In the recent decision of Romero v Farstad Shipping (Indian Pacific) Pty Ltd the Full Federal Court of Australia decided that the terms of a company’s harassment and discrimination policy were contractually binding on the employer and that the employer’s failure to comply with the terms of the policy constituted a breach of contract.
This decision should serve as notice to employers to ensure that their own employment policies are properly drafted and fully complied with, as a breach of the policy could lead to an employee affected by the breach pursuing a claim for damages resulting from a breach of contract.
Facts of the Case
Lisa Romero was employed by Farstad Shipping as a sailor. During her employment, Ms Romero complained that a Captain of one of the vessels she sailed on bullied her because of her gender. Ms Romero lodged a claim in the Australian Human Rights Commission alleging that Farstad was responsible for the alleged discriminatory conduct of its employee. The complaint was not resolved before the Commission and Ms Romero subsequently lodged a claim in the Federal Court of Australia which included a further allegation that Farstad had breached its contract of employment with her during the course of the investigation of failing to adhere to its Workplace Harassment and Discrimination Policy (“the Policy”).
The Decision of the Federal Court at first instance
At first instance, a single Judge of the Federal Court concluded that: –
- There was no sex discrimination by the Captain or the company against Ms Romero.
- The Policy did not form part of Ms Romero’s contact of employment.
- Even if the Policy had constituted part of the contract of employment it was not so significantly departed from by Farstad as to constitute a breach of the Policy or contract of
employment.
The single Judge described the Policy as being ‘aspirational’ and, for that reason the terms of the Policy were not binding on the employer and did not form part of the contract of employment.
The Appeal
Ms Romero lodged an appeal against the Judge’s decision with the Full Federal Court. In her grounds of Appeal, Ms Romero did not appeal the Judge’s “factual” finding that there had been no sex discrimination. Instead Ms Romero appeal centred on a “legal” argument that the Policy did form part of her contact of employment and that Farstad had breached the policy causing her loss and damage.
The Decision of the Full Federal Court on appeal The Full Federal Court comprising three Judges allowed Ms Romero’s appeal and concluded that:
- The Policy did form part of the contract of employment;
- The Policy was not complied with; and
- The contract was breached;
Why the Full Federal Court concluded that the Policy formed part of the contract of employment.
In Romero, the Full Court held that the Policy formed part of the employment contract as:
The language used in this instance, taking the Policy as a whole, makes it clear that there is an expectation by the company that there will be mutual obligations. In return for the employee complying with the terms of the Policy, the employer gives a responsive assurance that complaints of non-compliance by other employees will be treated in a certain way.
Some of the circumstances which supported the Full Court’s findings were that:
- The Policy was the subject of an education program at the time of, or contemporaneous with, the offer of employment;
- Farstad provided the Policy to Romero;
- Romero was required to sign the Policy;
- The benefit in the Policy was a benefit ordinarily conferred in employment contracts; and
- There was regular reinforcement of this and other company policies on an ongoing basis.
The Full Court accepted that some aspects of the Policy were only aspirational but emphasised that:
… the specific obligations considered in this case were clearly ascertainable and quite capable of precise identification. There is thus no uncertainty or vagueness as to what the relevant terms of the Policy mean.
Many enforceable contracts contain provisions that can be described as aspirational Ramifications of the Decision for Employers It is important for employers to understand that their employment policies may form part of the terms of an employee’s contract of employment even though it is not referred to in a written contract of employment.
Whether an employment policy is incorporated into an employment contract will depend upon the language used in the policy and the context in which it is used.
If part of an employment policy uses language which is sufficiently certain to create mutual obligations on the employer and employee, an employer may be in breach of its contract of employment if it does not comply with those obligations under the policy.
This may be the case even if the remainder of the policy is “aspirational” in nature.
In response to this decision, Employers should ensure that they are fully aware of and are able to comply with the terms of their own employment policies as a contravention of the policy may give rise to a breach of contract.
If you would like further information about this decision, please contact Steven Hayles.
