Implied term of mutual trust and confidence is gone: High Court judgement

6 November 2014
In a much anticipated landmark decision, the High Court has unanimously found that there is no implied duty of “mutual trust and confidence” in Australian employment contracts.

Background

The case involves Stephen Barker, a senior executive employee, who worked for the Commonwealth Bank of Australia (CBA) from 1981 until 2009 when his position was made redundant.

Barker brought proceedings in the Federal Court alleging that CBA had breached the implied term of mutual trust and confidence in his employment contract by failing to make proper efforts to redeploy him in accordance with CBA’s redeployment policy.

The implied term of mutual trust and confidence requires that neither party will, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust and confidence between them.

At first instance, Besanko J held that CBA’s failure to take meaningful steps to redeploy Mr Barker, within a reasonable period, was a serious breach of CBA’s redeployment policy and therefore a breach of the implied term.  A majority of the Full Federal Court upheld this decision, finding that CBA breached the implied term for failing to take positive steps to redeploy Barker.  Barker was awarded $335,623.52 in damages.

The High Court Decision

On appeal, the majority of the High Court (French CJ, Bell and Keane JJ) held that:

  • The implied term would impose significant obligations on employers and employees.
  • Given the complex policy considerations involved in implying the term the matter was more appropriate for legislative determination. 
  • It was not necessary that the term be implied at law into contracts of employment.
  • While a similar implied term is recognised in the UK, the history of the development of the term in the UK is not applicable to Australia.
  • It is open to Parliament to enshrine the term in legislation.
  • The judgment does not reflect upon whether there is a general obligation to act in good faith, or to cooperate in the performance of contracts.

The High Court stripped back Barkers damages to $11,692 being the amount for four weeks' notice owed under his contract of employment.

Implications

Since Besanko J’s first instance decision, we have seen a growing trend of employers placing attractive terms and conditions of employment into policies and then expressly excluding those policies from incorporation into employment contracts.  Practically, we anticipate that the High Court decision will result in an increase in stripped  back employment contracts that contain fewer employee rights and entitlements.

Although the High Court gave a green light for recognition of an implied duty of good faith or duty to cooperate in employment contracts, this is an unchartered area and it is unlikely that this term will be the subject of authoritative judicial review in the near future.  This means contract law claims, for the most part, will be limited to express terms which employers will ensure offer employees few protections.

Importantly for unions, this decision places even more importance on enterprise bargaining. Unions should take proactive steps in bargaining to ensure their members’ rights and entitlements are enforceable and not just contained in policies that can be changed at the whim of the employer. It highlights the important value of unions in negotiating consultation provisions prior to significant workplace change and redundancies.   

Other areas to focus on that previously had the benefit of the implied term include:

  • Requiring employers to comply with their own policies
  • Requiring employers to act with procedural fairness and natural justice inconducting disciplinary or performance management processes
  • Building in union representational rights in investigations.

 

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