Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCA 439 is the latest decision of the Federal Court of Australia on the incorporation of employment policies into contracts of employment. Farstad Shipping employed Lisa Romero as a sailor on vessels commanded by Captain Martin. As a result of incidents on those vessels, Ms Romero claimed that Martin had bullied her contrary to the Sex Discrimination Act 1984 (Cth) and Farstad was vicariously liable for such actions. The claim failed as the captain's conduct was not attributable to Ms Romero's gender. 

The sailor also complained that Farstad breached its contract of employment with her by failing to comply with its Workplace Harassment Policy in the course of its incident investigation by poorly documenting it and questioning her competence in an interview about the incident. Alternatively, the sailor claimed that those actions amounted to a breach of the implied term of "mutual trust and confidence" within that contract.

The issue of whether a breach of the policy constituted a breach of contract is answered through two inquiries: whether the policy was incorporated into the contract and, if it was, whether it was breached. The answer to the first question turned on an examination of the language of those aspects of the policy said to be contractual and analysing their context. The answer to the second question turned on the standard to which the investigation was to be held.

Marshall J held that the terms of the policy were not incorporated into the contract. Although the policy stated that Farstad "will" perform certain acts, that language was insufficiently specific to be contractual. Further, those remarks were placed in the context of aspirational statements. Finally, the policy was neither expressly nor impliedly incorporated into the contract. It did not matter to Marshall J that employees were required to sign the policy. There was no breach of these provisions in any event as Farstad was required to conduct its investigation merely in a "practical manner", not "like a judicial hearing". Similarly, Marshall J rejected the claim based on "mutual trust and confidence": the breaches did not strike at "something fundamental" to the employment relationship. 

Lessons for Employers
There are three important points for employers to take away from this decision. Firstly, if the employer does not wish itself to be bound by procedures set out in workplace policies (for instance, workplace harassment policies), then the employee's employment contracts should contain entire agreement clauses expressly excluding the policies from incorporation into the contract. Secondly, employers should draft procedural guidance for the conduct of incident interviews, confining the interview to the incident and excluding other matters. Here, discussion of the sailor's future career and pending approval of finance for further study caused problems. Thirdly, unless and until the High Court decides otherwise, the Federal Court will continue to accept the existence of an implied duty of "mutual trust and confidence" in employment contracts.

Andrew Berriman