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Employers beware: workplace policies may lead to breach of contract

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This article was written by Shekira Cardona, Roohi Gill and Charlotte Fenton.

Workplace policies may not simply be aspirational for an organisation, but may form part of a binding employment contract.

Implications for employers

As always, employers must ensure policies and procedures are not incorporated into employee's contracts. However, this case also serves as a reminder that not all claimants will be awarded significant sums for breaches of contract.

Background

While Ms Romero was employed as an officer by Farstad, she made a bullying complaint against a ship captain. At the same time, the captain raised concerns about Ms Romero's competence.

Farstad treated the complaint as one made under its own workplace harassment and discrimination policy (Policy). Farstad investigated the complaint accordingly.

Ms Romero alleged Farstad had breached her employment contract as:

  • the Policy had been incorporated into the contract; and
  • Farstad had not complied with the Policy.

In separate proceedings, a Full Court of the Federal Court found Farstad had breached Ms Romero's employment contract as:

  • the Policy formed part of the employment contract; and
  • Farstad had not complied with the Policy.

The Full Court remitted matters regarding repudiation of contract and costs to the Federal Court.

In the background and due to Farstad's conduct, Ms Romero had determined she could no longer work in the maritime industry and set about a career change.

Decision

This decision concerns the issues of repudiation and damages. The Court found that, despite the breach of contract, the breaches were not of sufficient severity to repudiate the contract. That is, Farstad's conduct did not prevent Ms Romero from continuing employment with the company.

Despite this, Ms Romero was still entitled to damages for the breach of contract. Although Ms Romero claimed $115,759.71 in losses (including costs of studying to facilitate her career change), this amount was rejected. Ms Romero was awarded only $100 in nominal damages. In particular, the Court stated that Ms Romero ceasing her employment in the maritime industry, and taking a new career path, was not a probable consequence of Farstad's breach.


Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2016] FCA 1453

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