Agreements and policies
A policy is usually just a policy — not a term of the contract or the agreement. That doesn’t mean it’s safe to breach, and it doesn’t mean the employer can ignore its own procedures either.
What you’ll be able to do
- Tell the difference between a policy that’s merely guidance and one incorporated as an enforceable term.
- Explain why breaching a policy that isn’t a contract term can still be a valid reason for dismissal.
- Recognise when an enterprise agreement’s own disciplinary procedure must be followed, and what it costs the employer when it isn’t.
Policy breach as a valid reason, even without incorporation
Most workplace policies are not terms of the employment contract or the enterprise agreement. They sit alongside those instruments, and an employer can usually vary or withdraw them without anyone’s agreement. That doesn’t stop a breach of a clear, lawful policy from being a valid reason for dismissal.
A Full Bench majority put it this way, as quoted in [2021] FWC 5677 at [12]: a substantial and wilful breach of policy will often, if not usually, be a valid reason — but a clear breach doesn’t make dismissal automatically fair. Every case turns on its circumstances.
When an employee refuses a direction connected to a policy, the Commission’s focus is on whether the direction was lawful and reasonable — not on whether the policy itself was the best or fairest one the employer could have chosen [2021] FWC 5677 at [13].
Cloutte v S & S Webster Investments — a policy that was never meant to bind
A bus driver was dismissed for refusing to comply with his employer’s COVID-19 Vaccination Policy. He argued the Policy varied his contract without his agreement and so was unenforceable. The Commission rejected that framing entirely.
- An employee isn’t obliged to comply with a direction that breaches their contract — but a policy that lacks a rational basis, or regulates something trivial, is a different problem from a policy that simply isn’t a contract term [2023] FWC 991 at [68].
- The contract’s clause requiring compliance with “policies and procedures as amended from time to time” did not make those policies terms and conditions of employment — it incorporated compliance with them into the scope of lawful directions, which is a different thing [2023] FWC 991 at [85].
- The Vaccination Policy itself said in terms that it was “specifically stated not to be incorporated into the Applicant’s contract of employment” [2023] FWC 991 at [86].
- An employer’s clear, express statement that a policy is not contractual protects it from contractual liability for breach — the Commission noted the policy’s statement that it “does not have contractual force” [2023] FWC 991 at [57], citing Jessup J in Commonwealth Bank of Australia v Barker.
The outcome: there was a valid reason for the dismissal [2023] FWC 991 at [100], and the dismissal was not harsh, unjust or unreasonable [2023] FWC 991 at [109]. The policy didn’t need to be a contract term to do the work it was relied on for.
Incorporation needs clear words — guidance doesn’t get there by accident
The flip side matters just as much for advisers: a policy referenced in a contract or an agreement is not automatically incorporated into it. Something has to do the incorporating — express words, or a clear contractual mechanism — and without that, the policy stays outside the enforceable instrument, however much it looks like it should be inside it.
In a dispute about whether a performance policy created an enforceable right to progress through pay points under an enterprise agreement, the Commission held that the employer’s performance-management policy “is not incorporated into the Agreement as clause 6 makes clear. It is thus not an enforceable term of the Agreement and does not create an enforceable right” [2021] FWC 4526 at [19]. The policy was guidance about how a process worked, not a source of contractual or agreement-based rights.
This is the same distinction doing opposite work to Cloutte above: there, the employer wanted the policy to sit outside the contract (so it could vary it freely) and succeeded because the words said so. Here, a party wanted a policy to sit inside the agreement (so it would create an enforceable right) and failed because the words didn’t say so. Read the actual incorporating language — don’t assume either way.
Enterprise agreement disciplinary procedures: mandatory, not optional
A different problem arises when the enterprise agreement itself contains a disciplinary procedure. That procedure is a term of the agreement. If it applies on its terms and is engaged by what the employer is doing, the employer doesn’t get to choose whether to follow it.
In a case involving a tram driver dismissed after a “horseplay” incident, the enterprise agreement required that “staff discipline will be conducted in accordance with Attachment 1 of this Agreement”. The Commission held that the employer “does not have a discretion as to whether it will apply the disciplinary procedure. The procedure is part of the 2019 Agreement. It applies on its terms, and when it is engaged, its use is mandatory” [2022] FWC 2527 at [60].
Not following it had a direct cost. The Commission found that the dismissal occurring without the agreement’s disciplinary procedure being followed was “a relevant matter under s 387(h) and an additional reason to conclude that the dismissal was unfair, because [the employee] was deprived of his procedural rights” [2022] FWC 2527 at [63].
Notably, the Commission went further and said that even if the procedure hadn’t been mandatory, it “ought reasonably to have followed the procedure on a discretionary basis” given the seriousness of the allegation [2022] FWC 2527 at [64] — a reminder that “not a mandatory term” and “safe to skip” are not the same thing. The dismissal was ultimately found unfair [2022] FWC 2527 at [68].
Own-policy classifications matter even without agreement force
A policy doesn’t need to be an enterprise agreement term, or a contract term, to still shape whether a dismissal is fair. If an employer’s own disciplinary policy sets out defined categories (misconduct versus serious misconduct, for example) and the employer applies the wrong category to justify skipping steps, that mismatch can itself make the dismissal harsh.
In one matter, an employer labelled a performance and attendance issue as “serious misconduct” so the dismissal would fit within its own Disciplinary Procedure’s summary-dismissal pathway. The Commission found there was “no basis” for that label, calling it “inappropriate and unreasonable” [2025] FWC 702 at [85]. The ultimate finding tied the harshness directly to a failure to manage the issues “in accordance with the Disciplinary Procedure, contract of employment and Enterprise Agreement” [2025] FWC 702 at [178], resulting in a compensation order [2025] FWC 702 at [179].
What the Commission looks for
- What document is actually being relied on? A contract clause, an enterprise agreement term, or a standalone policy — these have different legal consequences, and the label an employer gives something doesn’t settle the question.
- Is there an incorporation clause, or a disclaimer? Clear words either way usually resolve the issue quickly. Silence invites argument.
- If an agreement procedure exists, was it engaged — and was it followed? Mandatory language (“will be”, “shall apply”) removes discretion. Even discretionary language doesn’t mean a serious matter can skip process altogether.
- Did the employer apply its own definitions correctly? If a policy distinguishes “misconduct” from “serious misconduct”, or sets escalation steps, the characterisation used to justify the dismissal has to actually fit.
- Was the underlying direction lawful and reasonable? This is usually the more important question than whether the policy itself was the best choice available.
How these cases go wrong
The mandatory procedure was skipped
The enterprise agreement said staff discipline “will be conducted in accordance with” its disciplinary procedure. The employer dealt with two incidents informally instead. [2022] FWC 2527 at [63]
If the agreement’s procedure is engaged, there’s no discretion to use something simpler.
The label didn’t match the policy’s own definitions
An employer classified a performance and attendance issue as “serious misconduct” so it could summarily dismiss, without reference to its own policy’s definition of that term. [2025] FWC 702 at [85]
Match the characterisation to what the policy itself says, not to whichever category avoids the escalation steps.
Assuming a referenced policy was an enforceable term
A union argued a performance-management policy created an enforceable right to pay progression under the enterprise agreement. The agreement’s own clause said the policy was not incorporated. [2021] FWC 4526 at [19]
Check the incorporation clause before assuming a referenced policy carries legal force either way.
Adviser checklist
- Identify the document
- Enterprise agreement procedures
- Policy reliance
- Characterisation
- Before deciding
Practice scenario: the till shortage
Fictional scenario. Write your answers, then reveal the model answer.
Priya has worked for three years as a sales assistant at Northbridge Apparel, a fictional clothing retailer, and is covered by a fictional enterprise agreement. Clause 14 of the agreement states that “disciplinary action for misconduct will be progressed through a verbal warning, written warning and final written warning, unless the conduct is serious misconduct as defined in the Company’s policies.”
Northbridge’s Cash Handling Policy, last updated two years ago and not reissued to staff since, says shortages over $50 “may result in disciplinary action up to and including termination.” The policy is not referred to anywhere in the agreement.
Priya says she served a rush of customers alone after a colleague went home sick, and believes she simply miscounted the float. She has had no prior warnings in three years.
- Only if this is “serious misconduct.” Clause 14’s escalation steps are mandatory unless the conduct fits the serious misconduct definition. A single $62 shortage with no evidence of dishonesty looks much more like the kind of conduct the escalation steps exist for.
- Not automatically. The agreement doesn’t incorporate the Cash Handling Policy by reference, so it isn’t an enforceable term the way the disciplinary procedure is. That doesn’t make it irrelevant — a substantial and wilful breach of it could still be a valid reason — but it needs its own lawful-and-reasonable and currency checks, and it can’t be used to bypass clause 14’s escalation steps just because it says “up to and including termination.”
- Missing: any evidence the shortage was deliberate rather than an honest counting error; whether “serious misconduct” is actually defined anywhere to cover this; whether the policy was reissued or drawn to Priya’s attention recently enough to rely on; and whether clause 14’s escalation steps were available and simply not used.
Decisions cited
B, C and D v Australian Postal Corporation is cited as quoted in a later decision and still needs checking against the original. Rows marked “partial” confirm the proposition pinpoint only — that decision’s own final finding was not independently read in this pass. The Powercor/CitiPower decision below is a pay-progression agreement dispute, not an unfair dismissal matter — it’s included for its direct statement on policy incorporation, with that context made explicit.
| Decision | Outcome (confirmed from the text) |
|---|---|
| [2025] FWC 702 Quayle v Redpath Contract Services | Dismissal found harsh and unreasonable, with compensation ordered — confirmed at [178]-[179]. There was a valid reason related to capacity (loss of site access and no suitable alternative role), but the employer's mischaracterisation of the matter as 'serious misconduct' under its own Disciplinary Procedure, and its failure to manage performance/attendance concerns in accordance with that Procedure, the contract and the enterprise agreement, made the dismissal harsh — confirmed at [6], [85], [178]. [178] |
| [2023] FWC 991 Cloutte v S & S Webster Investments | Valid reason for dismissal found (failure to comply with a lawful and reasonable COVID-19 vaccination direction) — confirmed at [100]. The dismissal was found not harsh, unjust or unreasonable and the application was dismissed — confirmed at [109]. The Commission separately held the Vaccination Policy was not incorporated as a term of the Applicant's contract of employment, rejecting the Applicant's breach-of-contract argument — confirmed at [85]-[86]. [109] |
| [2022] FWC 2527 Brass v KDR Victoria (Yarra Trams) | Dismissal found unfair — confirmed at [68] (no valid reason, and in any event disproportionate/harsh). The enterprise agreement's disciplinary procedure was mandatory once engaged and the employer's failure to follow it was a relevant, additional matter under s.387(h) — confirmed at [60], [63]. Remedy was reinstatement — confirmed at [69] (only the threshold 'reinstatement is appropriate' finding was read; the full remedy order terms beyond that were not independently re-read in this pass). [68] |
| [2021] FWC 5677 Desmond v Lyndons | partialOnly the policy-breach principle (quoting B, C and D v Australian Postal Corporation) and the lawful-and-reasonable-direction test were read and confirmed at [12]-[13]. This decision's own finding on Ms Desmond's case was not read in this pass — not asserted here. [12] |
| [2021] FWC 4526 ASU v Powercor Australia & CitiPower | A s.739 agreement dispute about pay-point progression for Works Delivery Coordinators, not an unfair dismissal matter. The Commission determined that the enterprise agreement does not mandate or entitle the relevant employees to progress through the disputed pay points without the additional qualification in issue — confirmed at [27]. Cited in this module only for its statement that the employer's performance-management policy was not incorporated into the agreement and so created no enforceable term or right — confirmed at [19]. [27] |
- B, C and D v Australian Postal Corporation — quoted in [2021] FWC 5677 at [12]. Check against the original before relying on it.
- Commonwealth Bank of Australia v Barker — quoted in [2023] FWC 991 at [57]. Check against the original before relying on it.
- R v The Darling Island Stevedoring and Lighterage Company Limited; Ex parte Halliday and Sullivan (1938) 60 CLR 601 — quoted in [2021] FWC 5677 at [18]. Check against the original before relying on it.
- Briggs v AWH Pty Ltd — quoted in [2021] FWC 5677 at [15]. Check against the original before relying on it.