Employers caught by own policies

Businesses, particularly large ones, often develop internal policies concerning the employment of their employees.

These policies deal with a wide range of matters including the use of motor vehicles, drugs and alcohol, conflicts of interest, IT and social media, confidentiality and intellectual property, dress codes, bullying, harassment and anti-discrimination, redundancy entitlements and eligibility for share ownership.

Many employment contracts give policies contractual force by expressly stipulating that “the employee must comply with the employer’s policies”. By signing the contract, the employee is taken to have agreed to the policies and is bound by the same. It is less clear whether the policies are contractually binding on the employer. In other words, is an employer’s failure to comply with its own policy a breach of contract that can be relied on by the employee in Court?

This issue was examined in the full Federal Court’s decision in Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177. In that case, the Court found that Farstad’s Workplace Harassment and Discrimination Policy (Policy) incorporated additional mutual obligations into the contract of employment, which Farstad had failed to comply with in carrying out an investigation into workplace bullying and discrimination. The Court looked not only at the language of the Policy but also at the surrounding circumstances, such as the way that the Policy was promoted and reinforced to employees.

The decision illustrates that the scope of contractual obligations owed by employers to employees may extend beyond the mere content of the written contract of employment. Where an employment contract requires an employee to comply with policies and those policies create mutual obligations on the parties, the policies may constitute terms implied or incorporated into the contract. As a result, a failure by the employer to observe those policies may lead to a breach of contract and potential liability for damages.

Employers should consider whether they wish to incorporate any of their employment policies into their contracts of employment, and ensure the terms of the contracts give effect to that intention. In many instances, it will be better for employers to include an express clause in their employment contracts (and each policy) stating that policies do not form part of the contract. At the same time, it should be stated that the employee is obliged to comply with the policies. In this way, the policies will be directives by the employer rather than having contractual force. Where an employee fails to observe a term of a policy the employer will, provided the employee is aware of the contents of the relevant policy and the duties and obligations created therein, be entitled to take disciplinary action.

Fletcher Law has lawyers experienced in employment matters, including the drafting of contracts of employment and employment policies.  If you require assistance with these please contact us.