My house, my rules: The “pros and cons” of workplace policies

Sam Cahill, Associate

It is common for employers in Australia to have a suite of workplace policies. Indeed, in recent years, it has become an unquestioned assumption that employers should have written policies concerning a range of workplace issues, including bullying and social media. In this article, we look at the advantages and disadvantages associated with workplace policies, and how an employer can maximise the effectiveness of its policy arrangements.

Benefits of Workplace Policies

Managing legal risks

An employer has various legal obligations with respect to work health and safety and the prevention of certain types of behaviour in the workplace, including discrimination, harassment and workplace bullying. An employer, and its senior officers, may face severe penalties for failing to comply with work health and safety duties. Similarly, an employer can be held vicariously liable for a failure to take appropriate steps to prevent, or respond to, unacceptable behaviour at work. Importantly, an employer can use workplace policies to:

  • provide staff with information concerning work health and safety;
  • explain the types of behaviour that are prohibited at work;
  • outline the disciplinary consequences for engaging in prohibited behaviour; and
  • establish processes for reporting behavioural or safety issues to management.

These policies can assist in managing the employer’s legal risks. By way of example, an employer may be able to rely on its policies to assist in demonstrating that:

  • it complied with its work health and safety obligations;
  • it took reasonable steps to prevent sexual harassment in the workplace, and is therefore not vicariously liable for such behaviour; and/or
  • it had grounds to dismiss an employee who had engaged in unacceptable behaviour in breach of a policy.

However, the mere existence of policies covering these issues will not be sufficient. An employer will need to demonstrate that the relevant policy had been actively promulgated and enforced. This was highlighted in a recent case involving racial vilification in the workplace, in which the Federal Circuit Court made the following assessment of the employer’s policies:

“The official position taken by [the employer] is wholly exemplary. The code of conduct and other documents exhibited to the Court show that, on its face, [the employer] is wholly opposed to any form of racial or other unlawful harassment in employment. The difficulty, however, is that it is one thing to have these policies, no doubt sincerely embraced by the management of [the employer], but it is another to enforce them.”1

The employer in that case had failed to respond adequately to complaints of racist behaviour in the workplace, and thereby failed to enforce its policies regarding racial vilification. As a result, the Court found that the employer was vicariously liable for the unlawful conduct of its employees.

Clarifying expectations and ensuring consistency

Policies can be used to provide employees with clarification regarding the employer’s expectations. By way of example, an employer may have policies regarding appropriate workplace attire and attendance at work. Used in this way, workplace policies can be an effective method of delivering instructions to an employer’s entire workforce. They can also provide a basis for disciplinary action against employees who fail to comply with these instructions.

Policies can also be used to provide guidance to managers, and thereby ensure consistency of decision-making across the organisation. By way of example, a policy may provide guidance on:

  • how and when an employee can be required to provide medical evidence in respect of a period of personal leave;
  • how and when an employee may be issued with a formal warning for misconduct or unsatisfactory performance; and
  • when the employer will provide support to an employee undertaking further study.

Policies of this kind may be especially helpful in organisations where managers are required to make decisions regarding employment issues without assistance from human resources practitioners.

Detriments of Workplace Policies

Limiting employer’s discretion

An employer will often have a significant amount of discretion when issuing instructions to employees and managing issues in the workplace (provided the employer complies with the relevant laws). For example, an employer may adopt one of a number of approaches when responding to complaints made by an employee, or raising concerns regarding an employee’s performance. However, an employer may have a policy that restricts this discretion by prescribing certain requirements, such as a requirement to:

  • provide an employee with a certain amount of notice of a disciplinary meeting;
  • provide an employee with written information regarding an allegation or investigation;
  • complete a workplace investigation within a prescribed period of time; or • provide an employee with a certain number of warnings before terminating his or her employment.

Given the importance of maintaining an employer’s flexibility when dealing with employment issues, we generally recommend that employers refrain from introducing policies of this kind or that policies which do cover these issues retain a level of flexibility within which discretion can be exercised and the consequences for an employer of noncompliance are less onerous.

Legal risk associated with failure to comply

An employer may face legal action from employees if it fails to comply with its own policies. The main avenue of legal redress is for an employee to allege that the policy in question was incorporated into his or her contract of employment, meaning that a breach of the policy amounts to a breach of contract for which (unlimited) damages may be awarded.

Australian courts have recently considered this issue in the following scenarios:

  • An employee’s contract of employment contained a promise to “abide by all Company Policies and Practices currently in place, any alterations made to them, and any new ones introduced”.2 The employer in question had a policy setting out generous redundancy entitlements, but refused to follow this policy in respect of the employee.
  • An employee’s letter of engagement provided that the employer’s policies “are to be observed at all times.” 3 The employer in question had a “Workplace Harassment and Discrimination Policy”, which stated that the company would “handle complaints promptly, with confidentiality, impartiality and with sensitivity to the complainant’s needs”. The company failed to do so in respect of a complaint made by the employee.
  • An employee was required to sign a policy document titled “Working with Us”, which provided that the company would “take every practicable step to provide and maintain a safe and healthy work environment for all people”. 4 The employee argued that the employer breached this policy by allowing him to be bullied at work.

In each of these scenarios, the court found that the promises contained in the employer’s policy were incorporated into the employee’s contract of employment, and were therefore enforceable against the employer under contract law.

Conversely, in a recent High Court decision, the Commonwealth Bank avoided being held liable for failing to follow its redundancy policy as the documentation made it clear that processes outlined in the policy, such as those dealing with redeployment, did not give rise to a contractual entitlement.5

Key takeaways

  • Regularly evaluate whether your organisation’s current policies are necessary and appropriate. In doing so, it is important to distinguish between policies that are designed to protect the organisation (eg, anti-discrimination, work health and safety, sexual harassment, confidential information) and other policies that relate to operational matters (eg, performance management, dress code, study leave). It may be that policies falling into the second category are unnecessary or inappropriate.
  • Ensure that your organisation’s employment contracts expressly state that its policies do not form part of the employee’s contract of employment (and that this wording is also reflected in the policies) and do not use language that conveys a promise to employees or imposes an obligation on the organisation.
  • Ensure that all staff in your organisation, and especially managers, understand and follow your organisation’s policies. This can be done by encouraging staff engagement and providing regular updates and training. Your organisation should strive to create a compelling narrative as to why its policies exist and why they must be followed.

Pushing the Boundaries of Workplace Policies

  • What questions to ask and have answered in the due diligence process
  • What terms and conditions of employment must an incoming employer offer to transferring employees?
  • How does an outgoing employer mitigate liability for termination and redundancy payments?

​“The contract is not enough”: having a valid reason for dismissal

Michael Starkey, Associate

Imagine…

You’re at the end of your tether. For months on end, one of your employees, Steve, has failed to treat his colleagues with respect, failed to organise his time and concentrate on his work while at work, and failed to ensure his work complies with regulatory requirements.

You take a look at Steve’s contract. It allows you to terminate his employment without specifying a reason, as long as you provide him with four weeks’ notice. “Too easy”, you think. You call Steve to a meeting and tell him the company is paying him his notice period and letting him go today. You give him no further explanation, and tell him you don’t have to. Steve can’t believe it, but cleans out his desk, and leaves the office. Later that day, you discover pornographic material on the company phone and laptop Steve left behind. You feel even happier with your decision.

Six months later, it’s you who can’t believe it. Steve has won his claim for unfair dismissal. Among other things, the Fair Work Commission’s judgment says there was no valid reason for the termination of Steve’s employment. Now, your company has to pay him $10,000 in compensation. You wonder… “Where did I go wrong?”

The case

The scenario above is based on a recent case (“Croft”) which demonstrates that employers should not act on a termination with notice provision in a contract to terminate employment “carte blanche”, without providing a reason. This is because such provisions need to be considered in the context of Australia’s broader workplace relations system, which provides employees with access to statutory remedies if their employment is terminated in certain ways or in particular circumstances.

As was held in Croft: “a dismissal without identified reason but reliant upon a purported contractual entitlement to dismiss without reason, provided that notice or payment in lieu of notice was made, would plainly subvert the statutory unfair dismissal laws [which require a valid reason for dismissal related to an employee’s performance or conduct]… In the Australian jurisdiction there is no lawful foundation upon which employment can be created at will.”

Key takeaways

  • In Croft, the employer’s concerns about the employee’s conduct and performance could have been valid reasons for termination, if they had been explicitly relied on, in the right circumstances. However, employers who have concerns about an employee’s performance or conduct should ensure that the employee knows about these concerns (and has an opportunity to remedy them) well in advance of any resulting termination of employment.
  • Further, employers should clearly state the reason an employee’s employment is being terminated in the termination letter. Well drafted termination letters can serve as useful evidence in the event of any claim (whether for unfair dismissal or another cause of action, such as a general protections claim).
  • Interestingly, while Croft reaffirms the established position that misconduct that comes to light after a termination can be relied on as a reason for termination, it was held that, in this instance, the employer was unable to justify the dismissal based on its discovery of pornographic material on the employee’s company laptop and phone. This was partly because there was no policy regulating employees’ use of company equipment, again reinforcing the value of properly implemented policy documentation.

The dotted line … What your employment contracts should look like

You should be reviewing and updating your employment contracts regularly, but the question is – what has to be in them and what can be taken out? Join us as we discuss:

  • Why are contracts needed
  • Unique terms you should consider
  • Drafting contracts to suit different types of employees
  • How policies, handbooks and manuals interact with the employment contract
  • A look at recent case law
  • Best practice for varying contracts

Causes for clauses: Fundamentals of the employment contract

James Zeng, Senior Associate

Many employers have template contracts of employment which are used when employees initially commence employment and when employees are promoted into new positions or change positions.

However, sometimes the person completing the template contract of employment does not always understand why a particular clause should be included as part of an employee’s contract of employment. This article looks at the key clauses found in standard contracts of employment and reasons why such clauses should be included.

1.  Termination

One of the most crucial clauses in a contract of employment is the termination of employment clause. Where the employment is for an indefinite period (that is permanent or ongoing) contracts of employment should clearly outline the circumstances when the employment may be terminated by one or both parties and how the termination of the employment can be carried out by either party. Employers should consider including an express right to make payment in lieu of notice and/or to direct the employee to perform some or none of their duties during the notice period. Employers should also consider types of conduct by the employee or certain events that might automatically trigger the immediate termination of the employment. While misconduct is perhaps the most obvious example, others may include the employee losing a requisite qualification or being charged with certain criminal offences.

The failure to have a proper termination of employment clause means that the employee might be entitled to reasonable notice implied by law. What is reasonable notice in the circumstances will then depend on a number of factors including but not limited to length of service, age of the employee, seniority and the likely period it might take for the employee to find a comparable role in the industry. Reasonable notice has been held by Courts to be up to 12 months in some circumstances. Therefore, it is important that an appropriately drafted termination of employment clause is included in all contracts of employment.

2.  Entire Agreement 

An often overlooked clause is the entire agreement clause. When interpreting contracts of employment, Courts will not consider evidence outside of the contract unless it can be shown that the written contract of employment was not intended by the parties to capture the entire agreement between them.

The failure to include an entire agreement clause in contracts of employment means that verbal representations, written policies and procedures and other non-contractual terms might be considered to form part of the terms and conditions of an employee’s employment. This is not an ideal situation for employers. The purpose of the entire agreement clause is to ensure that terms, whether written or unwritten, outside of the contract of employment are not incorporated into or form part of the written contract of employment.

Employers should be vigilant to ensure that their conduct both during the recruitment process and in the course of the employment relationship is consistent with the entire agreement clause and that all agreed terms are captured in the contract of employment as a stand-alone document.

3.  Policies and procedures

The effect of a clause dealing with policies and procedures under a contract of employment is to:

  • inform the employee that the employer has written policies and procedures;
  • impose a requirement (which also constitutes a lawful and reasonable direction) on the employee to comply with all of the employer’s written policies and procedures at all times in the course of employment; and
  • document a clear intention and agreement between the parties that the employer’s written policies and procedures do not form part of the contract of employment nor do such documents give rise to any contractual rights on the part of the employee.

Serious legal ramifications may arise where the contract does not make the non-contractual effect of polices and procedures clear. For example, the failure by the company to abide by its policies and procedures might give rise to a claim for damages by the employee for breach of the contract of employment or could hamper any disciplinary process an employer may wish to take against the employee for breach of policies and procedures.

4.  Confidentiality 

Contracts of employment will often include a clause requiring the employee to protect and keep secret the employer’s confidential information. A confidentiality clause, while not necessary in all circumstances or types of employment, will be important in situations where the employee deals with or has access to the employer’s confidential information.

5.  Intellectual property 

Intellectual property clauses provide a clear outline of the obligations of the parties under relevant legislation dealing with intellectual property rights and confirm that that the work performed by an employee in the course of employment belongs to the employer. Employers should ensure that intellectual property clauses deal with inventions and designs, copyright and moral rights. This is especially important in the software development and information technology industry.

Employers should also consider provisions dealing with an employee’s misuse of intellectual property belonging to the employer.

6.  Variations 

A contract of employment should include a clearly drafted variation clause that specifies how the contract of employment may be varied by the parties. This helps to reinforce the entire agreement clause (discussed above) and avoid situations where, because of the way the parties have conducted themselves, the parties are taken to have agreed to vary the existing contract of employment.

Often, the nature of an employee’s employment will vary over the term of the employment relationship. Therefore, employers should include a provision (within the variation clause) outlining that the contract of employment continues to apply notwithstanding any change to an employee’s position, remuneration or location. This avoids any potential argument that the employee’s original contract of employment no longer applies because of a change in the employment, or that the notice period is no longer adequate and that a reasonable notice requirement should be imposed.

7.  Absorption 

Absorption clauses are important for employees covered by an industrial instrument such as a modern award or an enterprise agreement. An absorption clause properly drafted will allow the employer to off-set amounts paid to the employee above the minimum required by the industrial instrument against other monetary amounts owed to the employee. Such a clause helps to protect employers against claims by employees for additional entitlements under an industrial instrument, or claims that a payment has not been made in accordance with the industrial instrument.

8.  Workplace surveillance

In addition to any policies and procedures an employer may have on workplace surveillance, employers (especially those based in States with workplace surveillance legislation) should ensure that an appropriate clause is included as part of the employee’s contract of employment constituting notice of workplace surveillance and outlining the employer’s right to monitor and review internet browsing, computer usage and emails. The failure to give appropriate notice will not only result in the employer potentially being in breach of legislation but could also prevent the employer from relying on material obtained through workplace surveillance in any disciplinary process or employment related litigation.

Key Takeaways

  • By understanding the reasons for certain clauses in employment contracts, employers can help ensure that their employment contracts accurately reflect the terms and conditions of the employment relationship and sufficiently protect their interests.
  • Employment contracts should be reviewed and amended whenever there are material changes to an employee’s role, particularly when an employee is moved into a new position.
  • If in doubt as to the effectiveness of a clause, or how a particular clause works, an employer should obtain proper advice, and should certainly do so before making amendments.

Top 5 Unfair Contract Terms

Beverley Thomas, Associate

From 12 November 2016, the Unfair Contract Term (“UCT”) protections under the ASIC Act 2001 (“ASIC Act”) and the Australian Consumer Law (“ACL”) currently only available to consumers will be extended to cover small businesses. Under these provisions, standard form contracts are void to the extent they contain unfair terms but will continue to bind the parties if they can operate without the unfair term. Here are our top 5 takeaways to help you understand what these changes mean for your organisation.

1. What do the amendments affect?

The law will apply to standard form contracts entered into or renewed on or after 12 November 2016 where the contract is for the supply of goods or services or the sale or grant of an interest in land, the upfront price under the contract is under the threshold amount (either $300,000, or $1 million if the contract is for more than 12 months) and at least one of the contracting parties is a small business (employs less than 20 employees, including casual employees engaged on a regular and systematic basis). 

2. How do these amendments tie into my workplace practices?

If your organisation offers to small businesses standard form contracts that are valued at less than the prescribed threshold, then you should review and amend your suite of template contracts to ensure they are compliant with the new protections. Standard form contracts are generally pre-prepared by one (bigger) party with greater bargaining power and offered to the other (smaller) party on a “take it or leave it” basis with little to no scope for negotiation. From a workplace perspective, examples of standard form contracts that your organisation should review include:

  • independent contractor agreements;
  • tripartite agreements between a principal, an entity and its key personnel;
  • consulting services agreements; and
  • labour hire agreements.

3. What is an unfair term?

A term of a standard form contract will be unfair and therefore void if it would cause a significant imbalance between the parties, is not reasonably necessary to protect one party’s legitimate interests or would cause a financial or other detriment to one party if relied upon. Examples of possible UCTs include terms that would enable or permit one party (but not another) to:

  • terminate the contract;
  • avoid or limit performance of the contract;
  • impose a penalty for a breach or termination of the contract;
  • vary the terms of the contract;
  • renew or not renew the contract;
  • vary the upfront price payable without permitting the other party to terminate the contract; and
  • limit the other party’s right to sue another party.

The transparency of the UCTs within the standard form contract will have a bearing on whether the term is considered to be unfair. 

4. What could happen if we don’t comply with the amended UCT Laws

The ACCC or the small business party to the contract may commence legal proceedings claiming that your organisation has breached the UCT protections. It will be the role of a Court to determine whether a term in a standard form contract is unfair and to make orders that remedy any breach of the UCT protections. Your organisation could be liable under the UCT provisions of the ASIC Act and the ACL if a Court finds that you have included UCTs in your standard form contract.

UCTs in standard form contracts will be declared void and unenforceable. However, to the extent possible, the contract may continue to operate without the UCTs. If contractual terms are no longer binding on parties it could dramatically impact the effectiveness of the standard form contract. It could prevent the completion of a project if personnel no longer provide services due to unenforceability of the agreement and the damage to your ongoing commercial relationships may be compromised. 

5. What should our organisation do?

While the amendments to the UCT laws will only apply from 12 November 2016 onwards, now is the time to:

  • review your relevant standard form contracts for any UCTs and the transparency of any terms that could be construed as unfair;
  • consider whether it is necessary for your organisation to offer standard form contracts and whether a more flexible approach can be taken towards negotiating agreements;
  • assess whether the value of your standard form contracts may be in excess of the monetary thresholds for UCT laws applying; and
  • decide whether to have two sets of documents – one to issue to small businesses for contracts within the threshold amount and the other to issue to other businesses in accordance with your usual protocol.

Do the code and the conduct match?

David Weiler, Associate

Last month two former ANZ financial traders brought separate but related actions against the bank following the termination of their employment. The Australian Financial Review has  reportedthat one of the claims is for approximately $30 million in damages for loss of deferred shares and future income.

The reasons for the terminations were cited as “serious breaches” of ANZ’s code of conduct including inappropriate comments over the bank’s internal messaging system. The employees allege that behaviour such as drug use, excessive alcohol consumption and trips to the strip club during work were known about, and in some cases encouraged, by senior members of the bank.

While the actions have not been heard by a court yet and may not ultimately be established, on a general level, the allegations highlight the importance of leaders of organisations doing exactly that, leading. Employers should be aware of the potential difficulties in enforcing a code of conduct if executives and team leaders are not held to the same standard as those that they supervise.

While codes of conduct may be a good reference point, workplace conduct does not occur in a vacuum and festering “grey areas” can cause serious issues when a party comes to the conclusion that the employment relationship should come to an end.

While employers will inevitably need to draw a line in the sand and cannot continue to allow inappropriate behaviour to go on, they should be cautious of acting on the conduct without consideration of applicable workplace laws.

At the same time, employees who feel as though they are part of a “poor culture” must consider their position within the organisation and the impact of their own behaviour on the organisation as a whole.

The conduct alleged in these types of actions, if established, can negatively impact a business’ brand long after deeds are signed or orders are made. Although it is of course better to address these issues before they become ingrained in a culture, there is no better time than today to reflect on how your organisation’s code of conduct matches up with the conduct of its employees (especially those in leadership positions).

Top 5 myths about employment contracts

The contract of employment is the first port of call when determining the rights and obligations of an employee and employer. Unfortunately, contracts are complicated. Read on as we dispel five myths to help make things simpler.

1.  The contract must be signed: while it is always preferable that an employee sign their contract of employment, it is possible to enforce a contract in the absence of a signature in certain circumstances. If an employee has demonstrated unequivocally through their conduct an intention to be bound by the terms of an unsigned contract, they often will be.

2.  Paying “above the award” means the award doesn’t apply: rates of pay and award application are different concepts. An employee who is paid in excess of the minimum rate of pay prescribed by an applicable award will still be entitled to the benefit of the other provisions of that award – for example, those regarding the manner of payment of wages and the process that must be followed in the event of a redundancy.

3.  A worker will be a “contractor” if the contract says so: the way in which a contract describes a worker is just one aspect of determining the nature of the relationship between that worker and the organisation that engages them; it is not final. Other relevant considerations include:

  • the degree of control exercised by each party; 
  • the way in which the worker is paid; and
  • whether the worker is held out to represent the organisation.

4.  Restraints of trade are never enforceable: restraints of trade are among the most complex of contractual provisions, and with good reason. Restraints that, for example, have insufficient regard to the nature of an employee’s role or are against the public interest will not be enforced. But if drafted properly, they can and will often be an appropriate means of protecting an employer’s legitimate interests.

5.  Contractual terms won’t change over time: employers should not assume all is said and done once an employee signs the contract. If, for example, an employee receives a significant promotion or new legislation is introduced, it is possible certain terms will become inoperative or new terms will be implied. Contracts should be reviewed regularly to ensure they are up-to-date and reflective of the employment relationship as it stands.

If you think your contracts might need a spring clean, please don’t hesitate to contact any one of our legal team.

“But you promised!” When workplace policies become binding

A recent decision of the Supreme Court of Queensland’s Court of Appeal, in Gramotnev v Queensland University of Technology [2015] QCA 127, has served as a timely reminder that courts are willing to find that, in certain circumstances, workplace policies impose contractual obligations on employers.

Mr Gramotnev argued that the University had breached his employment contract in eleven ways during nine years of employment. While finding that Mr Gramotnev’s claims against the University were “lengthy, convoluted and highly repetitive”, the Court of Appeal set aside the original judgment dismissing the proceeding. In doing so, it held that the primary judge was incorrect to decide that the University’s Senior Staff Disciplinary Policy (the “Policy”) did not form part of Mr Gramotnev’s employment contract.

The Policy set out, in concrete terms, four phases to be followed in the management of allegations of misconduct made against senior employees. While Mr Gramotnev’s interpretation of the Policy was misguided (in that he argued that it required the University to take certain steps in respect of a complaint made by him, rather than guaranteeing that a particular procedure would be followed in respect of disciplinary procedures leading to his dismissal) the Court of Appeal held that there was nothing to suggest “that if the [University] refused to comply with the procedures of the policy, a staff member who suffered loss or damage could not claim damages for breach of contract”. In reaching this conclusion, it appears significant that Mr Gramotnev’s employment contract stated that his “employment conditions include the provisions of the Manual of Policies and Procedures and relevant University Statutes and Policies as current from time to time”.

Lessons for employers

Whether a workplace policy forms part of an employment contract will depend on

  • the language of the policy; and
  • the terms of the contract.

Policies expressed in “promissory terms” may be held to create contractual entitlements and obligations unless there is a good reason to hold otherwise. In order to ensure they are not inadvertently bound by policies, employers must ensure their employment contracts are drafted to stipulate that policies do not impose contractual obligations on the organisation. Failing to do so can expose organisations to hefty claims for damages if policies (including policies on bullying and harassment, disciplinary procedures, and work, health and safety) are not followed.