No implied term of mutual trust and confidence in employment contracts
In September 2014, the High Court in Commonwealth Bank of Australia v Barker [2014] HCA 32 overturned a decision of the Full Federal Court of Australia to hold that under the common law of Australia, there is not a term of mutual trust and confidence that can be implied by law in all employment contracts.
Facts
In 2009, Mr Barker was advised by his employer, the Commonwealth Bank of Australia (CBA) that his position had been made redundant. He was subsequently put on paid leave and entered a redeployment period during which, he and the Bank were meant to explore redeployment opportunities. Mr Barker did not receive certain communications from the bank regarding further opportunities and his employment was ultimately terminated.
Mr Barker brought proceedings in the Federal Court against the CBA on a number of grounds. Amongst others, he asserted that the CBA failed to take positive steps to consult with him regarding possible redeployment opportunities, which amounted to a breach of the duty of mutual trust and confidence, which he argued was implied by law into his employment contract.
The primary judge as well as the full Federal Court of Australia agreed with Mr Barker and found that a term of mutual trust and confidence was implied into Australian employment contracts.
The High Court overturned the Federal Court’s decision and found that to imply such a term was neither necessary nor appropriate, as the implied term:
goes further than what is reasonably necessary, and as such may have unintended consequences
extends established principles from various implied restrictive obligations to a positive obligation that requires active steps; and
requires a transformative approach to employment law which is best left to the legislature.
Their Honours also went on to observe that whilst the implied term was a reasonable development in the context of UK law, the same could not be said of the law in Australia.
The High Court otherwise noted the question of whether there is a general requirement of good faith in contractual dealings in all contracts (employment and otherwise) in Australia is unresolved.
Tips for employers
While this ruling will minimise exposure to claims based on an implied term of mutual trust and confidence, employers should still ensure employment contracts are properly drafted.
Employers should continue to be vigilant in ensuring that their workplace policies are current, properly communicated and applied consistently to minimise exposure to employment disputes and litigation.
Employers should be aware that whilst employers have an obligation to act in a manner that fulfils their obligations under a contract, there is no positive obligation to take steps to ensure that they do not engage in “trust destroying conduct”.
The decision also means that an employer is not able to lawfully dismiss an employee on the grounds that the employee has breached the duty of trust and confidence which they owe to the employer.
