Flawed Investigation Breaches Contract: Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177

It is not uncommon for a workplace investigation to involve multiple complainants and even a counter-complaint from a respondent. It is imperative that the investigator adopts a careful and thorough process with close attention to the organisation’s grievance procedure, if one exists. Where there is more than one complaint, the investigator must resist the temptation to conflate the issues. The separate complaints must each be investigated.

In the case of Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177 (22 December 2014), the full Federal Court provides an example of why it is important for investigators to adhere to the grievance procedure and take the time to ensure that the investigation process is sound.

Background to the Case

The case involved an employee of a shipping company who, at the relevant time, was the second officer aboard a supply ship during a 12 day voyage in late 2011. The second officer reported to the Master of the Ship. During the voyage, there were problems on the bridge between the Master and the second officer. These problems came to a head when the second officer made it clear to the Master that she was having difficulties with his style of management. The second officer subsequently felt it necessary to hand over control of the ship to the Master – during a period when she was delegated control – because she was having a crisis in confidence. Following an exchange with the company’s human resources personnel, a replacement officer was arranged and the second officer disembarked the ship. During that exchange, the Master reported that the second officer was incompetent.

Days after she returned home, the second officer wrote an email to the company’s General Manager and to human resources personnel, alleging that the Master had bullied her during the voyage. She commented that the Master’s behaviour needed to change and that this was a matter for the company to address. The second officer did not make any reference to the Workplace Harassment and Discrimination Policy (the Policy) in her email and did not indicate that her email was a formal or informal complaint.

Action by the Company

Human resources subsequently contacted the Master about the allegations in the second officer’s email. After speaking to the Master, human resources contacted the second officer and requested that she attend a meeting about the events during the voyage. The second officer had anticipated that the meeting would be a casual debrief about the voyage. However, the discussion was more focused on pressing the second officer on concerns about her competence, including her temperament. The company ultimately rejected the second officer’s claims that the Master had bullied and harassed her during the voyage, concluding that there had been a “clash of personalities and communication styles”.

The second officer was asked to sign a declaration confirming that she had read and understood the outcome of the company’s investigation. She refused to do so and instead lodged a complaint with the Australian Human Rights Commission, alleging that the company had treated her, by reason of her sex, less favourably than it would have treated a male in similar circumstances. The complaint was ultimately pursued in the Federal Court. The second officer also argued that the Policy formed part of her contract of employment. She claimed that the company’s investigation process breached the Policy and, therefore, breached or repudiated her contract of employment, causing her to suffer loss and damage.

The Two Claims in Court

The primary judge rejected the second officer’s claim of sex discrimination. This finding was not challenged on appeal. The primary judge also rejected the second officer’s claim that the Policy formed part of her contract of employment. Even if it had, the primary judge held that the company had not so sufficiently departed from the Policy so as to constitute a breach or repudiation of the contract. The second officer appealed the decision with regards to the contractual significance of the Policy.

In this instance, the contract was in the form of a letter of engagement provided to the second officer in January 2011. The letter included the following key sentence “In addition, all [company] policies are to be observed at all times”.

While it is common for a workplace policy to include a disclaimer making it clear that the policy does not form part of an employee’s contract of employment, there was no such disclaimer in the Policy in this case.

The Judgment

The Full Federal Court concluded that the Policy was part of the second officer’s employment contract. The Court considered that the following factors weighed in favour of this conclusion:

• the language of the Policy makes it clear that there was an expectation by the company that it involved mutual obligations;
• the Policy formed part of an education program provided to the employee at the commencement of her employment;
• the employee was required to sign the Policy; and
• the benefit provided by the Policy was consistent with the statutory obligations of the parties; and
• there was regular reinforcement of the company’s policies on an ongoing basis.

The Court went on to find that the company had breached the Policy and, therefore, the second officer’s employment contract.

The most significant breach, however, was in the company’s:

In all, this company’s investigation “fell short of the standard and procedure promised under the Policy”. The Court set aside the orders of the primary judge and declared that the company had breached its employment contract with the second officer. The question of repudiation and damages for breach of contract were remitted to a trial judge for rehearing.

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Botched investigation breaches contract