Employers who use poorly drafted employment contracts take significant business risks especially when they terminate an employee under such agreements as they face a breach of contract claim. When Manly Warringah Sea Eagles Ltd terminated an employee on the basis of a clause 25.3 it was under the impression that it was permitted to do so. That clause read: –
"25. RESIGNATIONS AND TERMINATION25.3 Except where your employment is terminated for reasons of serious and willful misconduct, MWSE may terminate your employment by giving the period of 3 months notice under clause 9 1."
The clause that was refer to, being clause 9.1, read as follows: –
"9. PROBATIONARY PERIOD9.1 You will initially be on a probationary period of 6 months, concluding 14th May 2014."
The employer in this instance sought to justify the dismissal on the basis that it was permitted to terminate the plaintiff's employment by giving three months notice regardless of whether the probationary period had expired. As such the primary issue in this matter was a question of constructing the contract (determining its meaning) and then applying it to the facts. The court referred to some of the significant cases on the construction of contracts and in particular to passages that included the following: –
"In Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Mason J stated at 347 as follows:“The broad purpose of the parol evidence rule is to exclude extrinsic evidence (except as to surrounding circumstances), including direct statements of intention (except in cases of latent ambiguity) and antecedent negotiations, to subtract from, add to, vary or contradict the language of a written instrument.”Evidence of surrounding circumstances is admissible in aid of the construction of a contract: Codelfa at 348.The general principles were stated by Mason J at 352 of Codelfa as follows:“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.”
After applying these principles the court found against Manly Warringah Sea Eagles on the basis that clause 25.3 did not give a general permission to the employer to terminate after giving three months notice as this clause was qualified by clause 9.1. Some of the key matters to take away from this decision include not only the need to carefully review contracts with the help of litigation lawyers but also to carefully consider the prospects of pursuing a case keeping in mind that the damages awarded to the plaintiff with a sum of $44,478.65 in circumstances where the legal costs of pursuing the matter would also have been a substantial sum.