The Approach to the Question
34 One point that is clear is that whether or not a policy will be incorporated into a contract of employment will depend upon the parties' intentions as objectively ascertained: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 (at [40]-[41]).
35 In approaching the task of ascertaining the parties' intention, the starting point will be the language of the contract. The language adopted is to be viewed in context, not in abstract isolation. Further, regard must be had to the purpose and object of the transaction.
36 In Toll (at [40]), the High Court said (footnotes omitted):
This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
37 The observations in Toll were directed both to the question of whether there is a binding contract and also to what it contains. The focus in the present analysis is on the latter question. As Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ said in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 (at [10]) (footnotes omitted):
In Codelfa, Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract: "presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating." Such statements exemplify the point made by Brennan J in his judgment in Codelfa:
The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.
38 In McCormick v Riverwood International (Australia) Pty Ltd (1999) 167 ALR 689 at first instance, Weinberg J (whose approach was upheld on appeal in Riverwood (2000) 177 ALR 193), set out the following principles (at [74]-[77]) :
74 In ascertaining the meaning of an expression contained in a contract such as the requirement that the applicant "abide" by all "Company Policies and Practices currently in place, any alterations made to them, and any new ones introduced", the approach to be adopted differs from that taken in statutory interpretation. It must rest on the premise that the contract was made in good faith with the object of at least potential mutual benefit by due performance.
75 The court approaches the task of ascertaining the meaning of the parties' expressions from an objective point of view. In the case of a disputed clause in a commercial agreement "the essential question is what would reasonable business people in the position of the parties have taken the clause to mean": Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834 at 840 per McGarvie J. In Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201 Lord Diplock said:
… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.
76 The parties may be bound by the meaning reasonably to be inferred in the circumstances, even if it does not conform to the interpretation advanced by either. It is not necessary that a statement should be subjectively intended to be a term of a contract in order to be one; it is enough if it can reasonably be so understood.
77 In Cheshire & Fifoot's Law of Contract (7th Aust ed, 1997) it is stated (p345) that:
In interpreting the expressions of the parties, the court will consider them in their context. Except to the extent to which evidence is inadmissible, the court will as a matter of course take into account the objective background of the transaction, that is, its factual matrix, genesis and aim, and the common assumptions of the parties.
39 Analysing the language, on appeal, North J also emphasised mutuality of obligation, noting (at [107]):
107 The association of the expression "abide by" with the reference to the manual, essential characteristics of which have been analysed earlier in these reasons, suggest that the clause was intended to oblige Mr McCormick to comply with his obligations and also to signify that Mr McCormick had accepted an offer from Riverwood to the effect that it would comply with the obligations imposed on it by the manual. Thus, the clause reflected the parties' intention to offer and accept mutual obligations in accordance with the provisions of the manual. The fact that the clause refers only to "You" is consistent with this construction. While Mr McCormick agreed to abide by the manual, he was in part responding to Riverwood in that he agreed to accept its compliance with its obligations under the manual. The phraseology of the clause was proffered by Riverwood. Mr McCormick's acceptance carried with it an acceptance of Riverwood's offer to abide by the manual by conferring the benefits provided in the manual in favour of Mr McCormick.
40 Mansfield J agreed but paid more regard to the particular evidentiary context (consistent with s 27 of the Federal Court of Australia Act 1976 (Cth), noting (at [148]-[150]):
148 As discussed earlier, in my judgment, the significant facts known to the appellant at the time were that it had policies, that those policies included the application of the redundancy agreement (or its predecessors) to its employees, and that those policies were contained or partly contained in the manual. It also knew of the contents of the manual generally. The nature of its contents, in large measure, provided for the way its employees would be treated or the benefits for which they may be eligible.
149 The evidence of the respondent was that he had a general understanding of the existence of some redundancy agreement in existence, but he did not specifically know of the manual. It can readily be inferred that he apprehended that the appellant had some policies and procedures, for that is what the policy clause in the letter referred to, but he did not give evidence of knowing of the detailed content of any specific policies. The degree of his knowledge is not commensurate with that of the appellant. That may often be the case in circumstances such as those confronting the respondent when he signed the letter. He had by then been employed in the business generally for many years, and by the appellant for some months. His general understanding is, however, consistent with the more specific knowledge of the appellant. In the relevant sense, in my view, the facts known by the appellant were known also to the respondent.
150 In the light of the factual matrix referred to, I share the conclusion of the learned trial judge that the letter incorporates by reference the terms set out in the manual from time to time including the redundancy agreement. I further agree with the conclusion that the presumed intention of the appellant and the respondent, by reason of the policy clause in the letter, was that the respondent would receive the benefits of the policies of the appellant in the manual as they applied to him, including under the redundancy agreement (subject to that policy being changed by the appellant). The agreement "to abide by" those policies, in the circumstances, means that the respondent would receive or enjoy the benefits provided for by those policies but only according to their terms, and would himself comply with the terms of those policies as they applied to him.
41 His Honour then went on to examine the policy itself in order to consider what role its contents played in determining the question of whether the contents might, as objectively ascertained, reveal an intention either not to be part of the contract or to be included in the contract. In circumstances much like the present, his Honour had no hesitation in concluding that the high standards of conduct expected revealed an intention to create mutually binding obligations. His Honour said (at [151]-[152]):
151 I do not consider that the contents of the manual demonstrate, as the appellant contends, that it did not intend to be contractually bound to comply with its policies (subject to their alteration). There are certain policies where such an intention is clear from the context. One example is that whereby it expects its employees to maintain the highest standard of corporate conduct, but it agrees not to criticise any employee for adverse consequences which flow from adherence to that standard. It is most unlikely that the appellant envisaged that it could blithely ignore its part of that policy, or at least could do so with legal impunity. Its health safety and environment policy also has mutual obligations. It may also be observed that, in general, its policies are expressed in terms which are entirely apt to be treated as expressing mutually enforceable obligations; they are clear, precise, direct and mainly deal with matters which one might expect to be encompassed within a particular employment contract.
152 Nor do I consider that the fact that it was contemplated by the policy clause in the letter that the appellant might change its policies from time to time, or introduce new policies, signifies that it did not intend to be contractually bound to the respondent to comply with its policies from time to time. Its power to change its policies, or to introduce new policies, from time to time would be constrained by an implied term that it would act with due regard for the purposes of the contract of employment: eg Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 63, 137 - 138, so it could not act capriciously, and arguably could not act unfairly towards the respondent: cf Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54 at 61. It might also be a power which, by implication, must be exercised reasonably having regard to the nature of the contract and the entitlements which exist under it: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 28 NSWLR 234 at 279-280 per Handley JA. There is no issue as to the extent of any such implied constraints on the exercise of that power in this matter. Byrne v Australian Airlines Ltd (1995) 185 CLR 410 does not, in my view, point to any different conclusion in the particular facts of this appeal. It concerned the question whether a clause in an industrial award was by virtue of that character to be implied into a contract of employment: see per McHugh and Gummow JJ at 446. National Coal Board v Galley [1958] 1 All ER 91 provides an example where the terms of a contract of employment included terms incorporated by reference to a "national agreement" which it was contemplated might be altered or substituted over the period of employment.
42 Lindgren J dissented, but on a basis which turned on the particular language of the clause concerned.
43 Similarly, in Foggo v O'Sullivan Partners (Advisory) Pty Ltd (2011) 206 IR 87, Schmidt J rejected as "defy[ing] both logic and common sense" the contention that although it was common ground that an employee was bound by a policy, the employer would not be contractually bound. Her Honour said (at [116]-[119]):
116 That a reasonable person, in the circumstances, would have understood that the defendant, as well as Mr Foggo, was contractually bound to observe the grievance policy which it had implemented, unless varied or withdrawn, must be accepted. The policy envisaged that in the event that an employee had a grievance, he or she would advise the defendant, which would then take the steps specified in the policy to seek to resolve that grievance. That a reasonable person would understand that the employee was obliged to adhere to what the policy required of him or her, but that the defendant was not obliged to take the steps which the policy envisaged it would take, may not be accepted. That would defy both logic and common sense.
117 That conclusion is reinforced, when clause 9 of the policy is considered. It gave the defendant unfettered rights to alter or bring the policy to an end, providing in clause 9:
"9. Duration of this Policy
9.1 This policy was brought into effect from 14 June 2010.
9.2 It will be reviewed on a regular basis (and updated as deemed necessary) to ensure that it remains relevant and appropriate to OP.
9.3 For the avoidance of doubt, this policy may be applied, varied or withdrawn at any time at OP's discretion."
118 In my view, unless and until the defendant exercised such rights, it was contractually obliged to adhere to the policy it had brought into effect. That conclusion is supported by views expressed in Riverwood International Australia Pty Ltd v McCormick (2000) 177 ALR 193 and Goldman Sachs JBWere Services Pty Ltd v Nikolich (2007) 163 FCR 62, where similar questions arose for consideration. In both Riverwood and Goldman Sachs the question of whether the employer, as well as the employee, was contractually bound by the policy in question as an implied term of the contract, arose to be considered. The test is that discussed in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-3 and Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 442.
119 That a term which requires an employer, as well as the employee, to adhere to a policy which the employer has devised and implemented and which the employee is contractually obliged to observe, by express provision, would be implied in order to give business efficacy to the contracted contract, is immediately understandable. In the case of the policy here in question, it is evident that the contract could not operate reasonably and effectively without such an implied obligation. It would make nonsense of the employee's ongoing obligation to act in accordance with what the policy required of him or her from time to time, if the employer had no obligation to act in accordance with what the policy required of it.
44 In Nikolich, Black CJ applied Toll and reached a similar conclusion as seen from the last sentence in [30], which was cited by the primary judge (at [28]).
45 His Honour continued (at [31]) by looking at the nature of the relevant obligations, especially considering existing legal obligations:
This conclusion is supported by the broad equivalence of the content of the statement with an employer's common law duty of care to an employee, to commonly imposed statutory duties and to the term that the law will imply in a contract of employment. Contracts of employment that are silent about an employer's obligations carry with them an implied term that the employer will take reasonable care to provide a safe place of work and a safe system of work. To take "every practicable step to provide a safe and healthy working environment" may be putting the standard somewhat higher, but not very much higher. The term found by the trial judge in this case, as interpreted reasonably according to the language used, does not greatly extend the obligation that would exist by implication at common law.
46 In the same appeal, Marshall J noted (at [120]):
120 The conclusion of Wilcox J on the topic of express incorporation of WWU into the contract is compelling, for the following reasons:
• WWU formed part of the "office memoranda and instructions" which Mr Nikolich's letter of offer of employment said would be issued and with which he would be expected to comply as applicable. Goldman gave him no other document which may be described as "General Instructions" within the context of the letter of offer;
• Mr Nikolich was required to read WWU and sign some forms contained within it, some of which covered the topics on which Wilcox J made findings, such as the Health and Safety Statement; and
• WWU provided entitlements to employees in addition to setting out directions to them. It sets out what each of the parties could expect the other to do, during its subsistence, in respect of a broad range of matters.
47 Jessup J, (at [302]), dissented, not so much on the approach to be taken as on the particular facts of the case.
48 Reference might also be made to Akmeemana v Murray [2009] NSWSC 979 where Davies J (following Mansfield J (at [152]) in Riverwood Full Court) rejected a submission by the employer that a policy which would operate in its favour and somewhat harshly to the employee could, when it was formulated some months after the contract of employment, constitute part of it.