A recent FWC case sided with an employee who claimed unfair dismissal after his employer changed his contractual benefits.
The Fair Work Commission has ruled in favour of an employee who filed for unfair dismissal after his employer changed his contractual benefits by taking away his company car.
The employee was allegedly hit by a kangaroo while driving to a rural solar farm in February this year. The employee checked the car for damage, but because conditions were “pitch black”, he couldn’t clearly see the impact and so continued driving to the worksite. With limited mobile phone signal, he claims he could not inform anyone immediately about the accident, but once he arrived, he told a manager what happened. The car was inspected and deemed unroadworthy, so it was sent for repairs.
The next day, all employees were told they could no longer use their company cars for personal use and the employee who collided with the kangaroo was told he would not be provided with a replacement car. He was allowed to use a car from the company pool but only to drive on site –he was forbidden to drive the car to and from home.
As a result of this, the employee had to re-register and re-insure his personal vehicle so he could get to work. The employee was not given an opportunity to respond before the decision to withdraw his use of a company car was made. He was also not financially compensated for the change to his employment contract, which he signed in early 2019 and stipulated use of a company vehicle.
Over the next month, the organisation investigated the kangaroo accident. In the end, the employee was given a disciplinary warning because he “failed to immediately call a manager or a supervisor” and “his decision to drive an unroadworthy and unsafe car was ‘reckless, dangerous and… illegal’.” He was told this would be his “first and final warning”.
Dismissed but still working
While the employee wasn’t technically dismissed from his role – he continued working through the investigation – the employee felt that the withdrawal of the benefit meant his original employment contract was no longer honoured and therefore filed for unfair dismissal with the FWC.
Martin O’Connor, partner at legal practice Addisons, says this is an extremely rare circumstance.
“I have heard instances of this [type of ‘unfair dismissal’ claim] in the past, but I don’t know of any going to a hearing,” says O’Connor.
“This case is a reminder to check employment contracts and make sure benefits are discretionary.” Martin O’Connor, partner, Addisons
This is a case of a repudiation of a contract, says O’Connor. This means one party cannot, or will not, complete their contractual obligations.
The employee was told he could use the car for ‘limited personal use’ in his initial job offer. This was reinforced in the handover document he was asked to sign when given the car keys.
The FWC agreed with the employee that by removing this contractual benefit and not financially reimbursing him, the employer failed to uphold its end of the contract.
“His position came with the benefit of the motor vehicle. In removing that benefit they’ve essentially moved him to another position without the vehicle,” says O’Connor.
“So in the repudiation of the contract they made a new contract even though employment continued.”
In deciding the outcome of the case, FWC deputy president Peter Anderson determined:
- The repudiation of the employee’s contract had occurred.
- That the employee was not given an opportunity to respond before his contractual benefit was withdrawn.
- That the warning the employee was given was unfair given the circumstances (considering it was pitch black and he had poor mobile coverage).
Because of these factors, Anderson determined the decision was harsh, unjust and unreasonable.
The employee was seeking compensation of $15,000 per year to compensate for no longer having a car, or to receive a new car and back pay for the investigation process. Instead, Anderson ordered the employer to reinstate the employee’s use of the company car for personal and professional use; he did not believe back pay was appropriate.
So how can you remove a benefit legally?
An employer cannot remove a contractually agreed upon benefit unilaterally unless the employment contract includes a clause that allows employers to make changes or withdraw benefits.
“This case is a reminder to check employment contracts and make sure benefits are discretionary.”
To change a contractual benefit, O’Connor says employers should treat it like making a change to an employee’s pay.
“If you need to reduce an employee’s pay, they need to agree to the change in writing. It’s the same with benefits. The employee needs to be consulted and an agreement should be made in writing,” he says.
If a benefit is withdrawn for reasons outside the employer’s control – for example, not being able to utilise a company gym pass during COVID-19 due to lockdowns or closures – then the employee should be compensated for the change.
“In this FWC case, the car was considered to be 16 per cent of the employee’s income. Therefore he should have received a 16 per cent pay increase,” says O’Connor.
To avoid this problem, O’Connor suggests employers always include a clause which states that benefits are ‘discretionary’ or ‘awarded at the employer’s discretion’.
“For example, if [an employee] is entitled to a yearly bonus and the contract says it’s ‘discretionary’ it becomes up to the employer whether they award the bonus or not. If the bonus is not paid one year, it’s not a breach of contract.”
Non-monetary benefits or those that occur irregularly, such as a bonus, should always be discretionary, says O’Connor, because as last year showed us, you never know what’s around the corner in a financial sense. You don’t want to promise something that you can’t make good on down the line.
An area where contractual benefits (i.e. no discretionary benefits) might be a strategic move is during employment negotiations. A prospective employee might be hesitant to sign a contract if they feel the employer could take their benefit away at any moment.
“An employee might be extra hesitant about the use of discretionary benefits if they’re relying on the benefit for personal use, such as a company car. So employers do need to communicate transparently with the employee that you’re not going to just take away the benefit for no reason.”
The end of the financial year is a good time to reconsider an employment contract, he adds. If you are doing so, you might want to take another look at employee benefits to avoid engaging in any costly and time-consuming legal processes down the line.
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