Trust and faith in employment contracts


According to the recent High Court decision of Commonwealth Bank of Australia v Barker, Australian employment contracts do not contain an implied term of ‘mutual trust and confidence’. This term has been defined broadly by the courts in Australia to mean that employers and employees must not conduct themselves in a way that is likely to undermine, damage or destroy the employment relationship and the trust and confidence between the parties to the employment relationship.

The case of Barker concerned the termination of Mr Barker’s position through redundancy by the Commonwealth Bank. After making Mr Barker’s position redundant, the Commonwealth Bank informed him that if he was not redeployed within the bank, his employment would be terminated.  However, following this discussion, Mr Barker’s access to his Commonwealth Bank email account, voicemail and intranet was cut off. Accordingly, Mr Barker was not aware of, and was not able to apply for, the redeployment opportunities and, ultimately, his employment was terminated. Mr Barker claimed, among other things, that the conduct of the Commonwealth Bank in denying him an opportunity to apply for redeployment was in breach of the implied term of mutual trust and confidence.

The Court, at first instance, held that an implied term of mutual trust and confidence did exist and the Commonwealth Bank had breached the term.

However, following an appeal by the Commonwealth Bank, the High Court, in its decision delivered in September last year, said it would be a step beyond its decision-making powers to hold that the implied term of mutual trust and confidence exists and is a part of all contracts of employment in Australia. Such a decision, the Court noted, was more appropriately left for Parliament due to the complex policy considerations involved.

The finding is a clear win for employers. It means they are not subject to the onerous and uncertain standards imposed in the United Kingdom, where the implied term is part of all employment contracts. A rich example of these standards is in the form of a case from the United Kingdom which held that an employer was under an implied obligation to its employees to not conduct a dishonest or corrupt business, as that would undermine the trust and confidence its employees had in their employer.

However, the High Court of Australia expressly left open the question of whether the implied term of good faith applies to all employment contracts. Given the findings of multiple courts of different jurisdiction around Australia that the implied term of good faith does exist and applies to employment contracts, we recommend that employers should operate on the basis that the implied term of good faith does apply. However, the content of the duty of good faith and what the duty requires employers to do (beyond acting in ‘good faith’) is still uncertain and still requires clarification by the Courts.

Nevertheless, in New South Wales, at least, there is case law supporting the position that the duty of good faith operates at the point of termination ‘for cause’ (e.g. poor performance or serious misconduct). Accordingly, it would be prudent for employers to be mindful of this, and effect termination for cause with procedural fairness for all employees, including those above the unfair dismissal salary cap, to ensure they do not expose themselves to a potential breach of contract claim for breaching the implied duty of good faith.

AHRI members can access information sheets and guidelines on employment contracts on the AHRI:ASSIST resource centre. Find out more.

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Trust and faith in employment contracts


According to the recent High Court decision of Commonwealth Bank of Australia v Barker, Australian employment contracts do not contain an implied term of ‘mutual trust and confidence’. This term has been defined broadly by the courts in Australia to mean that employers and employees must not conduct themselves in a way that is likely to undermine, damage or destroy the employment relationship and the trust and confidence between the parties to the employment relationship.

The case of Barker concerned the termination of Mr Barker’s position through redundancy by the Commonwealth Bank. After making Mr Barker’s position redundant, the Commonwealth Bank informed him that if he was not redeployed within the bank, his employment would be terminated.  However, following this discussion, Mr Barker’s access to his Commonwealth Bank email account, voicemail and intranet was cut off. Accordingly, Mr Barker was not aware of, and was not able to apply for, the redeployment opportunities and, ultimately, his employment was terminated. Mr Barker claimed, among other things, that the conduct of the Commonwealth Bank in denying him an opportunity to apply for redeployment was in breach of the implied term of mutual trust and confidence.

The Court, at first instance, held that an implied term of mutual trust and confidence did exist and the Commonwealth Bank had breached the term.

However, following an appeal by the Commonwealth Bank, the High Court, in its decision delivered in September last year, said it would be a step beyond its decision-making powers to hold that the implied term of mutual trust and confidence exists and is a part of all contracts of employment in Australia. Such a decision, the Court noted, was more appropriately left for Parliament due to the complex policy considerations involved.

The finding is a clear win for employers. It means they are not subject to the onerous and uncertain standards imposed in the United Kingdom, where the implied term is part of all employment contracts. A rich example of these standards is in the form of a case from the United Kingdom which held that an employer was under an implied obligation to its employees to not conduct a dishonest or corrupt business, as that would undermine the trust and confidence its employees had in their employer.

However, the High Court of Australia expressly left open the question of whether the implied term of good faith applies to all employment contracts. Given the findings of multiple courts of different jurisdiction around Australia that the implied term of good faith does exist and applies to employment contracts, we recommend that employers should operate on the basis that the implied term of good faith does apply. However, the content of the duty of good faith and what the duty requires employers to do (beyond acting in ‘good faith’) is still uncertain and still requires clarification by the Courts.

Nevertheless, in New South Wales, at least, there is case law supporting the position that the duty of good faith operates at the point of termination ‘for cause’ (e.g. poor performance or serious misconduct). Accordingly, it would be prudent for employers to be mindful of this, and effect termination for cause with procedural fairness for all employees, including those above the unfair dismissal salary cap, to ensure they do not expose themselves to a potential breach of contract claim for breaching the implied duty of good faith.

AHRI members can access information sheets and guidelines on employment contracts on the AHRI:ASSIST resource centre. Find out more.

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