Demotion as a repudiation, not a variation, of an employment contract
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Russian v Woolworths (S.A.)  64 IR 169
The applicant, Mr. Russian, was employed as manager of Woolworths’ West Lakes store. On 9 November 1994 he attended a meeting with Woolworths senior management, at which he was accused of misconduct. At the end of the meeting he was advised that effective as of the following day he would be demoted to a probationary position two grades junior to his present status, which involved a $5,000 cut in annual pay as well as reduced superannuation and other benefits.
Unimpressed with the new offer, Mr. Russian did not accept the changed position. He failed to return to work, instead providing a series of medical certificates between 10 November 1994 and 24 March 1995, which detailed his unfitness to work due to stress and depression. During that time he received sick leave payments corresponding to his entitlements under the changed position and continued to make use of a company car.
In pursuing a claim for unfair termination under South Australian legislation, Mr. Russian argued that his contract of employment had been unilaterally revoked, that he had been offered an alternative, materially different contract, and that he had consistently rejected that new contract. Woolworths argued that it was ‘bizarre’ to suggest that Mr. Russian had been dismissed when he continued to receive sick pay and the use of a company car, and that the situation should be properly viewed as a legitimate variation of Mr. Russian’s existing contract.
What the court decided
The full court of the South Australian Industrial Relations Court found that Mr. Russian had been dismissed on 9 November 2004. The Court held, following the approach in Western Excavating v Sharp (1978) ICR 221, that the proposed changes to Mr. Russian’s employment amounted to repudiation – a significant breach, going to the root of the employment contract. The Court noted, without deciding, that Woolworth’s conduct would have also been in breach of an implied obligation of mutual trust and confidence. Mr. Russian was therefore entitled to accept the repudiation, and – notwithstanding acceptance of sick leave payments – the Court held that he had done so.
The decision was appealed to the South Australian Supreme Court on questions of fact and law: see Woolworths v Russian (1996) 66 IR 13. The Full Supreme Court upheld the decision, noting in particular that the unilateral demotion, the refusal by Mr. Russian to accept the alternative position, and the issue of proceedings on 23 November pointed unequivocally to Woolworths having repudiated the contract and Mr. Russian having elected to accept that repudiation.
Notable quotes from the judgment:
Per the Full Court in Russian v Woolworths (1995):
“The changes proposed by the employer were no small matter of detail but were fundamental and went to the very heart of the parties’ relationship involving as they did a fundamental change to the position held by the applicant and a significant reduction in the rate of remuneration.”
“Prima facie it would appear that by his rejection of the changed or alternative position, coupled with the fact of his issuing the [unfair dismissal] application, the applicant had exercised his option to treat the contract as at an end in that it was conduct inconsistent with a recognition of his continuing obligations thereunder. If that was so then clearly in light of the authorities canvassed above there would have been a termination of employment on the part of the employer amounting to a dismissal of the applicant.”
Per Olsson J in Woolworths v Russian (1996):
“There is, as I see it, clear authority for the proposition that, if there is an act of purported unilateral demotion by an employer of an employee, then that, in most situations, will amount to such a fundamental breach of contract that, as a matter of law, the employee concerned is entitled to treat it as a repudiation; and is therefore entitled to accept the repudiation.”
Russian v Woolworths shows that in most circumstances, demotion will amount to a contractual repudiation. If accepted by the employee, this will amount to a termination at the initiative of the employer. The facts of this case are complicated by the ongoing sick leave payments and use of a company car. However, some general observations can be made with respect to demotions and dismissal at common law.
First, both the Industrial Relations Court and the Full Supreme Court were of the opinion that the payment of sick leave in the circumstances was not evidence that the original contract was continuing, or that the offer of a ‘varied’ contract had been accepted.
Secondly, it is important to note that Mr. Russian never agreed to his changed position and conditions of employment. It is likely that, had he engaged in conduct that could be viewed as affirming the existence of continuing obligations under the contract – returning to work, for example – his claim that he had accepted the repudiation of his contract would have been far more difficult to establish.
Thirdly, given recent developments in Australian jurisprudence pointing towards the implication of a term of mutual trust and confidence in every contract of employment (see eg Russell v Trustees of the Roman Catholic Church ) it is likely that an even wider range of employer actions involving unilateral changes to the contract of employment will subsequently be able to be construed as repudiation.
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