Risks in Workplace Policies

Workplace policies and manuals are essential tools for setting expectations, managing employee conduct, and streamlining organisational procedures. Recent cases have highlighted the potential pitfalls and liabilities that can arise for employers when these policies are deemed to form part of employment contracts. We examine the complexities when policies are incorporated into employment agreements and provide guidance for employers to reduce associated legal risks.

The Risks of Policy Incorporation

Several recent cases have demonstrated the dangers of policy incorporation.

In the landmark case of Nikolich, the Court determined that some provisions of the company policy were of a promissory nature and were incorporated into the employment contract and imposed contractual obligations on the employer. The employer was found to have breached the contract after failing to comply with its own policy during an employee’s termination.

The case of Elisha further emphasised these risks. In this case, an employee was dismissed following a workplace incident. Having analysed the wording in the employment contract and the employer’s disciplinary procedures, the Supreme Court ruled that these policies did form part of the employment contract. Therefore, in terminating the employee without following the steps mandated under the procedures, the Court held that the employer breached the employment contract and awarded the employee almost $1.7 million in damages, including compensation for ongoing psychiatric injury and economic loss.

In contrast, the case of Robinson the employment contract contained an express term providing that the benefits provided under company policies are discretionary in nature and did not form part of the employment contract. The Court found that the policy was not incorporated into the employment contract, hence the company was not contractually obliged to give effect to it.

Recommendations for Small Business Owners

These cases highlight the importance of drafting clear and concise clauses to reduce the risk of policies being unintentionally brought into the the employment contract.

Employers should consider taking the following measures:

1. Use clear language in employment contracts stating that workplace policies do not form part of the contract. This approach, as seen in Robinson, can provide a crucial safeguard against policy-related contract breach claims.
2. Regularly review and update employment contracts, especially older agreements that may lack protective clauses regarding workplace policies.
3. Include clauses in employment contracts that explicitly provides for the employer’s right to unilaterally vary, replace, or withdraw workplace policies at their discretion.
4. In policies include statements clarifying their non-contractual nature and the employer’s ability to modify them as needed.
5. Use appropriate language in workplace policies and employee handbooks. Avoid making absolute commitments or promises that may not be practical in all circumstances.

By taking these precautions, employers can maintain the flexibility and effectiveness of their workplace policies while minimising the risk of unintended contractual obligations that may give rise to costly legal disputes.

If you require assistance in drafting an employment contracts or workplace policies, or advice regarding any employment or commercial matter, we are available to assist you with any questions you have.

How We Can Help

Our Corporate & Commercial team is available to assist with any questions you may have. Please email us your enquiry.

* Links in this article are current at the time of publication.