29/10/2014

A new landmark case in employment law – the High Court rules on the existence of an implied term of mutual trust and confidence in Australian employment contracts.

For years the Courts have been tip-toeing around the issue of whether the implied term of mutual trust and confidence, which has long been established in the UK, could also be found in employment contracts in Australia.   

This term, which is not written in the employment contract but which the plaintiff argued was implied in all employment contracts, basically means that neither party will behave in a manner which is likely to destroy or seriously damage the relationship of trust and confidence between the employer and the employee unless they have reasonable cause.

The suspense was brought to an end last month by the High Court’s decision in Commonwealth v Barker.  

The facts

Mr Barker, an employee of the Bank for over 20 years, was told by the Bank in 2012 that his position was being made redundant and, if he was not re-deployed within the company by the end of the month, his employment would terminate.  He was immediately deprived of his work mobile phone along with his access to work email account and voicemail, which meant that the Bank’s Human Resources Department was unsuccessful in its attempts to contact him about a suitable role.  While Mr Barker was eventually contacted on his personal email two weeks before the end of his notice period, he was not redeployed and his employment with the Bank terminated.  

Mr Barker subsequently brought a claim on the basis that the Bank had breached the implied term of mutual trust and confidence by failing to redeploy him. The matter went all the way to the High Court.

The High Court decision

The five judges of the High Court unanimously found that the principle did not form part of Australian law and the term could not be automatically implied into Australian employment contracts.  

The decision completely overturned the primary judge and the full Federal Court, who had both recognised such a right and awarded Mr Barker over $335,000 in damages for breach of contract.

The High Court's finding meant that Mr Barker lost his damages and the Bank came out triumphant.

The High Court held that:
 

1. the contract law test of ‘necessity’ (i.e. whether such a term is needed for the contract to be effective) which is used to determine whether a term is implied, was not met in this case;

2. if the term was to be implied it may interfere with current existing laws such as unfair dismissal;

3. claims of breach of contract are so frequent and contentious that recognising a vague implied term in those disputes was likely to create inconsistency;

4. the implied term may impose obligations on both parties which are too onerous in most circumstances;

5. if there is a need for it, it is Parliament’s role to make that change in contract law; and

6. the fact that this term is well established in UK law is not relevant to the development of Australian law.

What does the decision mean for employers:

• they do not owe a duty of trust to employees unless it is expressly provided for in the employment contract.  
• the chances of an employee bringing a claim based on the implied term have been dramatically reduced, however the term may still be implied by the conduct of the parties in some circumstances.
• they need to ensure they have fair, carefully considered and consistently applied workplace policies.  
• they should remain vigilant as employees can still bring other types of claims (adverse action claims, unfair dismissal, etc)
• they should consider amending their employment agreements to specifically state whether such a term is or is not included in the contract.

For further information regarding this article, please call Townsends Business & Corporate Lawyers on (02) 8296 6222.