Australia: Romero v Farstad Shipping saga - A reminder to get your approach to company policies right

There has been further development in the Romero v Farstad Shipping saga, with the Full Federal Court this week dismissing each of Ms Romero’s appeal grounds in relation to damages.¹ The Court’s decision should signal the end of a drawn-out dispute between the parties and has highlighted the complex legal issues that can arise from the interaction between company policies and employment contracts.

This latest decision is a timely reminder for employers to:

• consider expressly excluding company policies from employment contracts;
• remain mindful that where a contract of employment requires an employee to observe a policy, the employer may be in breach of that contract if it does not comply with its own obligations under the policy – even obligations that are procedural in nature; and
• reconsider workplace policies to ensure they avoid unintentionally imposing unnecessary obligations on themselves.

Background

This decision closes out the latest in a string of disputes between Ms Romero and her former employer, Farstad:

• In late 2011 Ms Romero was employed as a maritime officer by Farstad aboard a supply vessel. Following a falling out with the ship’s master, Captain Martin, she was relieved from duty at her request. Shortly after, Ms Romero emailed Farstad alleging ‘relentless and targeted bullying’ by Captain Martin. Farstad commenced a formal investigation purportedly in accordance with its workplace harassment and discrimination policies (the Policies). However, Farstad’s investigation did not centre on Ms Romero’s complaints but rather on allegations raised by Captain Martin about her competence, capacity and temperament.
• Ms Romero initiated proceedings in the Federal Court alleging (among other things) that Farstad’s failure to comply with its Policies in carrying out its investigation breached her contract of employment because the Policies had been incorporated into her contract. This argument failed at first instance.²
• Ms Romero appealed that decision and in 2015, the Full Federal Court held in her favour, finding that the Policies did form part of her employment contract, and that Farstad therefore breached her contract by not complying with the Policies.³ Orders were made remitting the question of damages to a single judge of the Federal Court for rehearing.
• In 2016, the rehearing before Justice Tracey awarded Ms Romero nominal damages of only $100 (a second hearing was held before Tracey J as to costs).⁴

Ms Romero appeals Justice Tracey’s decision to award nominal damages

Ms Romero appealed Justice Tracey’s decisions on a number of grounds, including the decision to award only nominal damages. She raised four grounds of appeal on this point, arguing that Justice Tracey erred in:

1. failing to find that the Policies were an essential term of the employment contract, so that any breach justified termination;
2. failing to find that Farstad had repudiated the contract;
3. finding that Farstad’s breaches were not sufficiently serious to justify termination of the contract; and
4. finding that damages resulting from a loss of career in the industry and subsequent retraining costs were too remote.

This week’s decision by the Full Court (Allsop CJ, Rares and McKerracher JJ) dismissed all four of these grounds of appeal. In doing so, the Court confirmed the Policies were not ‘essential terms’ of Ms Romero’s employment contract with Farstad.

The Full Court’s appeal decision

In relation to the first appeal ground, the Court noted that Ms Romero had entered into the employment contract before she was made aware of the Policies, the employment contract could operate effectively without the Policies and the Policies were subject to variation. Accordingly, it could not be said that the Policies were ‘essential’ to Ms Romero’s entry into the employment contract.

In relation to the second and third appeal grounds, the Court emphasised Farstad’s eagerness to retain the services of Ms Romero and facilitate her active return to work. As such, Farstad neither repudiated the employment contract nor perpetrated a breach serious enough to justify termination.

In relation to the fourth appeal ground, Ms Romero claimed damages for no longer being able to work in the shipping industry along with costs for reskilling as a lawyer. The Court held that these damages were too remote as a complete change of career was neither the natural or probable consequence of Farstad’s breaches of the Policies nor within the reasonable contemplation of the parties as the probable result of the breaches when they entered into the employment contract. 

Action for employers

While this saga may have drawn to a close, it is a significant reminder for employers to seek to avoid these issues by expressly excluding company policies from their employment contracts – and for employers to ensure that their policies are well-drafted, avoid imposing unnecessary obligations, and are able to be understood and complied with by the relevant parties.

Footnotes

1. Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2017] FCAFC 102.

2. Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCA 43.

3. Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 2) FCAFC 26.

4. Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2016] FCA 1453 (Tracey J's damages decision); Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 4) [2017] FCA 120 (Tracey J's costs decision).

This article was written by Miles Bastick, Partner, Courtney Ford, Senior Associate, and Jack Skilbeck, Paralegal. For more information on this topic please contact: