Failing to sign deed of release cost bank exec $2.5m

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Failing to sign deed of release cost bank exec $2.5m

The NSW Court of Appeal has overturned an ex gratia payment to a former bank executive, but allowed payment of severance pay of $400,000.

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The NSW Court of Appeal has overturned an ex gratia payment to a former bank executive, but allowed payment of severance pay of $400,000.

[Full text of this case: M v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v J [2016] NSWCA 36 (9 March 2016)]

The appellate court considered the appropriate payout to two retrenched executives. The Royal Bank of Scotland took over Dutch banking group ABN AMRO in 2008 and retrenched the chief executive and the head of global markets, who were both also directors.

In effect there were redundancy claims and ex gratia payment claims against both companies before the NSW Supreme Court.

The appellate court found the retrenching employer was entitled, as a matter of principle, to withhold payment of ex gratia bonuses under a redundancy policy unless deeds of release had been signed by employees. However, the executives were entitled to redundancy payments.

Background


In September and December 2008 respectively, Mr J and Mr M, both senior employees of the ABN AMRO Group, were retrenched. ABN made public statements that, if Royal Bank’s offer was successful in the takeover attempt, ABN would ensure the continued operation of ABN’s redundancy policy which dealt with severance and ex gratia payments on termination of employment.

Both employees claimed damages from ABN and Royal Bank for non-payment of severance and ex gratia payments to which they alleged they were entitled under the redundancy policy. Mr J succeeded at first instance (and was awarded $2.9 million), while Mr M was wholly unsuccessful at first instance.

Redundancy pay, but no ex gratia payment


The chief executive’s claim against ABN was that the redundancy policy had been incorporated into his contract of employment. The claim failed because ABN did not itself make any contractual promise to him that its redundancy policy would continue to be applied. Rather, it was simply a conduit for such promises being made by the consortium (and therefore Royal Bank).

However, the Royal Bank contractually promised him that ABN would continue to apply its redundancy policy to him.

Royal Bank breached that contract by failing to make a severance payment in accordance with the redundancy policy but did not breach it by failing to pay him an ex gratia bonus.

The redundancy policy did not confer a right to any such bonus therefore ABN was justified in declining to pay him one unless he signed a broadly drafted deed of release, which he declined to do.

The damages recoverable from Royal Bank were accordingly limited to his severance payment entitlement of $375,961 plus interest.

Redundancy pay for global markets executive


The other executive’s claim against ABN failed initially because ABN’s redundancy policy was not expressly incorporated into his contract of employment and ABN did not make any contractually binding promise to him that it would continue to apply it.

That claim against Royal Bank now succeeded on appeal because it promised him contractually that ABN would continue to apply its redundancy policy: ABN had failed to do so as it declined to make the severance payment to which he was entitled under the redundancy policy.

His claim for payment of an ex gratia bonus failed for the same reasons as noted above.

Extent of deed


Justice Tobias summarised the redundancy payment outcome as follows:

“… In the absence of any such guidance it seems to me that the proper approach to the construction of the policy, insofar as it required a “deed of release” to be signed before any payment was received by the employee, was that any such release should be proportionate to the payment which was to be made and in respect of which the deed of release was required to be executed.

"Where that payment was confined to a severance payment, as distinct from an ex gratia payment, then the… deed went beyond what was required and was thus relevantly unreasonable and beyond what, on its true construction, the policy required…”

The bottom line: Entitlements flowing from deeds of release should be carefully assessed by the parties involved. Failure to meet the terms of a deed can be considerable, as illustrated here. In addition it is worth noting that the incorporation of redundancy entitlements into contracts of employment can be legally difficult.

M v Royal Bank of Scotland Group PLC; Royal Bank of Scotland Group PLC v J [2016] NSWCA 36 (9 March 2016)

See also: Contract and deed of release not unfair to HR manager 

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