The Full Court of the Federal Court of Australia has ruled that an employer breached the contract of employment by failing to follow the complaints procedure published in a company policy. The decision is the latest in a line of cases dealing with the circumstances in which a company policy will become part of the employment contract.

This case is the first for a number years in which the employee has succeeded in claiming that the relevant policy had contractual standing. The outcome is a reminder that where an employer publishes policies with the expectation that employees will comply with them, there is always the likelihood that contractual obligations will result.

The facts

The applicant was employed by the respondent as second officer aboard a supply ship.

The applicant had a substantial falling out with the captain and left the ship. The applicant sent an email to the respondent raising concerns about her treatment by the captain.

The employer published and promoted several workplace policies, including a workplace harassment and discrimination policy (the Policy). Among other things, the Policy set out various procedures by which employees could report complaints about discrimination and harassment in the workplace.

Although the applicant expressly stated that her email was not intended to be a complaint made under the Policy, the respondent employer treated it as such and commenced a formal investigation purportedly in accordance with the Policy.

The first step taken in the investigation was to interview the captain, in the course of which he was shown the applicant’s email. In response the captain raised issues about the applicant’s competence, capacity and temperament.

The respondent then rolled into its purported investigation of the applicant’s complaints, an investigation into the applicant’s competence. The applicant was not given notice of this when she was subsequently interviewed.

The matter escalated, culminating in commencement of proceedings by the applicant in the Federal Court.

Proceedings in the Federal Court

In the Federal Court, the applicant sought relief on the grounds of sex discrimination and sexual harassment in relation to the conduct of the captain, and breach of contract in relation to the conduct of the investigation by the employer.

The breach of contract claim failed because the Federal Court held that the Policy did not form part of the contract of employment. The trial judge made the following points:

  1. The issue of whether a company’s policies form part of the contracts of employment with its staff depends largely on what the language used in the policy would lead a reasonable person to believe.
  2. The Policy did not contain a statement disavowing contractual intent of the kind which had been ruled decisive in earlier cases such as Commonwealth Bank of Australia v Barker [2013] FCAFC 83. However, there was nothing in the Policy which suggested that its terms were terms of the company’s contracts of employment or were otherwise expressly or impliedly incorporated within them.
  3. There was quasi-contractual language on the first page of the Policy, saying that the employer “will… handle complaints, meet all legal and statutory obligations and ensure employees… are not disadvantaged in their employment conditions or opportunities”. However, such language was insufficiently specific to amount to a binding contractual obligation. It has a predominantly aspirational quality.

The applicant appealed to the Full Court

Decision of the Full Court

The Full Court ruled that the Policy was part of the contract of employment, making the following observations:

  1. Whether or not a policy will be incorporated into a contract of employment will depend upon the parties’ intentions as objectively ascertained.
  2. In situations where clear language is used and sufficient emphasis is placed upon the need for compliance with the terms of a company policy, then the parties would be expected to regard such terms as contractually binding – especially where the terms go to the method of compliance with external statutory obligations relating to harassment and discrimination.
  3. The language used in this instance, taking the Policy as a whole, makes it clear that there is an expectation by the company that there will be mutual obligations. In return for the employee complying with the terms of the Policy, the employer gives a responsive assurance that complaints of non-compliance by other employees will be treated in a certain way.
  4. It is true that aspects of the Policy are merely aspirational. However, the specific obligations were clearly ascertainable and quite capable of precise identification.

The Full court held that the Policy had been breached in a number of respects:

  • There was no decision by the applicant to pursue any action under the Policy and so the company should not have commenced any sort of formal investigation.
  • The company failed to properly or fully document the investigation, contrary to specific paragraphs within the Policy.
  • There was a general failure to carefully and systematically investigate the complaints of the applicant once the company had determined that it should be treated as a formal complaint. The company chose to interview the captain first, rather than the applicant. Other potential witnesses were not interviewed. The interview ultimately held with the applicant focused upon her competence and behaviour, and she was given no proper notice of this.
  • The company should also have kept the two distinct lines of the investigation separate.

Having found that the contract of employment was breached, the Full Court remitted the matter to the Federal Court to make a determination on the question of compensation.