What is the relationship between employment contract terms and a new workplace policy?

The employment contract said he could work from home. The new policy wanted him to return to the office. He refused and was terminated.

One Minute Summary

The employee was terminated after refusing to comply with the employer’s new 3 day per week work from office policy.
The employee claimed he had the right to work from home based on a term in his contract which stated ‘The employee is permitted to work from their personal residence …. in line with relevant PaperCut policy.’
The employer had an extensive process to develop and implement the new 3-day policy.
The Commission stated the employer had provided a lawful and reasonable instruction to the employee to return to the office 3 days per week.
The Commission also stated that ‘in line with relevant PaperCut policy’ limited the application of the employee’s claimed right to work from home unilaterally.

The employee, Mr Johnson, was terminated for failing to comply with the employer’s instruction to work in the office 3 days per week.

Mr Johnson had been employed in Victoria in April 2022 during the latter stages of COVID when working from home was encouraged. His contract stated “The employee is permitted to work from their personal residence …. in line with relevant PaperCut policy.

As the pandemic subsided PaperCut commenced hybrid work trials. Based on these trials they developed and implemented a return to hybrid work policy and model. This included extensive staff engagement and consultation. The policy was formally introduced in August 2023 and allowed for a staged implementation to achieve the 3 days in office by January 2025. Mr Johnson was included in the consultation process.

During January 2025 Mr Johnson sought legal advice which stated that PaperCut was in breach of his employment contract.

PaperCut sought its own legal advice which stated there was no breach of contract and that the Hybrid work policy was valid. They informed Mr Johnson the requirement to attend work in the office was lawful and reasonable – based on his employment contract. They further informed him that failure to comply with this direction may result in disciplinary action.

On 5 March PaperCut attempted to engage with Mr Johnson to set up a transition plan. Mr Johnson refused to follow the plan or comply with the hybrid work policy.

On 20 May Mr Johnson was issued with a final warning letter which required him to attend the work office within the following 3 weeks in accordance with the policy. On 11 June he was advised that if he did not attend the office immediately, he would be dismissed. Mr Johnson was dismissed on 19 June 2025 and filed an unfair dismissal claim shortly thereafter.

Fair Work Commission Proceedings

During proceedings Mr Johnson accepted he did not comply with his employer’s direction. However, be believed his employer did not have a valid reason to terminate his employment. He stated the reason they relied upon was unlawful and unreasonable. He also stated that during the recruitment process PaperCut made it clear that his position did not require in-office attendance.

PaperCut admitted that his contract did permit Mr Johnson to work from home, however this was subject to PaperCut policy. It argued the hybrid working policy was developed through extensive engagement with staff and implemented through a staged process culminating in 3 days working in the office from January 2025.

Papercut identified clause 3 of Mr Johnson’s contract which states Mr Johnson has agreed to ‘comply with such reasonable and lawful directions and all policies, rules and regulations from time to time provided by PaperCut…’

In respect to lawful and reasonable instructions the Commissioner stated,

‘It is well established that a direction will be lawful if it falls within the scope of the employment agreement and involves no illegality, and that whether it is reasonable is a question of fact and balance, with reference again to the employment agreement and the circumstances of the case.’

Mr Johnson argued the words ‘in line with relevant policy’ in the employment contract did not place a limit on his express right to work from home. This clause in his contract did not contemplate the policy changing. Any policy of the employer would not be lawful or reasonable if it was not consistent with the express terms of Mr Johnson’s employment contract. Additionally, Mr Johnson argued the employer’s direction was not reasonable because it was arbitrary and capricious and not made on reasonable business grounds as the employer could not justify its position on a 3 day per week hybrid policy position.

At no stage leading up to his termination did Mr Johnson request a flexible work arrangement or identify any personal reason why he could not comply with the hybrid policy and directions.

Commissioner Connolly made the following observations in his deliberations and outline of findings:

‘I am satisfied that the direction Mr Johnson was given was a valid direction…it involved no illegality.’

‘The direction was within the scope of Mr Johnson’s employment contract and not in any way prohibited by the employment agreement ….’.

Based on the terms of his employment contract Mr Johnson could not claim an unconditional right to work from home.

The term ‘in line with relevant policy’ made it clear the permission was conditional. In the event the employer changed the policy working from home may no longer be allowed.

‘Clause 3 of the contract further reinforces this conclusion that it was a condition of Mr Johnson’s contract that he was required to comply with all policies, rules and regulations…’

PaperCut provided Mr Johnson with a lawful direction he failed to comply with.

PaperCut’s request was not unreasonable. The Commissioner made note of the steps taken to develop the hybrid work policy in consultation with staff followed by the long transition into the 3 day per week model.

In respect to reasonableness the Commissioner noted the numerous opportunities that were provided to Mr Johnson to understand the position and the time given to him to comply.

The Commissioner did not accept that the change was arbitrary and capricious because it was made without a reasoned business justification.

In conclusion the Commissioner dismissed the application finding the termination was not harsh, unjust or unreasonable.

Commentary

This decision provides useful advice to employers on the interaction between employment contracts and workplace policies – even when those policies are developed after the employment contract came into existence.

It is interesting to note the argument advanced by Mr Johnson against the contract term ‘in line with relevant policy’. This is long established law which would not be re-interpreted.

The Commissioner outlined some interesting points on ‘lawful’ and ‘reasonable’ and treated them as distinct concepts. The direction was lawful as it was based on a contract term. ‘Unreasonable’ is a little more ambiguous and takes into account the contractual terms and much broader circumstances. It would be interesting to see the Commission’s deliberations on ‘reasonable’ if PaperCut had not taken the long route to develop and implement the new policy.

PaperCut did not provide a ‘reason’ to its staff to move to the 3 day per week office work model. The Commissioner accepted this and stated that not doing so was not ‘arbitrary and capricious’ as had been argued by Mr Johnson.

This case highlights two very important points for employers:

Employers must ensure they have comprehensive employment contracts; and
The development, implementation (and enforcement) of potentially controversial policies and procedures can be achieved but may take some time.

Hunter Employee Relations has developed comprehensive employment contract templates. These are a cost-effective option where employers need to upgrade their employment contracts.

Kind Regards

Michael Schmidt

M 0438 129 728

[email protected]

www.hunteremployeerelations.com.au