Tuesday, 16 June 2015

Are Your Workplace Policies Contractually Binding?

Case Study: Romero v Farstad Shipping (Indian Pacific) Pty Ltd

Lisa Romero, an employee of Farstad Shipping (Indian Pacific) Pty Ltd, was a second officer aboard a supply ship. During a 12 day voyage, there was a substantial falling out between the ship’s Captain, Captain Martin and Ms Romero. After disembarking the ship, Ms Romero emailed Farstad about several issues including her concerns in relation to her treatment by Captain Martin, essentially alleging bullying. Farstad commenced an investigation purportedly in accordance with its Workplace Harassment and Discrimination Policy (Policy).

The Policy explained the expected workplace behaviour of employees in relation to bullying and sex discrimination. It set out various procedures by which employees could report complaints about breaches of the Policy and complaint-handling procedures. Farstad concluded Captain Martin had not breached the Policy.

Ms Romero lodged a complaint to the Australian Human Rights Commission (which then proceeded to hearing in the Federal Court) alleging that Farstad had treated her, by reason of her sex, less favourably than it would have treated a male in similar circumstances in relation to its purported investigation into her complaints. While the Court found that there was no sex discrimination, Ms Romero appealed the decision and argued that:

  1. The Policy formed part of her contract of employment;
  2. Farstad had breached the Policy;
  3. In breaching the Policy, Farstad had repudiated her contract and she had suffered loss and damage

On appeal, the Full Court of the Federal Court held that the Policy formed part of Ms Romero’s contract of employment. The factors leading the Court to that conclusion included:

  1. The wording of Ms Romero’s letter of engagement, which stated “In addition, all Farstad Shipping Policies are to be observed at all times”;
  2. The wording of the Policy contained mutual obligations, which the Court found was “clearly ascertainable” and “quite capable of precise identification”;
  3. The Policy was part of an education program offered as part of employment and Ms Romero was required to sign the Policy;
  4. The Policy was provided at the same time as the contract of employment; and
  5. There was regular reinforcement of the Policy on an ongoing basis

The Court found that Farstad breached the Policy in that it had failed to follow its own investigation procedure. As a result, Farstad had breached the contract of employment.

It was held that Ms Romero was entitled to damages for breach of the contract of employment, the quantum of which will be determined by a judge of the Court at a later stage.

Lessons for Employers

Employers should ensure that, as a minimum, policies that are underpinned by legislative obligations such as occupational health and safety, bullying, discrimination and harassment, are implemented and regularly updated.

Employers should review their existing employment contracts and company policies to see whether the policies are contractually binding. When preparing company policies and employment contracts, employers should ensure that both documents expressly state that company policies are not incorporated into the employees’ contracts. This will ensure that in the event the employer does not follow a particular policy, an employee will not be able to claim it has breached contractual obligations. It also enables employers to vary policies and procedures without individual employee consent.

If employees have employment contracts which may be unclear or ambiguous in relation to policies, employers may consider varying current employees’ contracts of employment or issuing updated contracts.

If you require assistance with drafting or updating workplace policies and employment contracts, please contact HR Legal.


This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.

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