Avoiding inadvertent policy application

Caution: I know you said it BUT . . . did you really want that policy to give your employees a chance to sue you?

Recent cases have again highlighted the considerable risk of workplace policies referenced in contracts of employment/letters of offer giving employees a basis to sue for damages for breach of contract in a court when the employer fails to strictly comply with those policies.

In Gramotnev v Queensland University of Technology the Supreme Court recently found a long term employee with a troubled employment history was unlawfully terminated and entitled to sue QUT for damages because they failed to strictly comply with their disciplinary policy.  The disciplinary policy was referred to in the employee’s letter of engagement which was entered into nearly a decade previously.   Whilst it was unlikely that the decision to terminate the employee would have been any different had QUT followed its own policy, their failure to refer the final decision to terminate employment to one of the University’s committees for final ‘sign off’ proved fatal.  What should have been a fairly clear-cut decision to end employment turned into a potentially large damages bill.

In Romero v Farstad Shipping (Indian Pacific) Pty Ltd the Full Federal Court found that an employee’s letter of engagement which provided that ‘all Farstad Shipping Policies are to be observed at all times’ required Farstad to have treated the employee’s emailed bullying complaint in accordance with their Workplace Harassment and Discrimination Policy.  The failure of Farstad to strictly follow the policy in dealing with the employee’s complaint resulted in the employee being entitled to sue for damages.  Instead of dealing with comparatively simple issues of whether the bullying complaint was made out or not, significant sums of money were incurred in Federal Court proceedings determining the technical issues of contract law.

The employers in both cases were found to have incorporated the policies in a contractually binding manner into their contracts of employment.  The contractually binding nature of the policy can also occur without express incorporation by using ‘contractual’ rather than ‘aspirational’ language (ie mandatory terms rather than aiming for compliance in a reasonable assessment of the circumstances) or in the manner of delivery (ie by providing policies at the same time as contractually binding obligations in other documents and/or specifically requiring ‘signing off’ that might indicate a ‘contract’).

It is possible to require adherence with policies without it being in a contractually binding manner.  The clearest way to do this is through express words in both contracts of employment and policies advising up front that the policy is not contractually binding.  Once this aspect is addressed, employers can then focus on drafting the policies in a manner which assists them to achieve a safe and productive workplace as well as increasing the likelihood of endorsement in the Fair Work Commission where the overwhelming majority of employment disputes are determined (rather than a court).   This can, and should, be reinforced through consultation, training and induction which reaffirms the obligation to comply with policies and procedures and are in the form of ongoing lawful and reasonable directions.

Action Items

  1. Review your employees’ current contractual arrangements (e.g. employment contacts, and letters of offer) for any reference to policies;
  2. Update employment contracts and policy documents to confirm that they are not contractually binding; and
  3. Implement  consistent processes (consultation, training, and induction etc) that give effect to your organisation’s policy documents as lawful and reasonable directions; and
  4. Comply with all policies and procedures even when there is thought to be little or no risk that they are contractually binding.

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