Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177

THINGS YOU NEED TO KNOW

  • Company employment policies could be contractually binding beyond individual employment contracts.  This decision opens the door for employees to pursue damages for breaches of company policy.

WHAT YOU NEED TO DO NEXT

  • Ensure all your employment policies are clear, realistic and current.  Consider whether your policies and contracts should be updated to reflect your intentions regarding their contractual status.

In a recent decision with broad ramifications, the Full Court of the Federal Court has determined that an employer’s discrimination policy is contractually binding upon the company in favour of affected employees.  The policy was found to contain express and enforceable obligations on both the employer, Farstad Shipping (Indian Pacific) Pty Ltd (Farstad) and aggrieved employees.

Background

The employee, Lisa Romero, made an internal complaint regarding her treatment by ship master, Captain Martin.  Farstad treated Ms Romero’s complaints as a formal complaint under its Workplace Harassment and Discrimination Policy (Policy) and commenced an internal investigation.  However, that investigation did not meet the standards specified in the policy.

Further, Ms Romero’s complaints were investigated simultaneously with the cross-allegations against her, and the Court found that the manner in which this occurred meant that Farstad had failed to afford her an adequate opportunity to respond.

In determining the matter in Ms Romero’s favour, the court found that the potential incorporation of the Policy into a contract of employment will depend upon an objective review of the parties’ intentions, ascertained by the language used within the documents, which must be viewed in the context of the purpose and objects of the contract.  The Court gave detailed consideration to the wording of the Policy and held that it constituted part of the officer’s contract of employment, overturning a previous ruling to the contrary last year.

Decision

It was found that Farstad breached Ms Romero’s contract of employment by failing to follow the Policy in conducting the flawed investigation into her allegations of bullying against Captain Martin.  While Farstad argued that the Policy was no more than a set of directions as to how workplace harassment and discrimination is to be handled, the Court disagreed.  The clear language of the Policy, its emphasis on the need for compliance and its coverage of the affected employees’ conditions of employment were sufficient factors for the Court to determine that it was intended to be contractually binding.

The incorporation of the Policy into the employment contract was further reinforced by Farstad’s treatment of it.  It was the subject of an education program and was regularly reinforced to staff, it was required to be signed by the employee and the benefits provided to employees under the Policy were consistent with statutory entitlements.

The Court therefore found that the Policy in question was incorporated into the employment contract between Farstad and Ms Romero and was enforceable by her.  The employer was found to have breached her contractual rights about the manner in which her complaints were dealt with.  The decision opens the door for employees to pursue damages claims for breaches of company policy.

Conclusion

It is important for employers to be aware that their written employment contracts, no matter how carefully prepared, may not be the sole source of an employee’s entitlements in the employment relationship.  This decision highlights the importance of carefully preparing and clearly understanding the content of employment policies, as well as employment contracts.  To reduce the risks, your intentions regarding the binding effect of employment policies should be made clear on the face of each policy document and all employment contracts.