Unfair Dismissal: Gillies v Downer EDI Ltd [2011] NSWSC 1055

The NSW Supreme Court has found EDI wrongly dismissed its managing director on the grounds of misconduct and denied him a substantial bonus.

The company dismissed the managing director following a fall in profits of the company however later claimed that he had been dismissed due to alleged misconduct, based on evidence it had discovered after he left its employment.

The managing director had been with the company for over twenty years and had been a valued employee who had substantially helped to build the business. His contract of employment allowed for an incentive bonus capped at 50% of his annual salary. After 2000 the incentive was replaced with a “phantom option scheme” (POS) designed to give the managing director the benefits of issuing shares without actually issuing them. This was designed so that the arrangement would not need to be reported to the ASX and shareholders.

By mid 2005 the total funds owing to the managing director was more than two million dollars. He would draw on them occasionally and then repay some of the amounts.

EDI claimed that the way that the managing director had treated the payments received from the company amounted to misconduct justifying his immediate dismissal. Justice Rothman rejected this argument. Of importance was his view that the managing director hadn’t engaged in any dishonesty and the fact that he didn’t derive any benefit from deferring his bonus payments. He noted that the managing director had not worked as an accountant for many years and was entitled to expect that the company complied with tax laws.

Justice Rothman found that when the board lost confidence in the managing director it authorized its chair to seek his resignation but not to dismiss him and he rejected their claim that he had resigned.

As such, the provision in the contract of employment providing for withholding payments in the event of dismissal for misconduct didn’t apply. The company was ordered to pay the managing director a termination payment, his POS bonus and accumulated long service leave.

Gillies v Downer EDI Ltd [2011] NSWSC 1055

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