Years of new letters, one employer: an executive's $516,830 win

What happened

Dr Brian Cohen developed information technology for the health care industry. He had lived with his family in Singapore since 1982, and in 1988 he started work there for a Singapore company. In 1999 that company became a subsidiary of an Australian listed group, later called iSOFT Group.

In February 2000 Dr Cohen signed an executive service agreement directly with the Australian parent company, as its chief technology officer. It ran for three years, allowed either side to end it on six months' notice, gave four weeks' annual leave and long service leave, and was governed by New South Wales law. His salary was still paid through the Singapore subsidiary.

The three-year term ran out in 2003, but nothing was signed to replace it and he simply kept working. In 2006 he moved to Bangalore under a letter described as an addendum to his original contract. From late 2007 he was seconded to Chennai, and in June 2008 he signed a letter setting its terms, on a nominal base salary of $374,000. Clause 2.1 of that letter said his employment "continues", but clause 3.2 referred to his "employment with IBA Health (Asia) Pte Ltd", a Singapore company in the group.

The redundancy and the claim

On 17 June 2011 a senior executive told Dr Cohen that the company had decided to eliminate his position for commercial reasons, and gave him three months' notice. His last working day was 30 September 2011.

He sued the parent and the Singapore company in the Federal Court for notice, long service leave, annual leave and a redundancy payment. The company said it was no longer his employer: each written agreement stood on its own, and the 2008 letter had made the Singapore company his employer.

What the trial judge decided

The trial judge agreed with the company. He found that the chain of employment with the parent had broken down at least by the time the 2008 agreement began, because clause 3.2 named the Singapore company. Dr Cohen appealed.

Why the Full Court disagreed: the legal test

The Full Federal Court allowed the appeal, starting from settled principles. The meaning of a contract, and who the parties to it are, is decided objectively: what a reasonable person in the parties' position would have understood, reading the whole document against the background both sides knew.

They then applied a High Court decision, Concut Pty Ltd v Worrell [2000] HCA 64. When the parties to a long employment relationship sign a new document, the question is whether they intended to bring the old contract to an end and replace it, or to leave it standing with changes. The answer depends on their intention, read from the later document and the surrounding facts. In Concut, a later service agreement supplemented the earlier arrangement rather than replacing it.

Here, the Court held the trial judge was wrong to treat the 2000, 2006 and 2008 documents as self-contained, separate contracts. When the three-year term ended in 2003, the employment did not end. Dr Cohen and the parent company carried on from where the agreement left off.

How the Court read the 2008 letter

The Court gave several reasons for treating the reference to the Singapore company as a mistake rather than a change of employer:

(a) clause 3.2 said his employment with that company began in 1988, plainly incorrect, because that company did not exist until 1999;

(b) the letter named the parties as Dr Cohen and "IBA Health Group", the parent's name at the time, and was signed by the group HR director;

(c) it was a secondment, which ordinarily means a temporary transfer while the existing employment continues, and it said his employment "continues";

(d) there had been no negotiations about a change of employer, and the Court called the absence of any discussion of such a significant change "striking"; and

(e) the letter kept him in the parent's employee share plans, which were open only to employees of Australian group companies or Australian residents, and later salary letters from the parent identified it as his employer.

So the 2008 letter was, in the Court's words, "a supplement to the existing employment contract" with the Australian parent.

What he was awarded

The 2000 agreement still governed notice, so Dr Cohen was entitled to six months' pay, not the three months he was given. The New South Wales long service leave law applied because the contract adopted it, and annual leave was owed under the contract's promise of four weeks a year.

The parent was ordered to pay $516,830.35: $228,062.50 in lieu of notice, $167,248.75 for long service leave, $114,469.83 for annual leave and $7,049.27 of unpaid salary, plus $68,378.22 in interest and the costs of the appeal. His claim for a redundancy payment failed: the contract said nothing about redundancy, and one earlier payment to departing staff was not enough to prove a custom. His alternative claim under the Fair Work Act 2009 (Cth) also failed: he was not an "Australian-based employee" under s 35(3), because he was engaged overseas to work overseas.

What this means for you

If you have worked for a group of companies under a string of letters and secondment agreements, the latest document is not necessarily the whole contract. A court looks at the full history to decide who your employer is and which terms still apply, including notice and leave terms from an original contract.

Keep every contract, variation and salary letter, and if your employer says a different company is now responsible for your entitlements, it is worth getting advice before you accept that.