Breach of Contract – Be Wary of Voluntary Redundancy Offers

In Browne v Iarnrod Eireann Irish Rail [2013] IEHC 62, Mr. Justice Hogan in the High Court was asked to considerwhether there was a binding contract between the parties where an offer of voluntary redundancy was made. Justice Hogan delivered his judgement on 11th December 2013 and a full copy of the judgement is available here. We have referred extensively to extracts of the judgement throughout.BackgroundThe plaintiff contended that he accepted an offer of voluntary redundancy made by the defendant in 2006 and that that offer was binding on the parties.In early June, 2006 the defendant circulated a notice inviting expressions of interest for voluntary severance. Thereafter on 12th June, 2006, the plaintiff expressed an interest in availing of the offer and sent an email to the then acting Human Resources Manager. An estimate of the voluntary severance package was then prepared on 9th August, 2006, which was then given to the plaintiff. The document which enclosed the figures was headed “Voluntary Severance Estimate and provided that the figures were only an estimate and were subject to final verification. It was also expressly provided that “….The provision of these figures is not a guarantee or promise that the Company will, in fact, grant voluntary severance………”The plaintiff was happy with the terms and received a document entitled “Voluntary Severance Offer”. The new document was similar to the earlier document except that it was now described as an “offer” rather than an “estimate” and the additional reference to the fact that no guarantee could be given was now deleted. The plaintiff signed the agreement which provided “I wish to confirm acceptance of early retirement from Iarnród Éireann with effect from [29 September 2006] under the terms of Voluntary Severance outlined above“. The plaintiff further stated that he understood the ex-gratia payment was inclusive of his entitlements under the Minimum Notice and Terms of Employment Act 1973 and payment in lieu of annual leave due to him which would not be taken prior to his retirement. The document was signed by both parties and witnesses by an employee of the defendant.The Evidence of the PlaintiffThe plaintiff gave evidence that he joined the defendant on 12th October, 1961 and was rapidly promoted. By 2006 he was the depot superintendent in the rail depot in Portlaoise. In June, 2006 Iarnród Éireann sent out a circular letter to its employees looking for expressions of interest in relation to voluntary severance and the plaintiff expressed an interest and received what he confirmed to be a voluntary severance offer. The specific wording on the signed severance offer provided as follows:“I wish to confirm my acceptance of early retirement from Iarnród Éireann with effect from 29th September, 2006, under the terms of the voluntary severance outlined above. I understand and accept that my ex gratia payment is inclusive of both my entitlements under the Minimum Notice and Terms of Employment Act 1973, and payment in lieu of annual leave due to me which will not be taken prior to my retirement.”The plaintiff understood that he was due to cease work on 29th September and that he would receive payment in accordance with the voluntary severance offer. In September, 2006 Mr. Browne was taking annual leave and had organised his affairs so that he did not think that he would be returning to work with the defendant at all. On 22nd September the plaintiff received a call from the defendant stating that his voluntary severance package had not been approved and that he was obliged to return to work. He received a further email from Mr Browne of the defendant which provided “Please note that to date I have not been informed that you have been granted voluntary severance. Therefore you should report for duty as normal on your return from annual leave.”The plaintiff subsequently replied by stating “Tom, I am surprised at your email of 29th September, 2006, and, in particular, that you have been informed that I was not being granted voluntary severance. I enclose for your attention the voluntary severance offer that was signed by me and witnessed and returned on 11th September, 2006, granting me voluntary severance from 12th October, 1961 to 30th September, 2006.”The plaintiff felt that he had no option but to return to work once his annual leave had ended and immediately contacted his trade union upon his return. The plaintiff and his representative subsequently met with his union representative a few weeks later. The matter was subsequently referred to a Rights Commissioner who ultimately recommended in April 2007 that Iarnród Éireann should accept the offer which had been made. The following year a document was sent to the plaintiff in internal post dated 12th September 2009 and appeared to have been sent anonymously.The plaintiff continued in employment until he retired in 2009 at the age of 65. The plaintiff accepted in evidence that a voluntary severance package was conditional on a proper business case having been advanced but stated he had no reason to believe that the redundancy offer which had been made to him had been approved on a proper business case.The Evidence of the DefendantMr. Brian Garvey gave evidence that in 2006 he was the Chief Engineer Infrastructure of Iarnród Éireann, although he retired in March 2007. He confirmed that as far as he was concerned there was a financial rationale for the redundancy, although he never had a meeting with Mr. Keenan to discuss the position of the plaintiff. He accepted in cross-examination that the ultimate decision on the business case rested with the Chief Financial Officer and the Director of Human Resources.Mr. Tom Ruane gave evidence that in 2006 he was the production manager of the company and the plaintiff’s line manager. He considered that a business case could be made for such a proposal, given that the Portlaoise depot had a surplus of foremen.Towards the end of September Mr. Ruane realised that the offer of redundancy was not now likely to materialise and that it was necessary urgently to contact the plaintiff. He accordingly rang the plaintiff on 22nd September, 2006.Ms. Denise Coyne gave evidence that she was currently an executive officer in the human resources department of the company and handled all voluntary severance applications since 1999. She stated that the company would never make such an offer without a business case, namely, a document signed by the CFO and the Director of Human Resources.She considered that in this instance the plaintiff had signed the acceptance prior to any approval being given in relation to the business case.Mr. Richard O’Farrell gave evidence that he was the CFO of Iarnród Eireann in 2006. He explained that the business case had first to be approved by the Director of Strategy and Business Development and then later by himself. The voluntary severance offer which the plaintiff signed on 11th September 2006 was signed by him in advance of either the formulation of or any acceptance of the business case. He stated that it was not correct to suggest that any business case must necessarily have been prepared before an offer letter was sent out to employee.Mr. John Keenan gave evidence that he had been Director of Strategy and Business Development with the company in 2006. He explained that the chief objective of the voluntary severance process was to drive down costs within the company on a permanent basis.Was there a binding contract executed between the parties?Counsel for the plaintiff relied heavily on a decision of the South African Labour Court, Wiltshere v. University of the North [2005] ZALC 94, a case with some similarities to the present one. Gush A.J. accepted the evidence given by the plaintiffs to the effect that that had accepted the offer made by the University; that they had communicated their acceptance in accordance with the latter’s requirements and that “therefore a valid agreement was entered into.” The judge also noted that the University had argued:“that there was no agreement between the parties. It avers that the offer and the acceptance of voluntary retrenchment must be interpreted to mean that it was merely an invitation to all University Staff to apply for voluntary retrenchment and early retirement and that the acceptance of the offer was an application to the Respondent’s Council which would consider all applications with particular regard to the retention of necessary skills. The respondent’s counsel argued that this interpretation based on the evidence of Mr Negota, clearly established that there had not been an acknowledgement of the application, and that as the applications had not been considered and approved, accordingly no agreement was concluded. Unfortunately for the respondent this is not borne out by the contents of the communiqué issued by Mr Negota himself. If, as Mr Negota would have had the Court believe the Golele offer was merely an invitation to apply his communiqué of the 4th September 2000 [rescinding the original offer] would have been unnecessary.”Gush A.J. then went on to hold that the University was bound by the acceptance and that nothing further was required on the part of the staff. He also rejected the argument that by electing to work after the events in question the plaintiffs must be taken to have acquiesced in the actions of the UniversityJustice Hogan stated that these principles were applicable to this jurisdiction, since it was hard to see the plaintiff’s acceptance of the “Voluntary Severance Offer” on 11th September 2006 as anything other than the acceptance of a unilateral offer made by the company which at that point became binding. This was especially so given that the earlier version of the document had expressly warned that this was simply an estimate to which the parties were not necessarily committed, while the second version of the document contained no such stipulation.Justice Hogan also referred to a number of authorities in this jurisdiction which support this conclusion: see generally McDermott, Contract Law (Dublin, 2001) at 30-54. Thus, for example, in Billings v. Arnott & Co. (1946) 80 I.L.T.R. 50 the defendants, a well known Dublin retail outlet, posted a notice which was circulated to their employees, offering to pay one half of the salary of their employees who joined the Defence Forces. It was held by Maguire J. that the plaintiff had accepted the offer by joining the Defence Forces and that he was accordingly entitled to the premium pay. Maguire J. further stressed ((1946) 80 I.L.T.R. 50, 51) that the offer had been unconditional with:“….no reservation to allow a refusal to release any employee. I cannot take the view that it was a mere declaration of intention. It is a clear expression of what the company would do. Acceptance was then completed when the plaintiff joined the Defence Forces and intimated his intention to do so on 16th August 1940. On that view a contract was completed under which the defendants undertook to pay the plaintiff an allowance. There was no provision in the notice published that the managing director had power to decide to whom the allowance was to be paid.”In the case of Kelly v. Cruise Catering Ltd in 1994, Blayney J in the High Court held that an offer had been accepted once the plaintiff signed a contract of employment which had been sent to him by a Norwegian company based in Oslo and then had posted the signed contract in Dublin.Counsel for the company argued that this offer and acceptance must be taken to be subject to an implied term that the offer would only become binding once a business case was actually approved by senior management. Justice Hogan observed that it was clear from the evidence of the various witnesses that the requirement that an approved business case must exist in such circumstances was well known within the company. He noted that it was equally clear that the plaintiff had no reason to assume or believe that when the formal offer was made sometime in early to mid-August 2006 that the business case had not already been approved by company management.ConclusionJustice Hogan concluded that there was in fact an offer made by the company which, having been accepted by the plaintiff, binds the company. He noted that the plaintiff did, in fact, continue in employment beyond September 2006 but this was in circumstances where he had been effectively compelled to do so by the company.”….For all of these reasons I must find that there was an offer which bound the company following the plaintiff’s acceptance of that offer…..”