There’s never been a more opportune time for employers in Australia to review their contracts and policies than now, with the NSW Supreme Court this week awarding more than $3 million to a chief executive after finding his employer’s redundancy policy was incorporated into his employment contract.

Mr James was the CEO at ABN AMRO up until 2008 when a merger with the Royal Bank of Scotland saw his position become redundant.   Under the terms of his employment contract he agreed to ‘be bound’ by ABN AMRO’s policies, which included the bank’s Redundancy Policy.

The policy was described as a ‘closed policy’ meaning that, while its existence was no doubt known to Mr James, its terms were not.  They were not available on the bank’s intranet and even the deputy head of HR said that if an employee had asked about the detail of the redundancy policy, she would not have disclosed it.  The bank argued that the unavailability of the policy together with the fact that Mr James’ employment contract contained no promise by ABN AMRO to ‘be bound’ by any of its policies spoke against the contractual effect of the Redundancy Policy.

The Court disagreed, reaffirming the principle of objectivity in determining the rights and liabilities of parties to a contract.  What matters is not the parties’ subjective beliefs or understandings, but what one party’s words and conduct would lead a reasonable person in the position of the other party to believe.

In this case, looking at the matter objectively, it was difficult to conclude that the parties would have intended only one of them – Mr James – to be bound by the policies.  Furthermore, the language used in the employment contract was ‘the language of contract’, with the employee agreeing to be bound by the relevant policies.   As a matter of common sense, it followed that the Redundancy Policy would also bind the employer.

James v Royal Bank of Scotland; McKeith v Royal Bank of Scotland [2015] NSWSC 243 (19 March 2015)