POLICIES INCORPORATED INTO EMPLOYMENT CONTRACTS
Recently, the Full Court of the Federal Court handed down its decision on appeal in
Goldman Sachs JBWere Services Pty Limited v Nikolich [2007> FCAFC 120. The Full Court
upheld the original judgement of Justice Wilcox who had ruled that the company had breached
essential terms of its contract of employment with Mr Nikolich and awarded him $500,000 in damages plus interest.
Mr Nikolich commenced employment with Goldman Sachs JB Were (‘Company’) in May 2002 as
an investment adviser. He was provided with a policy document upon commencing his employment
which was titled “Working with Us” (‘Policy’). The Policy dealt with various matters including safety,
harassment, integrity and contained a grievance procedure. The Company requested that Mr Nikolich
sign and return a form acknowledging certain provisions of the Policy. Subsequently, in July 2003,
Mr Nikolich filed a grievance against his manager alleging intimidation. This was investigated and rejected by
the Company’s HR Department 5 months later. Mr Nikolich requested a review of the finding but this did not
resolve the grievance. In August 2004, Mr Nikolich went on extended sick leave. In December 2004,
the Company was advised by Mr Nikolich’s solicitors that if Mr Nikolich was to return to work it would
adversely affect his health. The Company’s response to this was to state that given Mr Nikolich did not intend
on returning to work or was not able to return to work in the foreseeable future, it considered his employment
had been terminated.
Mr Nikolich commenced legal proceedings claiming that the Company breached his contract of employment;
that his employment was unlawfully terminated under the Workplace Relations Act 1996 on grounds of
mental disability or temporary absence due to illness or injury; and that the Company had breached the
Trade Practices Act and the Fair Trading Act (NSW) by engaging in misleading and deceptive conduct.
Justice Wilcox ruled at first instance that the company had breached parts of the Policy in:
• failing to provide a safe and healthy workplace;
• failing to prevent Mr Nikolich from being subjected to threatening and intimidatory behaviour
in accordance with a harassment provision; and
• failing to adhere to the grievance and dispute handling procedure contained in the manual by
not carrying out an adequate and timely investigation of the grievance.
These breaches were found to have caused Mr Nikolich psychological damage and damages were
recoverable for personal injury which includes psychiatric illness. Parts of the Policy that were
found to be terms of Mr Nikolich’s contract of employment on the basis that the Company
“expected” him to comply with “office memoranda and instructions”. Accordingly, Mr Nikolich was
awarded $500,000 in damages for lost income (approx 2 years) and loss of future earnings for 6 months
on the basis it would take him that long to find suitable employment. Justice Wilcox rejected the claims for
unlawful termination and breaches of the Trade Practices Act.
The Company lodged an appeal against the decision that it had breached Mr Nikolich’s contract of employment.
On appeal it was held by the majority of the Full Court that the safety provisions in the Policy; namely
those provisions referring to the provision of a safe workplace and the prevention of staff being exposed to
intimidatory behaviour, were held to be a term of Mr Nikolich’s employment contract based on the language of
the Policy and the circumstances in which is was provided to Mr Nikolich. It was further held that the Company had
breached these terms by failing to promptly investigate the grievance taking into account Mr Nikolich’s mental state
at the time. The Full Court also found that the delay of 5 months was partially responsible for Mr Nikolich’s
psychological injury and that this injury was foreseeable.
The decision of Justice Wilcox was overruled in terms of the grievance and dispute handling procedure and the
harassment provision contained in the Policy on the basis that they did not form part of his contract – this decision
was reached based on the specific wording of these provisions.
Main implications for Employers:
• Employers should be aware that provisions of policy manuals may form part of the contract of employment with
their employees. Therefore, if an employer was to breach a part of the policy manual which forms part of the
contract of employment it may be liable for substantial damages for breach of contract.
• Employers should ensure that they are aware of the provisions in their policies and do their best to comply with
them at all times, including ensuring that grievances are dealt with promptly and thoroughly.
• The risks that this case highlights can be avoided with well drafted policies and contracts.
• If the language used in the policy manual is promissory or prescriptive in nature, then it is more likely to be
incorporated into the contract of employment. If the language used is aspirational, advisory or descriptive in
nature then it is less likely that it will be deemed a term of the contract of employment. Examples of promissory
and prescriptive language include words like: ‘will,’ ‘must,’ ‘shall.’ Examples of aspirational, advisory or
descriptive language include words like: ‘aims,’ ‘strives,’ ‘values.’ Employers should consider re-wording the
content of their policy manuals if they contain promissory and/or prescriptive language.
• Employers should review the procedure they follow when giving employees employment policies.
• Requiring an employee to sign a document confirming that they have read and understand a particular section
of a policy manual may have the effect of incorporating the relevant section of the policy manual into the
employee’s contract of employment.
• This decision is a decision of the Full Court of the Federal Court and accordingly it carries considerable judicial
weight. Employers should not disregard the Full Court’s finding and should seek legal advice when preparing or
reviewing policies and contracts of employment.
If you would like further information in relation to the information provided in this Employment Update please contact
Aitken Legal.
This Update has been prepared by Aitken Legal. We recommend that you seek legal advice before applying the information to particular circumstances.
