Mayday mayday, HR policy overboard

In the decision of Romero v Farstad Shipping (Indian Pacific) Pty Ltd (22 December 2014), the Full Court of the Federal Court held that an employer breached a contract of employment with its employee by failing to comply with the terms of its own HR policy and procedure. In doing so, the Court affirmed previous case law that policies and procedures may be incorporated into employment contracts as determined objectively by an assessment of the parties’ intentions, the terms of any relevant policy and the surrounding employment circumstances.

A shot across the bows

Ms Romero, who was a sailor, had a number of heated exchanges with the Captain of her ship while at sea. After returning to land, Ms Romero sent an email to her managers raising concerns about how the Captain had treated her. Ms Romero referred to ‘bullying’ but left it open for Farstad, her employer, to decide how to deal with the general matters raised by her.

Know the ropes

Farstad’s Workplace Harassment and Discrimination Policy (Policy) outlined its position on discrimination, harassment and bullying. The related Harassment and Discrimination Complaints Procedure (Procedure) provided different ways for how Farstad would deal with formal and informal complaints and specifically provided that it was the employee’s decision as to how to proceed. In formal investigations, the Procedure provided considerable detail about how an investigation should be conducted, the role of Contact Officers and how records of interview should be taken. Separately, Ms Romero’s contract of employment provided that Farstad’s policies were to be observed at all times.

Loose canon

After receiving Ms Romero’s email, Farstad immediately commenced a formal investigation which encapsulated both the Captain’s allegations about Romero’s competence as well as the general concerns of Ms Romero. In its investigation, Farstad representatives:

met firstly with the Captain;
displayed considerable bias during their meeting with Ms Romero, in which a proper record of interview was not taken and questioning focused on Ms Romero’s incompetence, rather than those issues raised by her against the Captain; and
failed to outline Ms Romero’s options or utilise a Contact Officer to assist Ms Romero, as required by the Procedure.

Ms Romero claimed that the Policy and Procedure formed a part of her employment contract and Farstad’s breaches of the Policy and Procedure therefore amounted to breaches of the employment contract leading to damages.

At first instance, Justice Marshall held that the Policy was of an aspirational nature and therefore did not form part of Ms Romero’s employment contract.

Appeal decision – high and dry

The Full Bench disagreed. It found that the Policy (and Procedure) did form part of Ms Romero’s employment contract, including as a result of the:

wording and scope of the Policy and Procedure, which contained specifically identifiable processes and obligations imposed on Farstad and could therefore not be described simply as ‘aspirational’;
significance of the statutory obligations referred to in the Policy which were to be observed by Farstad;
fact that all employees were required to sign the Policy, which was handed out with the employment contract; and
regular education and reinforcement provided to employees in relation to the Policy.

The Full Bench then concluded that the Policy had been breached by Farstad, particularly in its:

commencement of a formal investigation despite Ms Romero not making reference to the Policy and not being given an opportunity to decide whether or not she wanted Farstad to commence an investigation; and
conduct of a flawed investigation, including its failures to: interview Ms Romero first; record the interview properly; carry out an impartial and objective interview; and separate out Ms Romero’s concerns from those of the Captain.

The Full Bench declared that Farstad had breached Ms Romero’s contract of employment and remitted the question of damages to a judge of the Court for trial.

Anchors aweigh

The question of whether an employment policy is binding or not on an employer is a significant one which arises frequently. Employers should therefore tread carefully as they can be subject to significant damages orders for failing to follow their own procedures and policies.

It is recommended that employers take this opportunity to revisit their employment contracts and employment policies and procedures, particularly those relating to bullying, harassment, discrimination and investigations. Employers ought to ensure that:

contracts of employment are worded in such a way as to expressly exclude policies from being incorporated;
wherever possible, relevant policies and procedures are reviewed and re-drafted, if necessary, to provide sufficient flexibility to be applied in a manner which does not act as a ‘straightjacket’ in how employers deal with these matters and conduct their investigations;
they follow any requirements set out in the policies, particularly in relation to how to treat employee concerns in accordance with policy and when to treat such concerns formally or formally;
any workplace investigations are carried out in an objective and independent manner and in accordance with any policy requirements. Where there are counter-complaints, party allegations should be clearly separated out and treated independently; and
they have well-trained HR staff with the capacity to manage workplace complaints appropriately and expeditiously to minimise and manage the risks of these complaints as they arise.

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