High Court to decide if mutual trust and confidence is implied in employment contracts

Parliament house flag post

High Court to decide if mutual trust and confidence is implied in employment contracts

Posted 23/12/2013 by Jaan Murphy

The High Court has granted the Commonwealth Bank of Australia (the Bank) special leave to appeal the Full Federal Court’s decision in Commonwealth Bank of Australia v Barker[2013] FCAFC 83. The case will be significant as it will be the first time the High Court has considered if an implied term of mutual trust and confidence exists in employment contracts.

 
What is the mutual duty of trust and confidence?

The Full Federal Court was the first Australian superior appellate court to consider the issue, and found that the mutual duty of trust and confidence exists as an implied term in employment contracts. It defined the implied term as providing that an:
 
… employer will not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.
 
However, it noted that the content of the implied term must be moulded to the nature of the relationship, and the facts of each case.

Background

On 2 March 2009 the Bank advised Mr Barker (a senior executive) by letter that his position was to be made redundant from the close of business that day. The letter stated:
 
It is the Bank’s preference to redeploy you to a suitable position within the Bank and we will explore, in consultation with you, appropriate options.
 
Mr Barker was further advised that if he was not redeployed within the Bank, his employment would be terminated on 2 April 2009. Mr Barker subsequently had his employment terminated by reason of redundancy.
 
Mr Barker was successful in proceedings against the Bank. The Bank appealed, but was unsuccessful. The Bank then sought special leave to appeal, which was granted by the High Court. The appeal will be heard in 2014.
 

Decision at first instance 

 
  • certain policies of the Bank (which covered the issue of redundancy) were incorporated into his contract of employment and 
  • the Bank had breached those policies by failing to inform him of a possible alternative position within the Bank.
Mr Barker also lodged an alternative claim based upon an implied term of mutual trust and confidence between the Bank and Mr Barker in his employment contact.
 
At first instance, Besanko J found that the policies were not incorporated into, and did not form part of, Mr Barker’s contract of employment. Importantly however, Besanko J found that the implied term of mutual trust existed and had been breached by the Bank as a result of it failing to attempt to redeploy Mr Barker within a reasonable period, and awarded Mr Barker damages of $317,500.
 

Full Federal Court decision

The Full Federal Court, in a 2:1 decision, found that the implied term of mutual trust and confidence will ordinarily be implied into Australian employment contracts, unless expressly excluded.

However, as noted by the Full Federal Court, the implied term cannot be breached by the employer terminating the employment relationship per se; it can only be breached by the conduct and actions of the employer prior to the termination of employment. Jessup J (who was in dissent, but not on this point), when summarising the relevant UK law, gave the following example to illuminate the limits of the implied term:
…if the way in which the employer followed its disciplinary process was such as was likely seriously to damage the relationship of trust and confidence, the employee would be entitled to damages for any psychiatric illness which resulted, even if the result of the process was the uncontroversial conclusion that the employee should be dismissed.
The Full Federal Court found that the failure of the Bank to take adequate steps to contact Mr Barker with suitable redeployment opportunities within a reasonable timeframe was conduct that breached the implied term. Of particular relevance in reaching this conclusion was the length of Mr Barker’s service, his seniority and clause 8 of the employment contract which:
 
  • recognised the possibility of the employee’s position becoming redundant and 
  • referred to compensation that would be payable if the Bank was unable to provide an alternative position.
Mr Barker was awarded damages of $335,623.
 

Why will the decisions be important?

If the High Court confirms that the implied term exists, then employers will potentially be liable for any breaches of the implied term that occur prior to dismissing an employee. On one view, it would add another complexity to the internal redundancy, termination and disciplinary procedures of employers. On another view, the implied term would strike a balance between an employer’s managerial prerogative and an employee’s interest in not being unfairly or improperly exploited, thus providing vulnerable employees some protection against improper conduct and treatment by their employer.
 


Thank you for your comment. If it does not require moderation, it will appear shortly.
Facebook LinkedIn Twitter Add | Email Print

FlagPost

Flagpost is a blog on current issues of interest to members of the Australian Parliament


Parliamentary Library Logo showing Information Analysis & Advice

Archive

Syndication

Tagcloud

Refugees asylum immigration Australian foreign policy Parliament climate change elections women social security Australian Bureau of Statistics Employment indigenous Australians Sport illicit drugs people trafficking taxation Medicare welfare reform Australian Defence Force higher education welfare policy United Nations health financing gambling Asia Middle East criminal law disability Australian Sports Anti-Doping Agency World Anti-Doping Agency United States federal budget school education forced labour aid statistics Australian Electoral Commission WADA income management Industrial Relations emissions trading dental health Australia in the Asian Century steroids detention Private health insurance OECD ASADA labour force transport Law Enforcement Australian Federal Police people smuggling poker machines National Disability Insurance Scheme Australian Crime Commission 43rd Parliament slavery election results Papua New Guinea Australian Public Service constitution International Women's Day corruption Afghanistan Fair Work Act child protection Aviation debt federal election 2013 parliamentary procedure ALP New Zealand Newstart Parenting Payment political parties Census politics High Court skilled migration voting Federal Court terrorist groups Higher Education Loan Program HECS governance youth paid parental leave environment foreign debt gross debt net debt defence capability customs Senate doping health crime health risks multiculturalism aged care Gonski Review of Funding for Schooling sex slavery sea farers Special Rapporteur leadership United Kingdom UK Parliament Electoral reform banking firearms public policy Population violence against women domestic violence mental health China ADRV terrorism science research and development social media pensions welfare ASIO intelligence community Australian Security Intelligence Organisation accountability public service reform Carbon Pricing Mechanism carbon tax mining military history employer employee fishing by-election European Union same sex relationships international relations coal seam gas family assistance planning Senators and Members United Nations Security Council Australian economy food vocational education and training Drugs health reform Indonesia children codes of conduct terrorist financing health system money laundering early childhood education Canada Financial sector national security fuel disability employment Tasmania integrity transparency Australian Secret Intelligence Service sexual abuse federal state relations World Trade Organization Australia housing affordability bulk billing water renewable energy children's health health policy Governor-General US economy export liquefied natural gas foreign bribery question time speaker superannuation expertise climate Intergovernmental Panel on Climate Change Department of Agriculture Fisheries and Forestry food labelling Pacific Islands reserved seats new psychoactive substances synthetic drugs UNODC carbon markets Indigenous constitutional recognition of local government local government consumer laws PISA royal commission US politics language education baby bonus Leaders of the Opposition Parliamentary remuneration Australia Greens federal election 2010 servitude Trafficking Protocol energy forced marriage rural and regional Northern Territory Emergency Response ministries social citizenship human rights emissions reduction fund; climate change child care funding refugees immigration asylum procurement Indigenous health e-voting internet voting nsw state elections 44th Parliament 2015 ABS Age Pension Death penalty capital punishment execution Bali nine Bali bombings Trade EU China soft power education Fiji India Disability Support Pension Antarctica Diplomacy by-elections state and territories workers Bills anti-corruption fraud bribery corporate ownership whistleblower G20 economic reform innovation standards NATO Members of Parliament Scottish referendum Middle East; national security; terrorism social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly public health smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Southeast Asia Israel Palestine regional unemployment asylum refugees immigration political finance donations foreign aid Economics efficiency productivity human rights; Racial Discrimination Act employment law bullying asylum seekers Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies trade unions same-sex marriage disorderly conduct retirement Parliament House standing orders public housing prime ministers election timetable sitting days First speech defence budget submarines Somalia GDP forestry world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission regulation limitation period universities Ireland cancer gene patents genetic testing suspension of standing and sessional orders animal health live exports welfare systems infant mortality middle class welfare honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC nutrition anti-dumping Constitutional reform referendum Rent Assistance competition policy pharmaceutical benefits scheme obesity evidence law sacrament of confession US presidential election international days DFAT UN General Assembly deregulation Regulation Impact Statements administrative law small business Breaker Morant homelessness regional engagement social determinants of health abortion Youth Allowance Members suspension citizen engagement policymaking workplace health and safety Trafficking in Persons Report marine reserves hearing TAFE Victoria astronomy resources sector YMCA youth parliament alcohol Korea rebate Australian Greens presidential nomination Racial Discrimination Act entitlements political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing Hung Parliament political education social inclusion Social Inclusion Board maritime early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin Iran sanctions Norway hospitals republic President Barack Obama Presidential visits ANZUS qantas

Show all
Show less
Back to top