Updated: Sep 30
It’s no longer a one way street! Policies and procedures can form part of the employment contract.
Not for profits and decision maker’s alike need to be aware of a recent decision that has far reaching implications for what was traditionally regarded as forming part of the contract of employment.
Generally considered to be part of an employer’s right to issue lawful and reasonable directions, policy and procedure manuals were not considered to bind the employer. They did, however, impose a moral and ethical obligation on an employee to adhere to and obey them. As they did not form part of the contract per se, employers were able to update or change them at their whim and still bind employees.
Employers embraced the notion of developing clear principles for non contractual matters such as ‘open door’ policies for the management of business or personal issues, family friendly policies, treatment of disputes and other such matters. As charming as this sounds, the reality and practicality of adhering to these policies can place quite a severe strain on the resources of some Not for Profits.
However, the following case highlights that the courts are no longer willing to accept that it is a one way street, and have held that the policies can form part of the contract and therefore bind employers as well.
This case involved an employer’s OH&S, harassment and grievance procedures. At the time of signing his contract, Mr Nikolich was given a copy of the companies HR manual ‘Working with Us’. He regarded the contents of this document as an express part of his contract and therefore binding on both him and the employer. His contract contained the following relevant clause:
‘From time to time, the Company has issued, and will in the future issue, office memoranda and instructions with which it will expect you to comply as applicable.’
The document went on to state that:
the firm had a responsibility to provide a safe working environment which was the responsibility of everyone within the company;
the grievance procedure provided for an ‘open door’ policy and included Department Heads all the way through to the Chairman. It provided for a culture that was built on respect and courtesy.
Subsequently, a number of incidents occurred which created major conflict in the office and eventually led to Mr Nikolich having to take stress leave. He claimed that the company was under a duty to provide a safe working environment and to deal with any conflict in an efficient and expeditious manner, having respect for all those involved. By not doing so they were in breach of contract.
The company argued that the document did not form part of the contract, but the judge did not accept that argument and found that the phrase, ‘comply with,’ was specific enough to incorporate the HR document into the contract. It therefore bound the employer as well as the employee.
How does this affect employers?
The court is not as limited in looking at the contract to determine employer’s obligations and can now also look to the policy and procedures manual. What this means is that if you incorporate a term into the policy to the effect that ‘the manager will have an open door policy and is happy to deal with issues as they arise,’ you could find yourself liable if you do not deal with the matter in a timely and effective manner.
Interestingly, the court also foreshadowed that employees could seek damages even where they did not experience injury or economic loss; ie they were just upset.
What can I do to reduce any claims?
Review your manuals and ensure that you can commit to all of your policies and procedures. If you do have policies and procedures – follow them!
Only insert clauses that you can deliver on.
Ensure that all staff are aware of their obligations.
Do not give your employees the policy and procedures manual at the same time that they sign their contract. Preferably do not refer to it in your employment contracts.
If you have a grievance procedure, follow it and carry out a detailed investigation into the matter with a well documented plan from beginning to end.
This article was provided by Warwick Ryan, a Partner with Central Coast Business Lawyers. He practices exclusively in the area of Employment Law and holds a Masters in Employment Law from Sydney University. His practice predominantly involves acting for employers in employment/industrial law disputes including acting for aged care facilities and Not For Profit organisations. Please feel free to contact him on 02 4367 4366.