albeit unsuccessfully to mitigate losses arising from forfeiture of his deferred bonus payments by negotiating a "sign on" bonus. 69 Finally the respondent relied on evidence given during the proceedings that the applicant appreciated from the beginning of his employment that apart from the guaranteed bonus in an amount of $200,000, any performance based bonus was discretionary and the subject of deferral arrangements. The applicant was in fact informed of these arrangements every year when bonus payments were approved. Not only was the applicant aware of and understood the arrangements but he accepted payment of his bonus on each occasion. The applicant sought to cover the non-provision of his unvested bonus payments by negotiating with ABN Amro prior to resigning from the respondent's employ. In the present case the applicant received each year generous bonus payments which were not inherently unfair. What the applicant is seeking to do here, says the respondent is make the arrangement more profitable. 70 It is appropriate at this point to refer briefly to some well known statements contained in numerous authorities as to the nature of unfairness within the context of s 106 and the approach to be taken to its assessment. One authority in this jurisdiction often relied upon is Port Macquarie Golf Club Ltd v Stead and Another (1996) 64 IR 53 at 59-60. In that decision the comments were made in the context of appellate review but they are equally pertinent to first instance applications. The Full Bench observed for example that the nature and degree of unfairness:

[154]

His Honour's reasoning is instructive. It was, however, directed to the issues in that case. Where the Court has to apply a standard as general as what is "unjust", it cannot be confined by such reasons as if they were rules. I do not understand McHugh JA to have put forward these observations as rules. Rather, the observations are to be understood, correctly, as identifying relevant considerations entitled to significant weight. 72 I intend to approach the issues of unfairness in this matter with these principles in mind. Lumby's case for example, in my view, falls to be decided on its own facts. The decision is some 28 years old and community standards about what is fair and unfair undoubtedly will have varied over that period of time. Like standards of justness standards as general as fairness cannot be confined to the given reasons in a particular case as if they are rules. A fundamental point of distinction between Lumby's case and the present matter is that the alleged unfairness concerned commission payments which were Mr Lumby's sole means of remuneration. The applicant here, on the other hand, during the period of his employment received a base salary of between $250,000 and $330,000 per annum at the same time as he was in receipt of performance based bonus payments, part of which were deferred. 73 The points of distinction raised by the applicant between the circumstances in Hairman v FileNET and the present matter also do not greatly assist the applicant. It would be extraordinary indeed if legal minds could not discern a great many points of distinction between any two cases involving different parties. In any event, in my view most of the so called points of distinction relied upon are in reality not points of distinction of any substance. 74 The applicant in FileNET may have used the loss of his deferred payments to successfully negotiate a higher salary with the new employer, but then so too did the applicant here attempt to negotiate a "sign on" bonus. The only difference here which is not material to the point sought to be made is that the applicant was unsuccessful. It is asserted that the applicant in FileNET resigned to go to more lucrative employment. In relation to the present matter however there is nothing in the evidence to suggest the position the applicant took up with ABN Amro required less skills, expertise and responsibility than his position at the respondent bank. Moreover, in my view, the salaries are comparable. The applicant resigned from the respondent on a fixed salary of $330,000 including superannuation and commenced working shortly after for ABN Amro on a fixed salary of $315,000 including superannuation. Like the applicant in FileNET, it appears that the present applicant may also have benefited from the pool of money assigned to other employees when he was paid a guaranteed bonus of $200,000 after he commenced employment with the respondent. In addition (in relation to points of distinction (v), (vi) and (vii)) the quantum of the applicant's deferred unvested portions of the bonuses was not based merely on the applicant's individual performance. The letter to the applicant dated 2 February 2001 advising him of the new remuneration arrangements in 2001 annexed attachment B which listed a number of factors behind the payment of performance-based deferred bonuses. These factors included the performance of the business with reference to external market remuneration levels. Once the bonuses were quantified, receipt of the deferred components was nevertheless contingent upon the applicant's continued satisfactory performance as well as his continued employment. Finally, although the applicant here was candid in revealing his negotiations with ABM Amro it will be recalled that it was in fact a term of his original contract of employment that he agree to inform the respondent of his intention to resign, although it must be said that the same or a similar term was absent in the contract of employment executed by him on 28 August 1999. 75 The applicant relies on the fact that he was not told by the respondent prior to taking up employment, of the requirement to remain in continuing employment as a condition of receipt of his deferred bonus portions. The evidence discloses that the first written communication in this regard received by the applicant was in the week of 8 September 1997 advising him of the results of his first performance based review. Nevertheless the applicant understood that prior to commencing employment with the respondent that receipt of any deferred bonus was contingent upon continuing employment. So much is made clear in the following exchange during cross-examination of the applicant:

[169]

Q. I know you hadn't worked under such a system. But I'm asking you about your understanding, prior to signing this letter on 3 June 1996 and accepting its terms, and I'm suggesting to you that the understanding that you had at that time, even though you hadn't worked under such a system before, was that you had to be in employment in order to - at the time of obtaining the deferred bonus, and you had that understanding, didn't you? A. Yes. 76 Another aspect of alleged unfairness upon which the applicant relies is that the deferred portions of his bonuses were a consistently high portion of his overall bonus. Maybe so, but the applicant consistently took immediate receipt of an even higher portion of his bonus and in addition received his base salary. Moreover, at least until the change in remuneration arrangements announced in 2001 the applicant received an additional 10% on top of the quantum awarded as compensation for deferring payment over two tranches representing two years in total. 77 The applicant also alleged unfairness on the basis that in his words he was forced to take on a new role following the October 2000 restructure. So dissatisfied was he with the new role that he stated in his affidavit that he would not have moved to Australia and relocated his family had he known he would be required to fulfil his role. The fact remains however that it was an express term of the contract of employment signed by the applicant on 28 August 1999 that he may be required in the course of his employment, "...to undertake other roles or duties, or to work in different locations" (Clause 1). 78 The applicant operated in a workplace where the receipt of deferred performance based bonuses contingent upon continuing employment were commonplace. It was also commonplace that banking and finance institutions dealing with large amounts of money such as the respondent would take some steps to retain the services of valued employees. The respondent's actions therefore in deferring a sizeable component of the performance-based bonuses was in accordance with the rationale and in accordance with industry practice. Another rationale common to the banking and financial sector was the withholding of funds by the respondent as a means of protecting itself in the event a particular trade did not yield expected results because of, for example, improper trading (Mr Cupper's "skin of the game"). The applicant was aware of and understood all of these workplace practices as part of the work environment or the employment culture within which he operated. The applicant chose to continue to work for some years under a regime where forfeiture of the unvested portion of his performance based bonuses was the consequence if he resigned. While these industry practices alone may not be sufficient to negate findings of unfairness there are a number of other factors outlined above which taken together would militate against such a finding. 79 The applicant also alleged that he had been selectively discriminated against by the respondent on the ground that four other employees had also resigned from the respondent bank but had nevertheless received the deferred unvested portions of their bonuses. The respondent's policy on the payment of unvested performance-based bonuses in the event of termination of employment however was consistently clear throughout the applicant's period of employment. The applicant was also kept consistently informed of all developments of that policy. The policy, stated simply, was that the respondent would not pay out an employee's unvested performance bonus if that employee resigned. Moreover the policy had national application, not international application. If for example an employee was made redundant, retired or suffered a permanent disability that employee was entitled to delivery of all of his or her unvested shares whether or not the vesting conditions had been met (EPP Plan Rules, section 6). In relation to resignation the EPP Plan Rules dictated that any unvested shares were forfeited, "unless the bank determines otherwise". The vesting conditions in the MEP were also based on the forfeiture of unvested shares in the event of resignation only, but not death, age retirement, ill health-retirement or retrenchment. 80 The applicant compares his circumstances of resignation entailing the consequential forfeiture of his unvested bonus with four other employees of the respondent who resigned but nevertheless received their unvested bonuses. In my view however the circumstances of all four employees are distinguishable and do not support the applicant's contention of differential or selective discriminatory treatment. The first employee John Martin worked in the respondent's New York office and suffered from Crohn's disease. He resigned to relocate to Ireland with his family. Phillip Heath the second employee also worked in the respondent's New York office and resigned to work for Wells Fargo in San Francisco, a relationship bank of the respondent. Michael Bertelle also worked in the respondent's New York office and resigned to work for a non-competitor bank in New York. The fourth employee, Zoran Mavrinac also worked for the respondent in its New York office and resigned to work on an internet start-up trading company with the expectation that it would be a mutually rewarding relationship, with the respondent. 81 Neither Mr Cupper nor Mr Riordan in their evidence could recall any circumstances in Australia where an employee who resigned had been paid his or her deferred bonuses. Mr McAuley in his affidavit said he could not recall an instance when an individual who left an institution of his or her own accord and moved to a competitor had not forfeited any deferred bonuses. 82 I have endeavoured to give careful consideration to all matters raised by the parties in relation to this first head of alleged unfairness and I find, on balance, that the circumstances were such that the impugned contract was not unfair in its terms as alleged by the applicant. Unfairness under s 117

[170]

83 The applicant also contends that the contract, as characterised, offends against s 117 of the Act on two bases. First, because the effect of the bonus scheme was to defer bonuses (and ultimately forfeit them upon resignation), and, secondly, because it was a requirement imposed by the respondent that half of the deferred component of a bonus had to be used to acquire shares. Both deferred components of the bonus, one in cash and the other in shares, it was said, constituted "remuneration" within the definition of s 117. As Macken J held in Lumby's case, the arrangement under clause 22 of Mr Lumby's contract, whereby deferred commission stood to be forfeited in the event of termination, was held to contravene s 88F of the 1940 Act (a predecessor section to s 106). This was because the clause offended the principle of public policy behind the Truck Act 1900 provisions reproduced in s 92 of the 1940 Act (a predecessor section to s 117) namely that payment for work performed should vest absolutely in the person performing the work. According to Macken J such a policy denied any right to make deductions from such payments in favour of the payer or to retain moneys earned by the person performing the work. 84 The applicant relied on a decision of the Full Bench of the Commission in Shead v Summit Western Pty Limited (1998) 81 IR 347 to support his contention that his deferred bonus payable in cash and shares constituted unlawful "remuneration" in contravention of s 117. 85 The respondent submitted that s 117 was only intended to apply to wages not the provision of bonuses, and, that the reference to remuneration in s 117 is a modernisation of the language contained in the Truck Act and therefore does not expand the operation of the section. The applicant's remuneration it was said was his base salary which did not include a bonus. 86 According to the applicant, this Court is bound by Shead's case. I disagree. The decision is in fact a decision of the Full Bench of the Commission, not the Court. Nevertheless, it contains some observations which support the respondent's contention that the definition of "remuneration" used in s 117 is confined by reference to the Truck Act 1900 that is, a more narrow construction than has been contended by the applicant. 87 It may be useful at this point to reproduce the relevant parts of the Act which deal with the payment of remuneration in connection with the provisions of s 117. These are ss 117, 118 and 119. s 117(1) Remuneration payable to an employee must be paid in money and, if demanded, at least once each fortnight. s 117(2) Payment is made in money only if it is made: (a) in cash, or (b) with appropriate authority, by cheque payable to the employee, or (c) with appropriate authority, into an account in the name of the employee (whether or not jointly with another person) at a financial institution by electronic transfer of funds or other means. Appropriate authority is authority conferred in writing by the employee or authority conferred by an industrial instrument. s 117(3)Payment of remuneration is to be made in advance if the employee is entitled to payments in advance by agreement, custom or otherwise. s 117(4) An employer must not pay remuneration to an employee contrary to this section. Maximum penalty: 100 penalty units.

[181]

94 The applicant also contended that his contract was unfair within the meaning of s 106 on public interest grounds because it was a contract in restraint of trade. Support for this was sought to be found in J.D. Heydon's "The Restraint of Trade Doctrine", 2nd Edition, where it was said that a contract will be in restraint of trade if its effect is to "bind or coerce", or otherwise fetter the rights of an employee to obtain employment and does not protect any legislative interest. The alleged restraint of trade in issue here was the respondent's retention policy which was one of the stated rationales for the deferral of bonuses (and forfeiture of any unvested component upon resignation) by the respondent. Nor says the applicant did the respondent have any legitimate interest in deferring the payment of bonuses in order to retain key staff. This is because the deferral mechanism and consequent threat of forfeiture prevented those employees, including the applicant, from freely using their skills and experience to leave the respondent's employ and work for a competitor. 95 The respondent challenged the contention that the contract was a contract in restraint of trade in the terms characterised and therefore unfair on public interest grounds within s 106. First, the respondent contended that the deferred bonus did not have the effect of precluding the applicant from seeking other employment. He in fact sought and obtained employment with ABN Amro. Secondly, even if a restraint of trade were found to exist it was reasonable in the interests of parties and in the interest of the public. The deferred bonus while providing an incentive to remain in employment was not unreasonable because the respondent has a legitimate interest in doing so, namely, to retain key staff. 96 The question to be addressed in relation to this head of alleged unfairness is whether the respondent's retention policy, which was sought to be implemented through the deferral of bonuses and consequential forfeiture in the event of resignation, constituted a restraint of trade, and, if so, whether it was an unreasonable one: see, for example Darrow v FreshFood Management Services Pty Ltd [2003] NSWIRComm 264 at [38]; Marshall v NM Financial Management Ltd [1995] 4 All ER 785 at 791. 97 A not dissimilar situation to the present circumstances arose in Prudential Assurance Co v Rodrigues [1982] 2 NZLR 54. The facts in that case, briefly, were that the respondent was employed by the appellant as a life insurance agent or representative. During the period of his engagement the respondent was subject to a system of prepayments of commission. When the respondent terminated the agreement with the appellant he had been prepaid a total of $11,603.21. The appellant sought the recovery of the prepayments on the basis of clause 12 of the agreement which stated:

[185]

Designing a remuneration package with retention of employees as one aim is not inherently unfair, indeed it is commonplace and to the advantage of many employees, who thereby gain access to advantageous conditions, otherwise not available to them. An inducement provided by an employment contract to remain in employment for a time, does not preclude an employee resigning, if he or she wishes. As in this case, the loss of such an inducement can even enable an employee headhunted by another employer, to negotiate more favourable terms in the new employment. 101 In the present circumstances the actual clause the subject of the allegation of restraint concerns the conditions of the bonus scheme imported into the contracts of employment or arrangement dealing with the payment of deferred performance-based bonuses, namely continued satisfactory performance and continued employment. Whether that clause constituted a restraint falls to be decided by reference to the particular circumstances applicable to both parties. 102 These circumstances reveal that the applicant was not precluded from seeking employment with ABN Amro. There was no evidence led during the course of proceedings which might suggest that the position at ABN Amro did not entail skills and responsibility commensurate with the applicant's position at the respondent bank. The new position also paid a comparable salary. The applicant was aware at all times of the likely consequences of resignation. It was commonplace for an employee to forfeit unvested components of a bonus in the event of resignation as attested to by Mr McAuley in his affidavit. The respondent's retention policy was, and is, also commonplace within the banking and finance industry and known and understood as such by the applicant. Notwithstanding that a significant proportion of the applicant's performance-based bonuses stood to be forfeited in the event of resignation the applicant was remunerated by means of his fixed salary. In addition the applicant consistently received in excess of half of his performance based bonuses immediately upon completion of his yearly performance reviews. This factor alone substantially mitigates the impact of any binding or coercive effect that the conditions attaching to the payment of the deferred bonuses may have otherwise had on the applicant. 103 Based on the circumstances applicable to the applicant's situation I have some doubt that the offending clause as characterised constituted a restraint of trade. It is difficult to see how, in all the circumstances the clause had a coercive effect on the applicant or acted as a fetter on his ability to seek and obtain other employment within the same industry. Even if it were to be construed as a restraint of trade I would nevertheless find, based on the same circumstances as outlined above, that the clause was reasonable: see Prudential Assurance Co v Rodrigues at 57. 104 This head of alleged unfairness therefore I find, on balance, has also not been made out by the applicant. Orders

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Judgment (187 paragraphs)

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Cases Cited (12)

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