The Full Federal Court’s recent decision in Romero v Farstad Shipping (Indian Pacific) Pty Ltd  FCAFC 177 illustrates the potential risks that employers face if they fail to comply with their employment policies and the policies are found to constitute contractual terms giving rise to damages for breach of contract.
Ms Romero was employed by Farstad as a second officer on board the ship Far Swan. Whilst on board, Ms Romero had a significant falling out with the Captain and was relieved of her duties on the ship, at her request. Ms Romero then sent an email to Farstad raising concerns about her treatment by the Captain. Her email left it to Farstad to decide how to deal with her concerns and did not amount to a formal or informal complaint under the Farstad’s Workplace Harassment and Discrimination Policy (Policy). Farstad proceeded to treat the email as a formal complaint. At the same time, the Captain made allegations about Ms Romero’s competency and temperament. Having received these complaints, Farstad launched a single investigation in which the focus was placed mainly on the allegations made by the Captain.
Ms Romero’s claim against Farstad under the Sex Discrimination Act 1984 (Cth) was unsuccessful. However, Ms Romero also claimed that the Policy formed part of her employment contract and that Farstad acted in breach of its contractual obligations by failing to investigate her complaint in accordance with the terms of the Policy.
The Court confirmed that whether or not a policy will be incorporated into a contact of employment will depend upon the parties’ intentions, as objectively ascertained.
The Court held that the Policy formed part of Ms Romero’s contract of employment. In coming to this conclusion, the Court considered the following factors:
- new Farstad employees were made to sign the Policy at the commencement of their employment;
- the Policy formed part of an education program that all employees were required to undertake;
- Ms Romero was reminded of the existence of the policies at the commencement of each assignment;
- Ms Romero’s letter of engagement required that she observe Farstad’s polices at all times;
- the extent to which the benefit provided by the policy was consistent with benefits provided to employees under work health and safety and anti-discrimination legislation;
- in the context of the actual employment, which involved operating ships, enforcement of the Policy was crucial to ensure the safety of everyone concerned; and
- the language of the Policy, taken as a whole, placed sufficient emphasis on the need for mutual compliance. While the Court found that some parts of the Policy may have been aspirational and some parts directive, it held that Farstad’s obligations in relation to dealing with serious complaints of sex discrimination and bullying were contractual promises given in exchange for employees being obliged to comply with the behavioural requirements imposed on them by the Policy.
Having found that the Policy formed part of Ms Romero’s employment contract, the Court held that Farstad had breached the contract by failing to conduct a proper investigation into her complaint in accordance with its obligations under the Policy.
Lesson for employers
The decision confirms the Courts’ views that the scope of contractual obligations owed by employers to employees may extend beyond the content of their written contract of employment. Where an employment contract requires an employee to observe workplace policies and those policies create mutual obligations on the parties, the policies may constitute implied or incorporated terms of the contract. As a result, a failure by the employer to observe those policies may lead to a breach of contract.
To reduce the risk of liability, employers should ensure that employment contracts are drafted to exclude the possibility of any workplace policies being contractual in nature. Workplace policies should also be carefully drafted to build in flexibility and discretion for employers and avoid using language that directs or mandates an employer to follow a specific procedure or course of action. Additionally, employers should act strictly in conformity with the terms of applicable policies.