Damages for breach of employment contracts

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The Western Australian Industrial Relations Commission has a powerful jurisdiction called “denied contractual benefits”. The Western Australian Industrial Relations Act 1979 confers upon the Commission a speedy and user friendly power to determine claims by employees who have had their employment contracts breached, for example by being underpaid agreed benefits such as com

This begs the question. How do Australian courts assess compensation or damages for breach of employment contracts? I have included in this post a summary of Australian law on this issue from a recent Federal Court case.

“As by now is evident, CSG breached the Employment Agreement by its failure to comply with its obligation to finalise targets and provide the necessary KPIs in order to allow Mr Leahey to obtain the benefit of the FY2016 STI.  Although the issue as framed by the parties is how one is to calculate the FY2016 STI, in truth, the underlying legal question is what, if any, damages are payable by CSG for breach of contract.

In approaching this issue, it is worth revisiting some basal and uncontroversial principles.  Damages for breach of contract are, in effect, a substitute for performance.  The goal of awarding compensation is restitutio in integrum.  It follows that damages to be awarded in this case are to put Mr Leahey in the position he would have been in if the Employment Agreement had been performed properly by CSG.  This necessarily entails a comparison between an actual and a counterfactual state of affairs and hence a hypothetical inquiry: see, for example, S M Waddams, “Principles of Compensation” in P Finn (ed), Essays on Damages (Law Book Co, 1992) 1, 11.

Of course, here the inquiry is into a past hypothetical event, being a counterfactual where CSG had provided Mr Leahey with the ability to earn an FY2016 STI by reason of CSG providing him with the means to achieve the benefit of that part of his bargain, that is, the provision and finalisation of targets and KPIs in a timely way.

The approach to assessment of damages for the loss of a chance to obtain a commercial benefit in the context of breach of contract was considered by the High Court in Commonwealth v Amann Aviation Pty Limited [1991] HCA 54; (1991) 174 CLR 64. The matter was again considered in Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 (although in the context of a misleading and deceptive conduct case). In Sellers, at 350, the majority (Mason CJ, Dawson, Toohey and Gaudron JJ) referred to Malec v J. C. Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 and drew a distinction, relevantly, between: (a) proof of historical facts; and (b) proof of “past hypothetical situations”, and noted that if the law is to take account of hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring.

The principled approach can be seen from a case such as Silverbrook Research Pty Ltd v Lindley [2010] NSWCA 357 where, in a not entirely dissimilar fact situation, there was a failure of an employer to set objectives and review performance for the payment of a bonus which, in contrast to the present circumstances of the STI, was discretionary. In Silverbrook, it was explained that the relevant discretion should be understood against the proper scope and content of the contract and was to be exercised honestly and conformably with the purpose of the contract. In this regard, a bonus, which was part of the overall bargain, would be assessed against set objectives and the nature of the arrangements would not allow the employer to choose arbitrarily or capriciously that it need not pay money if the set objectives were satisfied.

In the circumstances of Silverbrook, damages for loss of opportunity were recoverable. At [2], Allsop P (with whom Beazley JA agreed) explained:

…As a matter of general principle, damages for loss of a commercial chance or opportunity will be recoverable in contract when the contract as a whole (see Chaplin v Hicks [1911] 2 KB 786) or a particular provision of a contract (see Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; 174 CLR 64) is such as to promise an opportunity or chance to obtain a benefit and, in other cases, where the loss of a business or commercial opportunity is the consequence of a breach of contract and the loss of the opportunity or chance falls within the rules of remoteness in contract. See generally J W Carter, E Peden and G J Tolhurst, Contract Law in Australia (2007, 5th Ed, LexisNexis Butterworths) at 856-858. The task is to identify and characterise what, in substance, was promised and what has been lost or denied by the breach of contract.

This is not, of course, a loss of chance case vexed by the uncertainties which bedevil many loss of commercial opportunity cases.  There is no doubt whatsoever that if CSG had complied with its contractual obligations, an FY2016 Scorecard would have been required to be prepared , discussed and provided in a timely way.  The hypothetical inquiry is directed as to whether (and to what extent) the Scorecard targets would have been met and, in particular, how Mr Leahey would have performed.  Both parties assumed that this task could be assayed by a mechanical comparison between Mr Leahey’s actual FY2016 performance and a hypothetical FY2016 Scorecard.  Given that damages are to be assessed at a subsequent hearing, it suffices to note for present purposes that this simplistic mechanical comparison does not seem to me to be self-evidently correct.

Leahey v CSG Business Solutions (Aus) Pty Ltd [2017] FCA 1098(18 September 2017) (Lee J)