The right to take legal advice about an employment contract is a workplace right

Frequently, an employee or prospective employee will want to take legal advice about the terms of an employment contract before signing. The termination of an offer of employment, or of employment itself as a result of an employee wishing to take such legal advice, has been found to constitute adverse action.

Employment Contract Case Study

In Tran v Kodari Securities Pty Ltd (29 FCA 968), Mr Tran’s employment was terminated when he wished to obtain legal advice in respect of a new employment contract that his employer wished him to execute.

Dismissal from employment-adverse action

The Court found that the dismissal amounted to adverse action by Kodari Securities Pty Ltd via the actions of a director Mr Kodari. It found that the dismissal took place because Mr Tran had earlier on the evening on which his employment was terminated, proposed to exercise a workplace right to seek legal advice, and thereby constituted adverse action and thereby contravention of section 340(1)(a)(iii) of the Fair Work Act. That contravention was by the employer, Kodari Securities, and by its director, Mr Kodari by reason of his conduct giving rise simultaneously to the conduct by the company and the necessary involvement by him.

It was notable in this case that the parties had in fact had a long history together, and that the particular employment contract to be signed contained a provision actually stating that the employee had already received independent legal advice about the terms and effect of the Contract.

This meant that if the Contract had been signed without having had the benefit of independent legal advice about its terms and effect, the employee would have executed the Contract containing a material falsehood.

Threats and coercion

It was further found that the threat by the company director, Mr Kodari to terminate his employment if he did not sign the new Contract was made with the intent to coerce Mr Tran in the sense of intending to negate his choice to exercise that workplace right, and to instead sign a new Contract.

Company failed to discharge the onus

The bare denial in the affidavits of the company directors did not suffice to rebut the presumption in section 361. Their bare denial was found to be unconvincing and ultimately, was rejected by the Court. In effect, they failed to discharge the onus upon them by failing to produce any evidence of the nature or quality adverted to by the High Court in Board of Bendigo Regional Institute of Technical and Further Education v Barclay 2012 HCA 32.

Adverse Action -Civil Penalties

The measure of the civil penalty to be applied required a consideration of the factors relating to the objective seriousness of the contravention and included: the extent to which the contravention was the result of deliberate, covert or reckless conduct, as opposed to negligence or carelessness; whether the contravention comprised isolated conduct, or was systematic or occurred over a period of time; if the defendant is a corporation, the seniority of the officers responsible for the contravention; the existence, within the corporation, of compliance systems and whether there was a culture of compliance at the corporation; the impact or consequences of the contravention on the market or innocent third parties; and the extent of any profit or benefit derived as a result of the contravention.

The civil penalties imposed were:

1. In relation to the adverse action claim against the Company and ultimately the director only:

(a) a penalty of $35,000 payable by the Company;

(b) a penalty of $7,000 payable by the director;

(c) compensation payable by the Company and the director, upon a joint and several basis, for economic loss of $75,000; and

(d) compensation payable by the Company and the director , upon a joint and several basis, for hurt, distress and humiliation, which would have been present to some limited degree, of $10,000.

2. In relation to the coercion action claim against the Company and ultimately, the director only:

(a) a penalty of $20,000 payable by the Company;

(b) a penalty of $4,000 against the director.

Contract compensation

In addition, the Court ordered payment of contract compensation of six months salary.

In awarding 6 months, the court considered Mr Tran’s indefinite employment, the highly trusted role he had occupied and the apparently still highly trusted role that he had been earmarked to fill, his age and the time that it should have taken him to find alternative equivalent employment.

Warning to Employers about employment contracts

The decision serves as a warning to employers that failing to afford prospective employees the right to obtain legal advice in respect of employment contracts is a denial of a workplace right that may give rise to significant and costly liability for penalties and compensation for adverse action against both the company as well as directors who are “involved “under the Fair Work Act.

This is especially so where the contracts contain provisions of acknowledgement that the employee has received independent advice prior to signing, and where there is express or implied coercion used to try to have the employee sign with a companying threats that an offer of employment will be withdrawn or, existing employment terminated if the new agreements are not signed.

If you have any queries in respect of employment contracts or employment related litigation, please do not hesitate to contact us.

Michael Sing | Partner
Telephone 3009 8472
Email [email protected]

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