This article was written by Michael Stewart.
A former Chief Information Officer was awarded $477,400 plus interest after the Victorian Court of Appeal found he had an oral agreement with his employer that provided certain entitlements upon termination and his employer failed to uphold the agreement.
Implications for employers
This decision highlights the importance of keeping accurate records, such as meeting minutes, and of recording agreements in writing. These practices work to ensure that all parties to an agreement are on the same page and prevent costly "he said-she said" disputes as to the content of oral conversations arising in the future.
Further, employers should ensure that when entering into an agreement, all the documentation provided to the other party is carefully reviewed by senior personnel or legal counsel. Documents generated at a junior level within an employer and then provided to the other party may bind the employer, even when the documents contain errors and haven't been reviewed.
Mr Stevens claimed he was owed two separate payments of $477,400 by his former employer, Spotless, after he decided to leave the company during a change of management and restructure. One payment was a termination payment in lieu of 12 months' notice and the other a retention bonus as a result of his sustained employment with Spotless. The payments were based on oral discussions Mr Stevens had in August and September 2012 with Spotless' Managing Director and Chief Executive Officer, Mr Dixon, and its Chief Operating Officer, Ms Pepe.
Mr Stevens gave evidence that in a meeting on 23 August 2012, Mr Dixon told him that, as part of the restructure of Spotless, his responsibility for payroll would be removed, he would no longer be Chief Information Officer (CIO) and he would instead be assigned the role of General Manager – Airports. Mr Stevens saw his position change as a demotion, but Mr Dixon assured him that it was not. Mr Stevens claimed he subsequently gave Mr Dixon an agenda document for discussion, which stated, "My role as CIO … is redundant", and Mr Dixon confirmed this. The two discussed Mr Stevens' entitlements to a termination payment and a retention bonus if the General Manager-Airports position was not to work out and he was to leave, although no formal agreement was reached.
In contrast, Mr Dixon's evidence was that the position of CIO continued to exist, he had no recollection of seeing the agenda document Mr Stevens claimed to have given him and the two had never discussed the termination payment or retention bonus. Indeed, he gave evidence that he knew nothing of Mr Stevens' employment arrangements or retention bonus. Importantly, this evidence directly contradicted that of Rita Agati, Group General Manager – Human Resources, who gave evidence that she had previously briefed Mr Dixon on Mr Stevens' retention arrangement.
On 14 September 2012, Mr Stevens stated to Ms Pepe that he did not believe the Airports division was viable and his position as General Manager – Airports should be made redundant and he presented her with a memo in support of his conclusion. Ms Pepe asked Mr Stevens if he wanted to leave the company and Mr Stevens confirmed he did.
Then, on 17 September 2012, in a meeting crucial to the resolution of the dispute, Mr Stevens met with Ms Pepe and Mr Dixon. Mr Stevens gave evidence that Mr Dixon agreed to terminate his employment based on redundancy and pay him the retention bonus and termination payment in lieu of notice. He also claimed he requested a manual salary calculation (Calculation Document) of his entitlements, which Ms Pepe agreed to prepare.
Mr Dixon's evidence ran contrary to Mr Stevens. Mr Dixon denied the retention bonus was brought up and that he agreed to pay it. He argued he was angered and disappointed by Mr Stevens, who had previously indicated his willingness to take the General Manager-Airports role, only to resile from it two weeks later. Mr Stevens gave evidence that all he said was "we will pay you whatever is in your contract", but that there was no reference to redundancy or a package in the discussion. Importantly, Mr Stevens had no pre-existing contractual obligation to the retention payment in the circumstances. There was no written record of the 17 September 2012 meeting.
After the meeting, Mr Stevens emailed Ms Pepe requesting the Calculation Document and a few hours later, Ms Pepe provided it to Mr Stevens. The Calculation Document was prepared by members of Spotless' HR team, and while it was provided to the General Manager-Human Resources (Mr Douglas), Mr Dixon and Ms Pepe, no one reviewed it. The Calculation Document was couched in provisional terms and was labelled an "estimate only". It included a sum of $477,400 (less tax) listed as a "retention bonus", as well as a separate "redundancy payment" for the same amount. Mr Stevens reviewed the Calculation Document, considered it accurately reflected his entitlements, and told Ms Pepe as much. In Mr Stevens' view, upon receipt of the Calculation Document in terms satisfactory to Mr Stevens, Spotless' offer crystallised and Mr Stevens' accepted it, thus forming an oral agreement outside of any pre-existing contractual arrangement. Mr Stevens's consideration for the bargain was promising to "gracefully" leave.
On 15 October 2012, Spotless paid Mr Stevens the retention bonus of $477,400 as a consequence of a processing error by the payroll department, which was brought to Ms Pepe's attention a few days later. As a result, the National Human Resources Manager, Mr Potter, and Mr Douglas reviewed Mr Stevens' documentation and formed the view he was not contractually entitled to a retention bonus. Mr Stevens was informed of the error, but was told he did not need to repay the money as it was able to be set-off against the $477,400 Spotless owed Mr Stevens as a termination payment in lieu of notice. Mr Stevens contested this and the matter proceeded to trial.
Decision at first instance
The trial judge found Mr Stevens was not entitled to the additional $477,400 retention bonus. His honour found there was no discussion between Mr Stevens and Mr Dixon on 23 August 2012 regarding a possible redundancy or the retention bonus and there was no oral agreement made on 23 August 2012 or 17 September 2012 regarding a retention bonus.
Decision on appeal
Mr Stevens raised four grounds of appeal, contending that the trial judge erred in finding:
- that there was not a discussion or agreement on 23 August 2012 between Mr Stevens and Mr Dixon to the effect that, in the event of Mr Stevens' termination, Spotless would pay Mr Stevens a retention bonus equal to 12 months fixed annual remuneration ($477,400);
- that Spotless did not agree on 17 September 2012 to pay Mr Stevens a retention bonus in the sum of $477,400 upon the termination of his employment;
- that the (mistaken) payment of the retention bonus to the applicant was void for want for lack of consideration; and
- that Spotless paid the retention bonus to Mr Stevens under a mistake of fact and law.
The Court of Appeal upheld ground one in part, finding that Mr Stevens and Mr Dixon did discuss Mr Stevens' entitlement to a retention bonus in addition to the termination payment in lieu of notice, but that no formal agreement was made. The veracity and reliability of Mr Dixon's evidence as to the 23 August 2012 meeting was undermined because it conflicted with Ms Agati's; the contemporaneous agenda document prepared by Mr Stevens indicated that Mr Stevens was concerned about his possible redundancy and wanted to ensure his entitlements would be unaffected and that these issues were discussed with Mr Dixon; and also because Mr Dixon said he only had a good recollection of things that were "on his agenda" and that the detail of Mr Stevens' specific entitlements were insignificant to him.
The Court of Appeal upheld ground two, finding that in the 17 September 2012 meeting, and through the provision of the Calculation Document, Spotless and Mr Stevens agreed that Spotless would pay Mr Stevens a retention bonus upon termination in addition to his termination of 12 months' salary in lieu of notice. The Court of Appeal observed that: "[Spotless] made an offer to pay [Mr Stevens] in accordance with the [Calculation Document]. Even if none of Douglas, Pepe and Dixon read the document, Spotless could not repudiate its contents."
As for ground three, the Court of Appeal held that there was an exchange of promises and "[w]hether or not that exchange is characterised as 'buying peace' or 'leaving gracefully, it constitutes sufficient consideration".
Finally, the Court of Appeal held that as there was an agreement reached on 17 September 2012 that Mr Stevens would be paid the retention bonus, there was no mistake of fact or law.
Stevens v Spotless Management Services Pty Ltd  VSCA 299