The implied term of mutual trust and confidence may be dead and buried after the High Court's decision in CBA v Barker.   However, employers still risk having what are intended to be discretionary "conduct" and investigation policies and procedures implied into their contracts of employment.

In a recent decision, the Full Court of the Federal Court of Appeal found that an employer had breached an employee's contract through a failure to appropriately implement procedures outlined in its workplace harassment and discrimination policy.

Employee email and investigation

The employee of a shipping company sent the general manager and human resources personnel an email taking issue with the behaviour of her superior, the captain of the vessel she was deployed on.  In the email, the employee referred to the Captain's behaviour as "non relenting and targeted bullying… from the first hour of the 12 day trip".  In her email, the employee did not refer to the employer's workplace conduct policies and procedures (Policy). Rather, she suggested that the captain's inappropriate behaviour should be addressed by the employer's management.  The employee's email did not raise a formal complaint, or seek investigation.

The Policy was written in fairly unequivocal terms, and made clear that the manner in which a complaint could be made and investigated was at the employee's election.

Despite the employee's intent, the employer treated her email as a formal complaint under the Policy.  The employer requested that the employee attend an interview, during which she was asked questions regarding not only her email but more generally, her competency.  In doing so, the employer created some confusion over the purpose of the interview, and its investigation. 

The employer's final investigation report found that no bullying had occurred, and that any dispute between the employee and captain was as a result of a "clash of personalities and communication styles".  Subsequent to the investigation, the employee claimed that the employer's conduct amounted to serious breach of her contract, and she left her employment.

Implication of Policy

At the first instance trial, the employee was not successful.  She appealed, in part claiming that the Policy had formed part of her contract, and that the employer's misapplication of an investigation procedure in the Policy (when not requested) amounted to a breach of contract. 

On appeal the Full Court found that the Policy had, (in respect of the investigation procedure) been incorporated into the employee's contract, where:

  • the Policy was regularly enforced, included in an education program for new employees and applied to conduct that could have serious consequences in a shipping environment;
  • the employee's letter of engagement specified that the employer's policies were to be "observed at all times"; and
  • the Policy set out what the employer was required to do on receiving a complaint.

In this instance, the Policy was considered "more in the nature of a bargain with an exchange of undertakings and assurances or promises",  rather than directions to employees. The Full Court was satisfied that these factors together established 'mutual obligations' between the employer and employee. 

The Policy did contain language of discretion, which reserved the right to change, resolve or not apply the Policy.  However, the Full Court found that no steps had been taken to exercise that discretion in this instance.  In other words, the employer had not indicated that it was electing not to follow the Policy based on an available discretion.

The Court found that the employer had contravened the policy by treating the email as a formal complaint and combining it with separate allegations from the captain about her competency. 

Consequences of breach

The Full Court did not decide on the consequences of the employer's breach, or the value of any damages that might arise.  Instead, the Full Court remitted these questions back to the trial judge for determination.  As such, it remains to be seen as to whether the employer's breach will, in fact, lead to any significant damages award.

In the meantime, the Full Court's decision highlights the need for carefully-worded policies about investigation (and other employer procedures), in order to allow  for flexibility to fit a process to individual circumstances. 

The case is also a timely reminder that policies should be reviewed before embarking on investigation processes, or other procedures that have been recorded in policy documents.

If an employer intends to use an available discretion to deviate from its policies, it should take steps to make clear why it is exercising the discretion, and the process to be followed, prior to embarking on that process.

See: Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177 (22 December 2014)