What you need to know
- Enterprise agreements can unintentionally create contractual rights and obligations, if referred to in a contract of employment or letter of appointment.
- In Gramotnev v Queensland University of Technology  QCA 127 the Queensland Court of Appeal recently considered whether a contract of employment incorporated content from enterprise agreement and HR policies.
- The Court found that words such as “the terms and conditions of your employment are prescribed by the relevant enterprise bargaining agreement” was sufficient to incorporate certain terms and make them contractually binding.
What you need to do
- Take great care when referring to other documents in letters of appointment or employment contracts, by making it clear that enterprise agreements and HR policies are not intended to apply contractually.
- Use language which makes clear that the terms of the enterprise agreement or HR policy impact on, but are not part of, the terms and conditions of employment.
Dr Dmitri Gramotnev was an employee of the Queensland University of Technology. After his employment was terminated he sued QUT alleging that it had breached the terms of his employment contract. The case depended on whether terms of QUT enterprise agreements or HR policies were incorporated into Dr Gramotnev’s contract.
The letter of appointment provided:
- “The terms and conditions of your employment are prescribed by the relevant enterprise bargaining agreements applicable to the University”; and
- “Your employment conditions include the provisions of… relevant University Statutes and Policies as current from time to time.”
Did the enterprise agreement form part of the employment contract?
The first issue for the Court to determine was whether the enterprise agreements were incorporated into the contract by the express reference in the letter of appointment.
A similar issue had previously been considered in another context in Australian Workers’ Union v BHP Iron-Ore Pty Ltd. In that case, the letter of offer provided that “[i]n general, the terms and conditions of employment are as prescribed” in the award and other agreements, including an enterprise bargaining agreement. Justice Kenny found that “the words ‘are as prescribed’ do not indicate an intention to incorporate the terms of the Award into an employment contract.” Rather, it simply directed the employee to further information regarding the terms and conditions of their employment. That conclusion was unremarkable, and typical of the way employers inform employees of the suite of arrangements in place at the workplace.
However, despite the seemingly similar language in this case, the Court in Gramotnev was convinced that the terms of the letter of appointment were sufficiently clear to incorporate the terms of the enterprise agreement. Applying the rule that contracts are interpreted in accordance with what a reasonable person would have understood them to mean, the Court found that the phrase “the terms and conditions of your employment are prescribed by the relevant enterprise bargaining agreement” incorporated the agreement into the terms of the contract. The Court considered that an employee would not appreciate that enterprise agreements operate under a separate statutory framework that does not have anything to do with contractual arrangements.
Not every promise is a ‘contractual promise’
However, the fact that the enterprise agreement was incorporated into the contract did not mean that all terms of the enterprise agreement had contractual force. The Court took the view that a reasonable person reading the enterprise bargaining agreement would be aware that not all of its provisions could operate as terms or conditions of the contract.
A similar position was taken in relation to the relevant policies which were alleged to have been incorporated. Accordingly, provisions such as ‘all people within the employer would work together to prevent harassment’ were aspirational only, not a contractual promise.
The decision is difficult to reconcile with the reasons in BHP, particularly given that decision’s harmony with common industrial practice. It is arguable that the Court underestimated the sophistication of a reasonable employee in a workforce covered by enterprise agreements. In the case of an enterprise agreement, the decision leads to an unintended and unnecessary dual operation, both contractually and under its own statutory framework. Cases like BHP indicate very clear language is required before an enterprise agreement (or any other document) will be assumed to form part of the contract.
The difficulty with this decision is that it creates undesirable practical outcomes, not the least of which is the uncertainty of which provisions are and are not contractually binding. But perhaps more seriously, it enables an employee to claim damages for breach, an outcome well outside the statutory framework in which enterprise agreements are made..
Nevertheless, employers will need to manage the risks that flow from the decision. Accordingly, employers should take great care in referencing enterprise agreements, modern awards and other information in employment contracts or letters of offer, so as to make the intended purpose of the reference absolutely clear.