Marathon harassment case limps over the finish line

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Marathon harassment case limps over the finish line

A lengthy litigation case based on discrimination and harassment claims might finally have come to an end. And it offers valuable lessons for employers on the importance of workplace policies and employment contracts.

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A lengthy litigation case based on discrimination and harassment claims might finally have come to an end. And the ruling serves as a warning to all employers.

In particular, the employer’s failure to adhere to workplace policies, and the incorporation of workplace policies into contracts of employment, were two factors that told against the employer in this litigation.

A Full Federal Court has now made what could be final orders in relation to damages, contractual claims and costs disputes. 

History of litigation and underlying facts


The parties have been involved in extensive disputation since 2011.

Lisa Romero pressed numerous claims for a variety of forms of relief, including claims for substantial damages as a result of her alleged treatment by her employer (Farstad Shipping). 

The claimant/employee was a second officer aboard a supply ship. During a 12-day voyage, there was a major clash with the ship's captain, Captain Martin, and Ms Romero.

Ms Romero emailed Farstad about several issues including her concerns in relation to her treatment by Captain Martin, essentially alleging bullying and harassment. Farstad commenced an investigation in accordance with its Workplace Harassment and Discrimination Policy. Farstad concluded Captain Martin had not breached the policy.

Ms Romero lodged a complaint to the Australian Human Rights Commission (which then proceeded to a hearing in the Federal Court) alleging that Farstad had treated her, by reason of her sex, less favourably than it would have treated a male in similar circumstances.

In addition to the claims in the Federal Court, Ms Romero pursued claims for workers’ compensation in the Administrative Appeals Tribunal. By a decision of the Tribunal and a Deed of release entered into between the parties, Ms R was awarded compensation of $580,000 in respect of a mental condition she sustained as a result of the events. 

Over and above this compensation, she pursued claims in Federal Court proceedings – ending with the 2017 proceedings (appeal for additional damages and appeal re costs). 

Claims made by applicant


The initial proceedings commenced by Ms Romero followed an investigation into the events by her employer and led to claims under the Disability Discrimination Act 1992 (Cth) (DD Act) and s14(2) of the Sex Discrimination Act 1984 (Cth) (SD Act) and claims for alleged breaches of her contract of employment. 

Specifically in relation to her contract claim, Ms Romero asserted that Farstad had failed to comply with various provisions of its own Workplace Harassment and Discrimination Policy which, she argued, had been incorporated into her contract. Initially her claim was dismissed in the Federal Court, both under the SD Act and in relation to her contract claim. The judge in the initial proceedings held that the policy did not form part of Ms Romero’s contract and, even had it done so, Farstad’s departure from it did not constitute any breach of the policy or the contract and did not constitute a repudiation of the contract: Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCA 439.

On appeal, the appeal court in Full Federal Court (No 1) case held that the policy did form part of Ms Romero’s contract, Farstad had not complied with it and had therefore breached the contract. 

A rehearing on a costs question before the primary judge was delayed due to the progress of the proceedings in the tribunal where Ms Romero had brought a claim seeking workers’ compensation under the Seafarers Rehabilitation and Compensation Act 1992 (Cth). Settlement of this claim occurred in November 2015. Orders were made by the Tribunal on 17 December 2015, giving effect to the settlement. 

Ms Romero now appealed from the 2014 appeal in this 2017 appeal case. The 2017  appeal was against the primary judge’s award in her favour of nominal damages ($100) only in Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2016] FCA 1453 (this was the damages judgment). 

Additionally, Ms Romero appealed in this 2017 case against the costs orders made by the primary judge in a supplementary decision in Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 4) [2017] FCA 120 (this was the costs judgment). In the costs judgment the primary judge made costs orders adverse to Ms Romero. 

Orders in 2017 appeal case


Orders in latest Full Federal Court case reported here were:

The appeal of the applicant/complainant seeking additional damages was dismissed. The $580,000 awarded by the tribunal was considered fair compensation and additional damages were not justified in the court’s view – confirming the initial assessment.   

The costs orders made on 20 February 2017 were varied by replacing that order with a new order: “The respondent (employer) pay 80 per cent of the applicant’s party and party costs incurred prior to 18 December 2015 and the applicant pay the respondent’s party and party costs incurred thereafter.”

Policy was part of contract of employment


The Federal Court had initially found there was no sex discrimination and no breach of company policy by the employer. Ms Romero appealed the decision. She argued that the policy formed part of her contract of employment and Farstad had breached the policy and thus repudiated her contract. She claimed she had suffered loss and damage as a result.

On appeal, the Full Court of the Federal Court in 2015 decision held that the policy formed part of Ms Romero's contract of employment.

The factors leading the court to that conclusion included:
  • The wording of Ms Romero's letter of engagement, which stated that all Farstad shipping policies were to be observed at all times
  • The wording of the policy contained mutual obligations and the court found these were clearly ascertainable
  • The policy was part of an education program offered as part of the employment and Ms Romerowas required to sign the policy, implying it was contractually binding; and
  • The policy was provided/presented at the same time as the contract of employment.
The Full Court found that Farstad breached the policy by not following its own investigation procedures that were specified step by step in the policy. It followed that Farstad had breached the contract of employment. Damages for breach of the contract of employment were to be specified later. 

In the end the tribunal award of $580,000 was considered adequate by the Federal Court, without an additional amount being awarded .

More on policy adherence and incorporation of a policy into contract


The Full Court in the 2014 decision noted one argument against policies being incorporated was that the power an employer may have to unilaterally vary a policy, so it was not strictly 'contractual'. It was clear from case law, however, that this will not necessarily indicate that a company’s policy was not part of the contract. 

At no time did Farstad adequately document any detailed account by Ms Romero of her complaints or document the response of Captain Martin. The focus of Farstad with Captain Martin was listening to his complaints about Ms Romero. Other witnesses were not interviewed.

The two lines of inquiry should have been kept separate – Ms Romero’s complaint and the alleged performance issue Farstad had with her. It was appropriate for the company to pursue Captain Martin’s challenges about Ms Romero’s competency, but there were procedures designed by the enterprise agreement which were to be followed. 

The Full Court pointed out that it was also appropriate that if a complaint were made under the policy, it would be pursued in accordance with a certain standard. Not only was no formal complaint actually lodged, but the standard applicable under the policy, had it been lodged, was not met. The policy, and thus the contract, was breached by Farstad.

Lessons for employers


This detailed and complex litigation provides some important lessons for employers seeking to avoid or minimise large and damaging claims arising from discrimination and related complaints. 

A critical point is a clear statement of intention as to whether certain policies form part of the contract of employment or not. Either way, the policies and contracts of employment should say so.

Employers should review their existing employment contracts and company policies to see whether the policies are contractually binding.

When preparing company policies and employment contracts, employers should ensure that both documents expressly state that company policies are not incorporated into the employees' contracts, if that is the intention. This will ensure that in the event an employer does not follow a particular policy, an employee will not be able to claim damages (often considerable) for breach of contract.

Policies should generally be regularly reviewed and updated in accordance with the law and good practice.

Unlawful discrimination


Even where policies are not part of contracts of employment, breach of policies can form part of an unlawful discrimination complaint. Policies should be kept up to date and properly administered.

The bottom line: This litigation highlights some fundamental steps employers need to take in relation to contracts and policies. Contracts and policies should be carefully drafted and varied if need be to reflect the law and good practice. If an employer does not want a policy to have contractual effect, redraft the policy, clearly stating this point of interpretation – ie policies are not part of the contract of employment. Employees should be fully informed of this clarification taking place.

Employers that do not want to incorporate policies into contracts should make sure contracts and policies say this. Employers should be careful to follow their own policies and record their adherence. Any investigations should be conducted fairly – respecting all parties.

[Full text of the latest Full Federal Court (containing links to previous litigation): Romero v Farstad Shipping (Indian Pacific) Pty Ltd (No 3) [2017] FCAFC 102]

[A 2014 Full Federal Court had previously handed down a decision on the substantive claims that have been generally confirmed in the 2017 decision: Romero v Farstad Shipping (Indian Pacific) Pty Ltd [2014] FCAFC 177 (22 December 2014)]
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