Workplace policies, contractual?

9 June 2017

In Romero v Farstad Shipping (Indian Pacific) Pty Ltd (hereafter Romero), the Full Federal Court of Australia was asked to determine whether a workplace policy forms part of the employment relationship, that is, aspirational or contractual in nature? As the case demonstrates, this will depend on the particular factual circumstances of the employment relationship.

Allsop CJ, Rares J and McKerracher JJ held that the discrimination policy not only imposed obligations on both employer and employee, but formed part of the employment contract. The policy contained mutual obligations that could be identified. Accordingly, the failure of either party to comply with workplace policies may constitute a breach of contract.

Facts of the case

Lisa Romero (“Romero“) was employed by Farstad Shipping Indian Pacific Pty Ltd (“Farstad“), a shipping company. In late 2011, Romero was engaged as a second officer aboard the supply ship, Far Swan. The letter of engagement, dated 10 January 2011, stated that ‘all Farstad Shipping Policies are to be observed at all times’.

Employees were expected to read and understand all company policies, including a Workplace Harassment and Discrimination policy (“the Policy“). The Policy outlined the behaviour expected of employees with regards to bullying and gender discrimination. It also prescribed the procedure for formal employee complaints and the manner in which the company would respond.

Romero worked under the ship’s Master, Captain Martin (“the Captain“). Following a falling out with the Captain, Romero was relieved from duty at her request. After disembarking the ship, she sent an email to the General Manager and Human Resources, claiming that she was the subject of the Captain’s ‘relentless and targeted bullying’. Romero’s email did not request a formal investigation, but indicated that the Captain’s ‘inappropriate behaviour’ was a matter for management to address.

Nevertheless, the company treated her email as a formal complaint. It initiated a formal investigation, supposedly in accordance with the Policy. However, the investigations were predominantly focused on allegations raised by the Captain concerning Romero’s competence, capacity and temperament.

Romero subsequently raised a complaint with the Australian Human Rights Commission, asserting that Farstad had contravened the Sex Discrimination Act 1984. Following no resolution, she brought her case before the Federal Court. She also argued that the Policy had formed part of her employment contract. Thus, the company breached the Policy and thereby repudiated the contract.

First Instance

At first instance, Justice Marshall held that there was no gender discrimination. The conflict between Romero and the Captain was the result of an ‘escalating personality clash’ rather than discrimination. With regards to the contractual nature of the Policy, Justice Marshall examined the language used, its context, and the inferred perception of a reasonable person. He held that the Policy was merely ‘aspirational’ in nature. There was no express or implied indication that it was intended to form part of the contract. Although Romero was required to sign the Policy, this was not decisive in rendering it a contractual document. The language was insufficiently specific to amount to a contractual obligation.

Justice Marshall also considered whether there had been a breach of policy by Farstad. He held there was no breach. The employers in conducting an investigation are ‘obliged to act in a practical manner, and not to embark on a judicial hearing or police style examination of the circumstances’.

On Appeal

The Full Federal Court held that the Policy formed part of the employment contract. Farstad had breached the Policy in its handling of Romero’s complaint.

On appeal, Farstad argued that the Policy was not contractual, and that it was a statement of intention rather than a mandate of a particular way to do things. Furthermore, Farstad asserted that if such policies were to be incorporated, it was result in an absurd outcome as a minor policy breach may result in a breach of contract. In a practical sense, the court noted that the parties in an ordinarily harmonious relationship would expect some give and take. Only repeated trivial breaches would be considered a serious breach.

Again, the Court considered the language used, the existence of mutual obligations and the context of the agreement to determine the contractual nature of the Policy.

In making this finding, the Court held:
 – Romero was required to sign the Policy.
 – The Policy was applicable to all employees, contractors and visitors.
 – Employees received training on the Policy.
 – The benefit of the Policy is ordinarily provided in employment contracts.
 – It was not expressly communicated that the Policy did not form part of the contract.
 – Due to the nature of Farstad’s business, it was vital that a calm and safe environment be maintained.

The Court found that although some parts of the Policy were merely ‘aspirational’, this was common for many enforceable policies. The relevant ‘directional’ parts of the Policy were found to be enforceable as contractual terms. This is because they were clearly ascertainable and could be precisely identified.

The Court further held that Farstad had breached the Policy because:

 – It treated Romero’s email as a formal complaint even though she did not refer to the Policy;
 – It failed to properly document the investigation and follow the procedure outlined in the Policy; and
 – It supposedly conducted an investigation into Romero’s complaint when the focus of its investigation     was into the Captain’s allegations about her capacity and competence.

Future Implications

The decision in Romero has several implications. In particular, if an employee is under an obligation to observe a policy in the employment contract, and the language of the policy is sufficiently clear to create mutual obligations, the policy may form part of the contract. Accordingly, the employer may risk breaching the contract if it fails to comply with the obligations under the policy. This will be the case even if other parts of the policy do not create mutual obligations and are merely aspirational.

This case illustrates the importance of taking care when drafting workplace policies, choosing language to avoid unintentionally imposing obligations on an employer. It may also be useful to explicitly stipulate within the policy or contract that the policy does not form part of the contract.

However, employers should be mindful that even if a policy is non-contractual, there might be a claim for breach where there has been express reliance on its term

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Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177.