Do you know if your workplace procedures and policies form part of your employment agreements with your staff? You might want to check…
The High Court’s recent decision in Elisha v Vision Australia (Elisha) has significant implications for employers who incorporate workplace procedures and policies into employment contracts. Mr Elisha, an employee of Vision Australia, was dismissed following an investigation into alleged misconduct. The investigation process failed to adhere to the company’s own disciplinary procedure, which was incorporated into Mr Elisha’s employment contract.
Mr Elisha was not informed of all the allegations against him and not given an opportunity to respond to them. Consequently, Mr Elisha suffered psychiatric injury and sued Vision Australia.
The High Court ruled in favour of Mr Elisha, finding that Vision Australia’s breach of contract caused his psychiatric injury and awarded him damages. This decision is important because it marks a significant shift in the law and expands the circumstances in which employers may be liable for psychiatric injury.
The clause in Mr. Elisha’s employment contract that incorporated workplace policies into the contract was located under the heading “Other Conditions.” The specific wording of this clause was:
“In addition, Employment Conditions will be in accordance with regulatory requirements and [the employer’s] Policies and Procedures. Breaches of the Policies and Procedures may result in disciplinary action.”
The employment contract also included an “Acceptance” statement signed by Mr. Elisha, stating that he agreed to “comply with … all other Company Policies and Procedures.”
This further reinforced the intention to create contractual obligations related to the policies.
The key takeaway for employers is that without careful drafting and consideration, incorporating disciplinary and termination policies and procedures into an employment contract can have unintended consequences. The following points highlight the implications of this ruling for employers:
Breach of Contract
When policies and procedures are incorporated into an employment contract, any breach of those policies or procedures can constitute a breach of contract. This can result in a damages award, especially in cases of termination.
Specific Assurances and Promises
While policies can include aspirational statements that may not have a contractual effect, specific assurances and promises within these policies can be contractually binding. For instance, obligations to provide an employee with written allegations and to hold a disciplinary meeting to allow the employee to respond, can be considered contractual obligations.
Liability for Psychiatric Injury
Following the decision in Elisha, Employers can be liable for psychiatric injuries suffered by employees resulting from a breach of contractually binding policies and procedures, when at the time of entering the contract, it should have been reasonably contemplated by the parties that a breach of the contract could lead to psychiatric injury.
This is a departure from a 1909 House of Lords decision in Addis v Gramophone that was widely interpreted as preventing employees from recovering damages for psychiatric injury arising from the manner of their dismissal. This case established a principle that damages for breach of contract in employment terminations could not include compensation for “injured feelings,” distress, or the difficulty of finding new employment. However, the High Court in Elisha deemed reliance on Addis misplaced, as it did not definitively preclude such damages and had been overtaken by subsequent legal developments.
What can you do to mitigate the risks associated with incorporating policies and procedures into employment agreement?
It has often been the case that employers have been unable to enforce or rely on policies and procedures outside of the employment contract, in the context of managing such things as the failure of employee to adhere to workplace rules or meet their KPIs. Therefore, employers have adopted the approach of incorporating those policies and procedures into the employment contract.
As Elisha shows, this strategy is a double edged sword. The flip side to this strategy means you need to carefully review all your policies and procedures as if they were forming a contract with every employee. Often policies and procedures are aspirational and vague, and it is a feature of contract law that aspiration and vague terms lead to disputes, and as this case demonstrate may lead to unexpected outcomes for an employer.
Further, if you change your policies and procedures after an employment contract is signed, it is not enforceable against the employee until the employee’s next salary review and then only if you ask your employee to sign a new employment contract incorporating the updated policies and procedures, consideration for such an agreement being their pay increase.
Employers should consider the following steps to mitigate the risks associated with incorporating policies and procedures into employment contracts:
- Turn your mind as to whether policies and procedures form part of the employment contract.
- If so, make sure managers and HR departments are familiar with those policies and procedures and follow them.
- If you are updating policies and procedures that are intended to form part of an employment agreement, make sure they are accepted by the employee who acknowledges consideration for the change being their pay review.
Elisha highlights the importance of careful drafting and implementation of workplace policies and procedures. It also underscores the recent changes to WHS legislation that place on an employer an obligation to proactively manage psychosocial hazards in the workplace.
How we can help
We can help you to decide whether to incorporate workplace policies and procedures into your employment contracts and help you to draft appropriate employment agreements for your workplace.
Call us on (02) 9199 8597 or email us to get started.
The information contained in this post is current at the date of editing – 16 December 2024.
