The spectre of workplace policies having legal force and binding employers has existed for some time. We have seen a series of cases where policies on topics ranging from redundancy to discrimination policies have been found to form part of an employment contract giving rise to contractual rights for the employee and legal obligations for the employer.
In a recent sex discrimination case, Romero v Farstad Shipping (Indian Pacific) Pty Ltd  FWAFC 177, a Full Court of the Federal Court of Australia has, on appeal, held that a shipping company’s ‘Workplace Harassment & Discrimination’ policy (the policy) was contractually binding. The company’s failure to follow the investigation procedure in the policy to the letter has landed it in breach of contract and liable to pay damages.
Ms Romero was employed by Farstad Shipping as a second officer on the supply ship, Far Swan. After a falling out with the ship’s captain, Ms Romero sent an email to the company’s HR department raising concerns about the captain’s treatment of her aboard the ship. She claimed the Captain had been hostile and aggressive toward her and treated her as incompetent.
The email was not expressed as a complaint (formal or informal) and did not ask that any particular action to be taken, but rather left it to the company to decide how to deal with the issue.
The company chose to deal with Ms Romero’s email as a formal complaint pursuant to its Workplace Harassment & Discrimination policy and commenced an investigation. The investigator found that while there was a clash of personalities and communication styles, none of Ms Romero’s allegations against the captain about his treatment of her were substantiated.
Ms Romero lodged a complaint of sex discrimination against the company with the Australian Human Rights Commission on grounds that she had been bullied and vilified because she was female. The matter proceeded to the Federal Court where Ms Romero argued, in addition to sex discrimination, that the policy formed part of her employment contract and that the company had breached her contract by failing to investigate the matter in accordance with the policy.
At first instance, the Court dismissed the claim for sex discrimination, agreeing with the company that there was nothing more than a ‘personality clash’ between the Captain and Ms Romero and that the Captain had never made any ‘gender associated’ comments.
The Court also dismissed the breach of contract claim, finding that the policy was not incorporated into Ms Romero’s employment contract because the language used was aspirational and too vague to form binding contractual obligations. The Court held that even if the policy had been contractual, the company had not breached it.
Ms Romero successfully appealed the finding that there was no breach of contract. The appeal court held:
the policy was incorporated into Ms Romero’s employment contract.
The employment contract required Ms Romero to observe the company’s policies at all times and the policy set out the process the company would follow when a discrimination complaint was made. Accordingly, the policy imposed mutual obligations.
The Court also noted that the policy was issued at the same time as the offer of employment, and that training was regularly conducted for employees on the policy and it was regularly reinforced.
Some parts of the policy were aspirational, and other parts directive.
- The company had not complied with the policy and so had breached Ms Romero’s employment contract. In conducting the investigation, the company failed to comply with the policy in a number of ways, including:
- not giving Ms Romero any notice that a formal investigation was been conducted;
- dealing with the policy as a formal complaint and not considering the informal options available under the policy. (The Court noted that she had never intended that the matter become a formal investigation and said that a formal complaint should not be inferred by receipt of an email that made no reference to the policy);
- interviewing the captain before anyone spoke to Ms Romero to seek details;
- rolling performance issues raised by the Captain into the investigation into Ms Romero’s allegations about his behaviour, and in doing so, circumventing the processes for dealing with performance issues set out in the applicable enterprise agreement;
- not interviewing any witnesses. Crew members of the Far Swan who witnessed interactions between Ms Romero and the captain should have been interviewed;
- not properly documenting the investigation.
The appeal court referred the matter back to a single judge to determine damages.
Message for employers
Employers now face some mixed messages when it comes to workplace policies. For example, on the one hand, employers are constantly reminded of the importance of training employees on company policies if the company intends to rely on the policy when an employee does the wrong thing. On the other hand, in Farstad, the fact that training had been regularly conducted on the policy in question was one of the factors the appeal court pointed to in finding that the policy was contractually binding.
Most employers do not intend for workplace policies to be legally binding on the employer, even though they do want their employees to comply with the policies.
To minimise the risk of a policy having contractual force and an employer being in breach, employers should:
- Ensure that employment contracts expressly state that HR policies do not form part of the employment contract and do not legally bind the company. (In Farstad, there was no indication that Ms Romero’s contract or the relevant policy contained any such statement leaving it open to the court to conclude that the policy had contractual force.) All HR policies should contain the same statement that they are not legally binding on the company.
- Simplify your HR policies. The less prescriptive and more flexible your policies and procedures, the less likely the company will be found to have breached them. For example, do not include specific time limits (eg ‘The company will respond within 48 hours.’) where a more general time limit will suffice (eg ‘The company will respond within a reasonable time.’).
- Don’t issue specific policies with the offer of employment. This might lead to an employee claiming the company made representations about how it would act in certain situations, and that the employee relied on those representations by accepting the offer of employment. Familiarisation with company policies can wait until induction.