Australia: Mind your language: employer's empty promises not so empty after all

Clayton Utz Insights
Last Updated: 25 August 2015
Article by Ruth Thevathasan

Key Points:

Language of promise in company policies can, in certain circumstances, cause the employer to be contractually bound by those policies and exposed to potential liability for damages.

The need for employers to take care when drafting their HR policies and procedures has been highlighted by the Queensland Court of Appeal's decision in Gramotnev v Queensland University of Technology [2015] QCA 127.

Mr Gramotnev was dismissed from his employment in 2009 for serious misconduct. He then brought nearly 400 claims against the University for breach of contract in the Queensland Supreme Court, one of which was a claim that the University had breached the Senior Staff Disciplinary Policy when the Vice-Chancellor failed to act upon the alleged bullying behaviour of Mr Gramotnev's colleague. To make out this claim, Mr Gramotnev would need to demonstrate that the provisions of the Policy which he claimed were breached by the University were terms of his employment contract.

The primary judge dismissed all his claims on the basis that the contents of the Policy were not contractually binding. On appeal, Justice Jackson of the Queensland Court of Appeal delivered the majority judgment and in doing so largely upheld the first instance decision except in one very important respect.

Mind your language

Mr Gramotnev's employment contract appeared to expressly refer to the University's policies. It stated

"Your employment conditions include the provisions of the MOPP [The Manual of Policies and Procedures] and relevant University Statutes and Policies as current from time to time."

However, the Court of Appeal emphasised that an express reference in a written employment contract or letter of offer alone will not be sufficient to characterise the whole of the Policy as contractually binding on the University and Mr Gramotnev.

Consistent with the decision of the Full Federal Court in Goldman Sachs JB Were Services Pty Ltd v Nikolich [2007] FCAFC 120, Justice Jackson stressed the requirement that the relevant provisions of the Policy would need to be written in language of contractual promise in order to be considered binding. Without such language it would be difficult for the reasonable person to conclude that the University intended to be contractually bound by that provision. After all, the legal interpretation of contract is not swayed by what each of the parties actually intended at the time of entering into the contract, but rather what the objective observer or 'reasonable person' is lead to believe by the words and conduct of the parties to the contract - in this case Mr Gramotnev and the University.

In large part, the Policy was aspirational and contained expectations of behaviour or outcomes rather than promises. The Policy did, however, prescribe a very detailed procedure for the Vice-Chancellor to observe when managing allegations of misconduct or serious misconduct against a senior staff member. While the primary judge considered that this procedure did not contain a promise about outcomes, Justice Jackson concluded that they did provide a promise about how such outcomes would be reached and were therefore contractually binding.

Fortunately for the University, Mr Gramotnev did not allege a failure by the University to comply with that procedure and so it was unnecessary for the Court to consider the matter any further. But what if the Court had found that the University had breached the procedure in that Policy? What damages, if any, would flow from a failure to follow a prescribed procedure for investigating allegations of bad behaviour?

Damages, Damages. Wherefore art thou Damages?

The question of damages will, in our view, likely turn on consideration of, and comparison between, the possible outcomes that would, on the one hand, result from complying with the procedure and on the other hand, not.

A procedure for investigating allegations of misconduct is designed to assist an employer to determine, in so far as it is possible, whether the conduct alleged did in fact take place and what mitigating circumstances, if any, there are for the employee's behaviour. The outcome of that procedure, if followed, is a reasonably well informed decision to discipline the employee, which could involve termination of employment. A failure to follow that procedure could result in a decision that is not well-informed and, in the language of unfair dismissal laws, potentially an "unjust or unreasonable" termination of employment.

The actual damage that would flow from this breach of procedure might include, therefore, loss of future earnings and, potentially, hurt humiliation and distress from being dismissed in that manner, and/or for the reason of serious misconduct. The damages could be significant.

So where to now?

Policy incorporation is a complex area. There is no one-size-fits-all method for determining whether an employers' suite of policies are contractually binding and, if they are, whether their provisions can be varied to make them less onerous for the employer.

Nevertheless, this decision highlights that when drafting policies, employers should be mindful of the language used and, where possible, avoid language of prescription and promise when it talks about its own commitments.

To minimise uncertainty (and potential damages claims), employers should consider placing processes for managing and dealing with allegations and complaints of misconduct in a set of manager guidelines. Those manager guidelines should support the formal policies and be written in non-binding language.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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