26 June 2013 Workplace Policies: Directives or Contractual Terms

By Laura Sowden, Solicitor and Warwick Ryan, Partner

In Brief

Most employers have now have implemented workplace policies, whether they are addressing discrimination, use of company vehicles or health and safety. While policies are often treated as providing directions from an employer the issue of their status is a more complicated one. Workplace policies can actually have the force of contractual terms. This is highly significant as employers not just employees are bound by contractual terms. A breach of a contractual term by an employer can breach the contract itself and result in a claim by the employee for damages.

Example 1 – a contractual term in a policy document:

Goldman Sachs JB Were Services Pty Limited v Nikolich [2007] FCAFC 120

In this case Mr Nikolich brought an action on the basis the "Working With Us" policy document formed part of his employment contract and that in not following its policies Goldman Sachs had breached the contract and that breach had caused him a psychological injury. 

Chief Justice Black, and Justices Marshall and Jessup applied an objective test in the case and concluded that while the policy requirement to take "every practicable step to provide and maintain a safe and healthy work environment" was contractual, the harassment and grievance sections of the document were not.

Justice Marshall noted that Mr Nikolich's employment agreement stated he should comply with applicable policies and practices and that also imposed responsibilities on the employer. It was significant that the duty to take "every practicable step to provide and maintain a safe and healthy work environment" mirrored statutory health and safety responsibilities for employers as well as the common law contractual duty.

It was relevant that sections of "Working With Us" were required to be signed by Mr Nikolich, the document was distributed upon the offer of employment and importantly the terminology of "every practicable step to provide and maintain a safe and healthy work environment" was accepted by the majority of the Full Court as contractual in nature.

Example 2 – Policy not contractual due to disclaimer

Yousif v Commonwealth Bank of Australia (2010) 193 IR 212

Ms Yousif claimed that the Commonwealth Bank of Australia (CBA) had breached various express and implied terms of her contract of employment. She claimed that a policy entitled "Appointment to Roles" was contractual and had been breached by CBA. The trial judge had concluded that even if CBA's "Appointment to Roles" policy was incorporated into the contract of employment the policy had not been breached and so Ms Yousifs claim failed. His Honour had concluded that the policy was not part of the contract due to a disclaimer in the Human Resources Reference Manual document which stated policies did not form part of employment contracts.

Ms Yousif appealed that decision and the Full Court of the Federal Court accepted the first instance finding that the policy was not contractual. This case reveals that having a disclaimer which states policies are not part of the employment contract can make all the difference.

Example 3 – terms of policy contractual in effect as they echo common law contract principles

Barker v Commonwealth Bank of Australia [2012] FCA 942

Through a series of events Mr Barker was made redundant by CBA. Mr Barker contended that CBA had not followed its policies in regard to its selection of him for redundancy and did not comply with its redeployment policy. In not following such policies Mr Barker argued CBA had breached the employment contract.

A document titled "HR Reference Manual" had, as in Yousif above, stated that the manual did not form part of any employment contract for an employee. The Court took evidence from witnesses who were employed by CBA which indicated they thought they had to abide by the policies as they were referred to in their employment contracts.

Justice Besanko concluded there was an implied term of mutual trust and confidence in the contract of employment between Mr Barker and CBA. His Honour then concluded a breach of the redeployment policy could constitute a breach of that implied term of mutual trust and confidence. So unlike in the Goldman Sachs case the Court implied a term of mutual trust and confidence instead of directly implying any contents of a workplace policy. The end result was however, that the employer was bound by the redeployment policy.

What does this mean?

When introducing or reviewing workplace policies it is important for employers to consider whether those policies should have the force of contractual terms.  Policies with contractual force are more difficult to amend, as employee agreement is required to amend them, unlike policies in the form of directives. For this reason it may be best for employers to maintain policies as directives and avoid giving them the force of contractual terms. One simple way to attempt to do this is to include a disclaimer in workplace policies that they are not contractual terms.

These three cases demonstrate that it may be wise for employers to seek advice when dealing with policies and contracts of employment. For further information, please contact:

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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