Employment Contract: Keays v JP Morgan
Taking care at the beginning and end of employment contracts - Keays v JP Morgan Administrative Services Australia Limited  FCAFC 100
This decision concerned the fate of the employment of an investment banker and one of the world’s largest investment banks. It is a decision which illustrates the dangers, particularly for employers, of loose job descriptions and the limited scope of so-called ‘entire agreement clauses’. The decision also confirms the difficulty of employers limiting the payment of entitlements by reference to a Deed of Release or attempting to unilaterally alter job descriptions.
The Applicant, Mr Keays specialized in the sale of interest rate derivative products. Prior to his employment with JP Morgan, Mr Keays had worked with Deutsche Bank and Citigroup. In late 2005, Mr Keays was recruited to work as Head of Corporate Derivative Marketing by JP Morgan. This role was not a standard role within investment banking and there was a significant negotiation at the time of Mr Keays’ employment as to the nature of the role. In essence, Mr Keays was interested in the development and sale of ‘public side’ products rather than ‘private side’ products. The latter involved products developed using confidential insider knowledge and which could only be relevant to particular clients. Public side products had no such restrictions. Mr Keays preference and apparent skill base involved public side products.
This distinction was not absolute – it was possible for employees to be ‘wall-crossed’, thereby gaining confidential information (and concomitant obligations) in relation to specific transactions or clients.
The initial written description proposed for Mr Keays employment was that of a ‘wall straddling’ position primarily on the private side. However, the private side nature of the position was abandoned shortly after the description was provided to Mr Keays and Mr Keays was merely required to ‘wall-cross’ from time to time and report to a public side superior. However, the written letter of offer made no reference to the specific responsibilities. The trial judge found, however, that these responsibilities involved those as set out in the job description, without the ‘wall-straddling’ and private side components. The trial judge also found that Mr Keays was responsible for the management of foreign exchange sales.
The catalyst for the dispute was the decision in late 2007 to remove foreign exchange sales from Mr Keays responsibility. This was done as part of a management change but not, it appears, due to any poor performance by Mr Keays. This management change also included renewed pressure for Mr Keays to operate on the ‘private side’. Mr Keays protested these attempts to management. On 5 June 2008, Mr Keays’ employment was terminated in accordance with his contract. This letter outlined payments for notice periods, severance pay, entitlements and share entitlements. The letter of termination was also accompanied by a Deed of Release which purported to be necessary for the payments to be made.
Mr Keays refused to sign the Deed. Despite this, JP Morgan – about 6 weeks after termination - paid Mr Keays in respect of his notice period and his statutory entitlements.
The entire agreement clause
The Court was initially confronted with the lack of a written job description in the signed letter of offer. This letter of offer contained an entire agreement clause, which stated that ‘this document represents the total employment contract’…’and supersedes any verbal undertakings’.
The Full Court held that the parties’ modified understanding – that the position would be a public one with intermittent wall crossing – became part of the contract despite the entire agreement clause. The Court noted that the position title was not a well understood position within the industry and that the letter of offer gave the position no content. Accordingly it was permissible to look at the intentions of the parties even though they were not contained within the contract. If the court did not do this, the position would be meaningless.
The claims of repudiation
The Full Court also considered Mr Keays claims that the contract had been repudiated. In particular, Mr Keays alleged that the removal of foreign exchange sales constituted a repudiation. Mr Keays also alleged that JP Morgan’s decision that Mr Keays work should be on the ‘private side’ and that the requirement that Mr Keays execute a Deed of Release in order to receive his entitlements constitute repudiatory conduct. The Court agreed that the removal of the foreign exchange sales constituted a repudiation, given the express nature of this requirement in Mr Keays’ contract. However, the Court held that, by protesting the claim, Mr Keays effectively affirmed the contract rather than treating it as rescinded. The court noted, however, that the breach committed by JP Morgan did not result in any actual or potential financial loss to Mr Keays.
The Court rejected the second and third grounds of Mr Keays repudiation. The Court found that, although a direction to work on the private side might constitute a repudiation (as a fundamental change to the nature of the position), JP Morgan merely attempted to ‘persuade’ Mr Keays to work on the private side. This level of pressure did not amount to repudiatory conduct. The Court also held that, although JP Morgan could not restrict Mr Keays entitlements on termination by the use of Deed of Release (particularly the payment of notice and the statutory entitlements), these amounts were paid. (Arguably the six week delay could give rise to a claim, but none was pursued).
The Full Court also considered – and rejected – Mr Keays claim in relation to s. 51A of the Trade Practices Act and JP Morgan’s failure to compensate in relation to bonus restricted stock units.
Important issues for employers
Although Mr Keays lost in substance, this decision contains significant issues of practical importance for employers. Firstly, much of the factual dispute concerned the job description which had been verbally updated and was then not included in the letter of offer. Although not considered, it is quite likely that the disagreement between the parties arose from the ambiguity of Mr Keays’ position description. Particularly where there are highly remunerated employees, employers should ensure that:
- position descriptions accurately reflect the role that employers wish the prospective employees to fulfil;
- that position descriptions form a direct part of the contract; and
- where possible, provisions should be incorporated enabling the employer to review or adjust the position to best suit the employer’s requirements.
Although Mr Keays claim was ultimately unsuccessful, it still illustrates the fact that employers are not able to unilaterally alter job descriptions or qualify the payment of entitlements by reference to a Deed of Release. These are often done by employers and this decision illustrates the potential pitfalls for employers.