30/10/2013

In a recent Federal Court decision the term of "mutual trust and confidence" has been implied into a contract of employment and the employer was held to be in breach of the implied term and ordered to pay its former employee damages in the sum of $335,623.57.

Some of the relevant facts of the case are as follows:

•    The employee was employed by the employer for approximately 27 years.
•    The employee had a written employment agreement with the employer.
•    The employer had a number of policies including a Redeployment Policy.
•    On 2 March 2009 the employee attended a meeting with the employer at which time he was told he would be made redundant if he could not be redeployed.
•    After the meeting the employee was told to go back to his desk and finish out the day and the redeployment period would be paid leave.
•    The employer terminated the employee’s access to the intranet and email on the day of the meeting.
•    On 31 March 2009 the employer’s officers spoke to the employee’s solicitor on the phone and informed her they had tried to contact the employee on his business phone and business email, leaving messages for him about a possible redeployment role.  The employee’s solicitor informed the employer’s officer that the employee’s access to email and phone was cut off after the initial meeting in early March.
•    On 9 April 2009 the employee was informed that he was being made redundant and his retrenchment pay totalled $182,092.16.

The employee subsequently made a claim against the employer that the employer had breached his employment contract by failing to follow its own redeployment policy prior to making the employee redundant.

The employee's claims included there was an implied term of mutual trust and confidence between him and his employer and that was breached because the employer failed to adhere to its own Redeployment Policy, and the employee missed an opportunity for redeployment and therefore suffered a loss of opportunity.

The employer argued that the Redeployment Policy was not part of the employment contract as the Policy contained an express statement that it was not incorporated into employee contracts.

The Court held at first instance, and approved on appeal, that the employer did owe an implied duty of mutual trust and confidence and that the duty was breached by not following the employer’s Policy.  The Court awarded damages in the amount of $335,623.57 (on appeal).

The reasons given by the Court include:

"His Honour then turned to the implied term.  He said it is clear that in England there is an implied term of trust and confidence in a contract of employment so that an employer must not without reasonable and proper cause conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee."

When considering the facts, the Court held:

"it seems to us that the Bank's [employer's] actions on and from 2 March 2009 to 26 March 2009 were sufficient to amount to a breach of the Bank's duty ….. What was required by the Bank was that it take positive steps to consult Mr Barker [employee] about alternative positions …. It failed to make contact with him …. Because it withdrew Mr Barker's email and mobile phone facilities without telling the person charged with the responsibility of contacting Mr Barker of those facts."

This is a significant step in recognising (in some cases) that there is an implied term in an employment contract of mutual trust and confidence and that the employer may breach that duty and the employee suffer loss and damage as a result of the breach.

The lessons for employers are:

•    carefully consider all business policies when dealing with employees;
•    review and update contracts and policies regularly; and
•    engage with employees in situations of possible redundancies.

If you have any questions in relation to this article or need advice or assistance on employment matters please contact Townsends Business & Corporate Lawyers on (02) 8296 6222.