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Refusal to sign less favourable employment contract resulted in unfair dismissal

A Business Development Manager refused to sign a new contract with less favourable terms and was dismissed. The Fair Work Commission found that the dismissal was unfair, awarding him $42,552 in compensation.

16 Sep 2024

A long-term employee who refused to sign a new employment contract that provided less favourable terms of employment has received a payout of over $42,500 for unfair dismissal. The case examined the issues of an employee’s right to modify an employment contract, and the difference between resignation and dismissal if the employee refuses to sign a new contract.

Facts of case

The employee was a Business Development Manager employed for more than nine years. The new contract was less favourable in terms of sales targets, commission structure (and therefore remuneration) and post-employment restraints. He sought to alter the terms and met with management, but they ignored his requests and pressured him to sign it without alteration.

Eventually, he received an email that noted the delays that had occurred and set a deadline of nine days for signing the contract. It added that his role in the business would be reviewed if he did not sign. When he still refused to sign it, he was dismissed on the spot at a meeting, but the employer claimed that he had voluntarily resigned. The parties disagreed about what had happened at their final meeting. The employee claimed that he had repeatedly said “I am not resigning”.

The employer did not respond when he emailed asking for confirmation that he was still employed, and under the terms of his previous contract. He followed up with an email that claimed the employer had repudiated the contract and dismissed him.

Decision

The Fair Work Commission (FWC) found the employee’s evidence more credible than the employer’s, and concluded that he was dismissed.

It said that refusing to sign a contract with less favourable terms was not a valid reason for dismissal. The employee wanted to remain employed, but the employer dismissed him because he refused to sign the new contract.

However, the employer failed to provide the employee with clear reasons for dismissing him, and did not give him an opportunity to respond to the threat of dismissal. Therefore, it was also procedurally unfair.

The employee took five months to find other employment, and was awarded compensation of $42,552.

What this means for employers

Refusing to sign a contract with less favourable terms than before is not a valid reason to dismiss an employee. An ultimatum of “sign this or you are no longer employed” is likely to be held to be unfair dismissal.

It is also very unlikely that an employer can treat an employee’s refusal to sign as resignation, although it will depend on the individual circumstances of each case. If the employee tries to renegotiate the terms of the contract but the employer refuses to make any changes, this is generally treated as the employee wishing to remain employed.