08 August 2008

LEGAL - Statements in company policy part of employment contract

The appeal decision of the Full Federal Court in Goldman Sachs JBWere Services Pty Ltd v Nikolich [2007] FCAFC 120 has confirmed that statements of a promissory nature in an employer’s policies may be enforceable as terms of the employment contract. A majority of the Court upheld the original decision of Justice Wilcox, in awarding more than $500,000 damages for psychological injury arising from a breach of such a term. The case illustrates the potential exposure of employers to claims for substantial damages for breach of contract when company policies are not followed.


Peter Nikolich was employed as an investment advisor for Goldman Sachs JBWere Services. During his employment, a decision to re-allocate clients from Nikolich’s team to other financial advisors led to a dispute between Nikolich and his supervisor. Nikolich complained that he was intimidated and threatened by his supervisor, causing him stress. The company’s HR manager investigated the complaint. More than four months passed before the manager concluded her investigation, determining that: the client reallocation was appropriate; the supervisor made no attempts to threaten or intimidate Nikolich; and the company had addressed the situation in the most appropriate way, as it had provided directions regarding any future transfer of clients and the supervisor had stepped down from his managerial role. No further action was taken. During this period Nikolich became very stressed. He later developed a depressive disorder and was unable to work. Unable to return to work, his employment was terminated. Nikolich alleged that his mistreatment by the supervisor and the mishandling of his complaint caused his depressive disorder.

Before commencing his employment Nikolich received a letter of offer of employment (contract) and a lengthy policy document entitled “Working with Us” (WWU). When signing his contract, Nikolich was also required to read and sign certain forms in connection with WWU. Nikolich argued that the company was contractually bound to follow its own policies and that provisions in WWU formed part of his contract. He commenced proceedings against the company on a number of grounds, submitting that the company had breached the contract by breaching those sections of WWU relating to health and safety, harassment and grievance procedures.

At first instance, in Nikolich v Goldman Sachs JBWere Services Pty Ltd [2006] FCA 784, Justice Wilcox held that parts of WWU dealing with health and safety, harassment and grievance procedures contained explicit promises which were terms of Nikolich’s contract. He found the company’s failure to take immediate action to resolve the conflict between Nikolich and his supervisor breached those promises and, accordingly, breached the contract. On appeal, all of the judges held that the harassment and grievance sections of WWU were not contractual. They variously found the language of the sections to be “descriptive” and of an aspirational nature – reflective of the company’s commitment to provide support – and not “a contractual undertaking by Goldman [Sachs JBWere] that none of its employees will ever harass, humiliate or intimidate another”.

However, all of the judges found that the statement – “[Goldman Sachs] JBWere will take every practicable step to provide and maintain a safe and healthy work environment for all people” formed part of Nikolich’s contract. Chief Justice Black held that the statement was not an aspirational statement, stating: “the language used, taken in the context as a whole, points to the statement embodying a contractual obligation”. He found the company’s delay in taking prompt and adequate action in response to Nikolich’s complaint constituted a breach of this obligation. Justice Marshall agreed. Justice Jessup did not consider that the company breached this obligation.

HR tips: Promissory statements in HR policies and even corporate values and mission statements may be incorporated as terms of an employment contract. Employers who do not want their policies to become contractual should avoid using promissory or contractual language. Aspirational statements in policies should be clearly identifiable as such. HR policies should be ‘workable’ and consistent with the real experience in the workplace. Employers must train managers and HR staff in their policies and procedures and monitor the administration and application of the policies.

Complaints and grievances also need to be treated seriously and investigated/actioned promptly and adequately, in accordance with applicable policies, by investigators who understand their role. Apply the golden rule – treat others as you would wish them to treat you. Even if policies and procedures do not form part of the employment contract, employers have contractual duties implied by law, including: to take reasonable care for the health and safety of an employee; to maintain trust and confidence; and, arguably, to take due care to avoid or minimise adverse consequences of an act to an employee.

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