When Do Policies Become a Legal Promise to Employees?
IRHR 15/06 A
When do policies become a legal promise to employees?
Do you know if your workplace policies are contractually binding? If they are, both you and your employees have a legal obligation to follow them. Key factors that will help determine if your policies are legally binding are:
- The employment contract expressly states that a particular policy is legally binding
- There is established custom and practice of following or actioning a particular policy
- The policy has been circulated and communicated to employees
- Employees receive the policy before signing or in conjunction with signing their employment contract, and
- Employees have ‘signed off’ on a particular policy
Why does your business need to be aware of policies that are legally binding? In case your policy has more favourable provisions than current legislation – you will then be bound by the policy terms if it meets the above criteria.
Case in Point
A recent Supreme Court of NSW decision highlights how important it is that employers understand how their policies interact with employment contracts and legislation. An employee was retrenched after 11 years service when the Australian business merged with the Australian operations of an International business.
The Australian business had maintained a redundancy policy that had been in place for 6 years. The policy:
- Provided 4 weeks severance pay per year of service
- Provided for the employer to make discretionary ex gratia payment (voluntary additional payments), and
- Contemplated such ex gratia payments to be contingent on the employee signing a deed of settlement and release
The employer declined to pay the employee the redundancy pay, however offered to pay an ex gratia payment if the employee sign a deed of settlement and release. The employee would not sign the deed, therefore was not paid the ex gratia payment.
The employees contract did not have a provision regarding redundancy but did provide that the employee agreed ‘to be bound by the policies of the business as may exist from time to time….’
The court ruled that the redundancy policy, as it stood when the employee was retrenched, was incorporated into his employment contract and was therefore legally binding on the employee. The former CEO was then awarded his severance pay entitlements and an additional ex gratia payments.
What can we learn?
If you either want policies to be legally binding or you don’t want them to become contractually binding, you need an express provision in the employment contract to that effect. For example, you might state in the contract – ‘You are expected to observe the company’s policies and procedures as applicable to you and as varied from time to time. However, these policies do not form part of the terms of your employment and they cannot be enforced by you as a contractual promise.’