Thinking | 1 October 2020

Former CFO awarded $1.1 million in damages based on unsigned employment contract

By Fay Calderone

The NSW Supreme Court, in Roderick v Washington H Soul Pattinson & Company Limited (No 2) [2020] NSWSC 1224 has awarded $1.1 million in damages to a former CFO. The Court found the absence of a signed employment contract did not affect the assessment of the employee’s entitlement to reasonable notice and incentive scheme benefits.

The employee (Ms Roderick) was employed by Washington H Soul Pattinson and Company Limited (WHSP) an ASX-listed investment company for the period 2006 to 12 April 2018. Ms Roderick was initially employed in the position of Chief Financial Officer and was then appointed Finance Director in 2014. On 12 April 2020, WHSP terminated Ms Roderick’s employment without notice.

At the time of termination, she was WHSP’s second most senior employee and the only woman on its board. In her termination letter WHSP stated that Ms Roderick was ‘not the right fit’. She was paid three months’ salary in lieu of notice despite WHSP not providing her with any notice.

Ms Roderick claimed that she had lost benefits that would have been payable to her if WHSP had given her a reasonable period of notice of up to 24 months. This included entitlements to a short term incentive (STI) scheme and long term incentive (LTI) plan that she had participated in since 2016.

The central issue was whether at the date of termination the parties were bound by the original contract created for Ms Roderick’s CFO position or a new contract that was not yet in writing but had been discussed by the parties.

Ms Roderick claimed that the parties had demonstrated an intention to enter into the new contract of employment that commenced at the date of her appointment as Finance Director, evidenced by a new proposed draft contract sent to her by WHSP. WHSP argued that the parties remained bound by the original contract, as the new draft contract was neither signed nor agreed by the parties.

The Court highlighted the change in Ms Roderick’s duties as CFO that should have resulted in a new contract.

The Court found that the parties were not bound by the original contract. This included becoming a director of 12 companies with increased legal responsibilities and potential liabilities. The evidence that the parties discussed a new contract and a draft copy was sent to Ms Roderick, demonstrated a common intention that the original contract no longer applied. The fact the draft contract was not signed did not evidence a mutual intention by the parties that they would remain bound by the original contract.

Ms Roderick claimed she was entitled to the STI and LTI benefits that would have been payable if she had been provided with a reasonable period of notice of up to 24 months. WHSP claimed that Ms Roderick was not entitled to benefits from either the STI or LTI for 2018 as she was terminated prior WHSP’s remuneration consideration.

The Court found 12 months was a reasonable period of notice that Ms Roderick should have received. The decision not to pay her entitlement days prior to the end of the 2018 financial year was ‘unreasonable and arbitrary’.

This was particularly so given WHSP’s 2018 Annual Report showed that a provision had been made for Ms Roderick to receive the STI payment on a pro-rata basis. Ms Roderick was awarded $1,105,329.50 consisting of $568,180 for the nine-month balance of notice she should have received for a 12 month notice period and $537,150 for the STI benefits.

This article was written with the assistance of and Rhea Karunakar, Law Graduate.

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