A recent decision of the Full Federal Court1 has again demonstrated that workplace policies can form part of the contract of employment, and what can follow if such policies are breached.

The facts

Ms Romero was employed by Farstad Shipping. During a 12 day voyage, in which Ms Romero worked as a second officer, she alleged that she was subjected to bullying and vilification by the ship’s captain, resulting in her request to be relieved from duty on that ship.

On returning home, Ms Romero emailed Farstad a list of issues, including her concerns in relation to her treatment by the ship’s captain. She concluded this email with an ambiguous statement to the effect that Farstad should determine the most appropriate means of resolution.

Farstad proceeded to treat the email as constituting a formal complaint under their Workplace Harassment and Discrimination Policy (Policy). However, by this time, the ship’s captain had also raised with Farstad allegations about Ms Romero’s competency and temperament.

Without notifying Ms Romero, Farstad commenced an investigation that dealt with both Ms Romero’s complaints and an investigation into her own competence. The investigation led to Farstad rejecting all claims by Ms Romero and the captain, with the investigation report concluding that there was merely a “clash of personalities and communication styles”.

The decision

Ms Romero initially made a complaint to the Australian Human Rights Commission (AHRC) asserting that Farstad, through the conduct of its employees and officers, had treated her less favourably than it would have treated a male in similar circumstances  (the  sex  discrimination claim). This complaint was not resolved.

Ms Romero then elevated the sex discrimination claim to the Federal Court. In addition, Ms Romero argued that the investigation by Farstad was not performed in accordance with the Policy and that the Policy formed part of her contract. As a result, Ms Romero argued that Farstad had breached and/or repudiated her contract  of employment. Consequently, she had suffered loss and damage.

The Federal Court rejected the sex discrimination claim, finding that this was  a personality clash and not a case of sex discrimination. The Federal Court also held the Policy did not constitute part of Ms Romero’s contract of employment Further, it held that if the Policy had constituted part of the contract of employment, Farstad had not departed from the Policy so significantly that it constituted any breach of the Policy or the contract, let alone a repudiation.

Ms Romero appealed the decision to the Full Federal Court.

The Full Federal Court of Appeal decision

On appeal, Ms Romero did not seek to challenge the sex discrimination claim finding. Instead, she challenged the finding that the Policy did not constitute part of her contract of employment. This challenge was successful, with the Full Federal Court finding that the Policy did form part of her contract of employment and had not been complied with, therefore Ms Romero’s contract of employment had been breached.

Did the policy form part of Ms Romero’s contract of employment?

Through an objective assessment of the facts and circumstances, it was held that the Policy did form part of Ms Romero’s contract. This was because:

  • it was held that the Policy did form part of Ms Romero’s employment contract;
  • Ms Romero’s letter of appointment provided that “all Farstad Shipping Policies are to be observed at all times”;
  • the Policy was part of an education program which occurred at the same time as Ms Romero was offered employment;
  • Ms Romero was required to sign the Policy;
  • the benefit provided was consistent with the nature of the benefit which would be expected to be provided by statute and, therefore, a benefit ordinarily conferred in employment  contracts;
  • the Policy was re-enforced on a regular basis as she was reminded of it at the beginning of each voyage;
  • given the context of the working environment, it was important to maintain a ship free from bullying and discrimination to ensure the safety of employees and those on board; and
  •  the wording of the Policy was clear in respect of the need for compliance by employees in order to receive the benefit of protection from bullying and discrimination in exchange.

The Full Federal Court found that none of these matters, taken alone, were decisive, but rather their cumulative effect in this particular relationship pointed towards the incorporation of the Policy into the contract of employment.

Was the Policy complied with?

The Full Federal Court held that Policy was breached by Farstad in a number of respects:

  • Ms Romero’s complaint was treated as a formal complaint, even though she made no decision to initiate a formal complaint and trigger an investigation under the Policy. An appropriate option would have been for Farstad to meet with Ms Romero, explain the options under the Policy and in broad terms explain the consequences of exercising any of those options;
  • Farstad failed to properly or fully document the investigation, for example the initial complaint was recorded on a series of post-it notes, with the Policy requiring formal written documentation;
  • Farstad failed to investigate the ship’s Captain’s complaints separately,in accordance with the requirements under the enterprise agreement for such a complaint. The two lines of inquiry (Ms Romero’s complaint and the Captain’s complaint) should have been kept separate but were not;
  • other relevant witnesses were not interviewed, and the ship’s Captain  was interviewed ahead of Ms Romero, before Ms Romero’s complaint was put to him in full.

The matters of repudiation and damages were remitted for rehearing.

Bottom line for employers

  • The terms of the policy and contract are crucial; the existence of aspirational policy terms will not automatically detract from its incorporation into a contract, rather what is relevant is whether there is an exchange of obligations and benefits between the parties in return for compliance with the policy.
  • Employers should ensure that they act in accordance with any obligations required by their workplace processes, procedures and policies.
  • Review the terms of your policies to ensure that you maintain sufficient flexibility and discretion to depart from their requirements as needed