Draft policies carefully, and make sure staff understands them.

Following the Federal Court Full Bench's decision finding that an employer's failure to comply with its own policies during a bullying investigation amounted to a breach of contract, the Federal Court has now assessed damage (Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2016] FCA 1453).

Although the Court rejected Ms Romero's claim for $115,759.71 in damages, the decision in Romero (No 3) provides a timely reminder of the impact of policies, incorporation into contracts of employment and enforceability of policies, and the need to consider carefully the obligations to comply with your policies ‒ and the costs of not doing so.

Romero revisited

In 2011, Ms Romero emailed Farstad Shipping (Indian Pacific) Pty Ltd's General Manager HR outlining her concerns that the captain engaged in bullying towards her during the 12 day voyage they had just completed. During the voyage, following a falling out between the captain and Ms Romero, the captain informed her that he had complained that she was incompetent.

Ms Romero did not request an investigation or refer to Farstad's Workplace Harassment and Discrimination Policy. Rather, her email outlined that the captain's "inappropriate behaviour needs to change but this is a matter for Farstad management to address".

While the Policy provided for informal complaint options, Farstad treated Ms Romero's email as a formal complaint and expanded the investigation of the captain's complaint to address Ms Romero's complaint. As part of the investigation, Ms Romero participated in an interview, however, the questions put to her largely focused on her competence.

Farstad's final report rejected Ms Romero's allegations and determined there had been a “clash of personalities and communication styles”.

Following rejection of her claim by a single judge of the Federal Court, Ms Romero appealed the decision to the Full Bench of the Federal Court. Ms Romero's appeal was successful with the Full Bench finding that the Policy did form part of her contract.

The Full Bench also found Farstad had breached the Policy, and therefore Ms Romero's contract, in relation to its handling of Ms Romero's informal complaint, including that:

  • Ms Romero's email was not a formal complaint triggering an investigation under the Policy;
  • an appropriate option as foreshadowed in the Policy was for an appropriate person from Farstad to meet with Ms Romero to discuss her options under the Policy;
  • Farstad failed to properly document the investigation as required by the Policy; and
  • after determining to treat Ms Romero's complaint as a formal complaint, Farstad failed to "carefully and systematically investigate" Ms Romero's complaint, including that it failed to put the allegations to the captain or interview all relevant witnesses.

The Full Bench remitted the matter back to the Federal Court to determine the issues of whether Farstad had repudiated Ms Romero's contract and damages.

Repudiation and damages

The Federal Court found that while Ms Romero's complaint was serious, Farstad's breaches did not meet the severity required to repudiate the contract and the investigation and Farstad's conduct did not threaten Ms Romero's ongoing employment with Farstad. In particular, the judge noted that Farstad proposed to Ms Romero alternative postings on other ships.

The judge also found that even if he had determined that Farstad had repudiated Ms Romero's employment contract, Ms Romero, in taking almost a year to accept Farstad's purported repudiation, delayed and by remaining employed for that time, affirmed the contract.

However, with the Full Bench previously finding that Farstad had breached Ms Romero's contract, Ms Romero was entitled to damages.

Ms Romero claimed $115,759.71 as damages for breach of contract. This claimed comprised sums for:

  • costs incurred by Ms Romero who was studying for a Masters certificate prior to November 2011;
  • lost income during the period Ms Romero was undertaking study before November 2011;
  • study costs in relation to the law degree undertaken by Ms Romero;
  • estimated costs of completing the law degree and undertaking practical legal training.

Having previously received, as described in the judgement, "a substantial sum" from Farstad pursuant to a Deed of Release to compensate her for a psychological injury arising out of Farstad's conduct resulting in the breaches of contract, Ms Romero did not pursue damages for stress and psychological disability.

The judge rejected the damages amounts sought by Ms Romero.

Instead, Ms Romero was awarded $100.

In finding that Ms Romero was only entitled to nominal damages of $100, the judge held that the breaches committed by Farstad were not of a nature that the financial loss alleged by Ms Romero was a probably consequence. In particular, the judge determined that:

  • Ms Romero ceasing her employment in the maritime industry altogether could not be regarded as either an inevitable or probably consequence of Farstad's breach of the Policy;
  • the costs associated with the Masters certificate were only thrown away because Ms Romero decided she did not wish to continue to work with Farstad or any shipping company;
  • Ms Romero's law degree pursuits were a personal choice made after she ceased her employment with Farstad.

Lessons for employers: draft policies carefully, and make sure staff understands them

The decisions involving Ms Romero's claims provide a number of lessons for employers.

While Ms Romero may have only been awarded $100 for her breach of contract claim in this instance, defending against claims (and appeals) can be expensive, disruptive and time-consuming, in particular for managerial and other employees who may need to assist and/or provide evidence in the matter.

Further, breach of contract and repudiation claims are not the only claims employees may make where an employer fails to comply with workplace policies and employment contracts. As indicated in the decision, workers' compensation claims and personal injury claims are other avenues employees may pursue if the alleged breaches give rise to stress and/or psychological injury.

It is therefore important that:

  • when drafting employment contracts and policies, employers carefully consider the wording used and whether company policies are incorporated;
  • policies are clearly worded and not so prescriptive that they stifle an employer's ability to investigate or address a complaint in a manner reasonable and appropriate to the circumstances of the complaint;
  • managers and employees are appropriately trained and understand an employer's policies. This includes ensuring managers know how to appropriately assess and deal with complaints;
  • policies are correctly applied and followed by managers and employees;
  • complaints processes and investigations are properly documented;
  • employees involved in the complaints process are appropriately supported. This can include steps such as offering access to an employee assistance program, providing directions regarding confidentiality and interactions with employees the subject of the complaint and confirming the contact person should an employee have a question about the process etc.