No Implied Term of Mutual Trust in Employment Contracts

No Implied Term of Mutual Trust and Confidence in Employment Contracts – CTI Lawyers

In a keenly anticipated decision, the High Court has declared that, unlike the case in the UK, Australian employment contracts do not contain an implied term of mutual trust and confidence (the Implied Term).

In Commonwealth Bank of Australia v Barker [2014] HCA 32 the Full Court unanimously determined that a term 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 the employer and employee” was not necessary for the operation of an employment contract. While a duty to co-operate is a necessary element of an employment contract, the duty of mutual trust and confidence is not and should not be implied into the contract. The Court observed that importing the Implied Term into employment contracts in Australia “is a step beyond the legitimate law-making functions of the court. It should not be taken.”

The decision of the High Court (which cannot be appealed) is an important development for employers. An employee will not be able to rely on such an implied term to claim common law damages arising from the manner of their termination or their employer’s breach of a workplace policy that is not a term of the employee’s contract of employment for example.

Mr Barker had been employed by the Commonwealth Bank since 1981 and had risen to the position of an Executive Manager in Adelaide. On 2 March 2009, the Bank informed Mr Barker that his position was to be made redundant and, unless he could be re-deployed to another position in the meantime, his employment would end in about a month. Mr Barker was effectively given a month’s gardening leave. He was required to hand in his mobile phone and his access to the Bank’s computer systems was terminated. Mr Barker did not return to the Bank. Staff members who were responsible for redeploying excess employees could not contact him. They were unaware that his mobile phone had been handed in and his work email had been switched off. Mr Barker was terminated for reasons of redundancy on 9 April 2009.

Mr Barker succeeded in his application to the Federal Court. He claimed that the Commonwealth Bank had breached the Implied Term when it did not follow its own re-deployment policy. The decision of the Federal Court was upheld on appeal by the Bank to the Full Federal Court. The Commonwealth Bank appealed that decision to the High Court which upheld the Bank’s appeal and set aside the Full Federal Court’s award of damages to Mr Barker of approximately $335,000.00.

Contact our Solicitors at CTI Lawyers should you have any questions regarding this recent decision. You can contact CTI Lawyers on (02) 9744 1099 or email your enquiry to law.clerk@neca.asn.au.