Just as the High Court of Australia was handing down its long awaited decision in the Board of Bendigo Regional Institute of Technical and Further Education v Barclay  HCA 32, the Federal Court of Australia has set another cat among the pigeons in Barker v Commonwealth Bank of Australia  FCA 942.
Last week, Justice Besanko of the Federal Court ordered the Commonwealth Bank of Australia (CBA) to pay a former Executive Manager $315,700 in damages for breach of the implied term of mutual trust and confidence, which the Federal Court held existed between an employer and an employee.
The CBA failed to follow its internal redeployment policy when Mr Barker's position was made redundant. In its defence the CBA relied on the fact that the policy expressly stated that it was not to be incorporated as a term and condition of employment and so it did not create binding legal obligations on CBA.
In spite of this, Justice Besanko held that there is a term of mutual trust and confidence implied by law in Australian employment relationships, and a serious breach of company policy without good cause will breach the implied term.
Mr Barker's position as an Executive Manager was made redundant in 2009. He was told about the redundancy in a meeting with his superiors and was handed a letter confirming that CBA preferred to redeploy staff where possible and if redeployment was not possible he would be made redundant.
Mr Barker was placed on garden leave for the duration of the set redeployment period and was required to return company property. He did not have access to the company intranet or his email during the redeployment period.
CBA's redundancy and redeployment policies set out the steps the company would take to redeploy staff to suitable alternative positions in the case of redundancy. The policies clearly stated they were not to be incorporated as terms of the contract of employment.
Shortly before the end of his designated redeployment period, CBA emailed Mr Barker at his personal email account setting out details of an interstate position he may be interested in and suggested that he apply for the position. There was no other meaningful engagement with Mr Barker to investigate suitable alternative employment.
The implied term of mutual trust and confidence
For many years now Australian courts and commentators have not been able to say with certainty whether Australian law implies a term of mutual trust and confidence in employment relationships.
It is a term implied by law in the United Kingdom and four judges of the High Court of Australia in Koehler v Cerebros in 2005 considered it was likely the term applied to Australian employment relationships, but never ruled on that point. Justice Besanko considered he was bound to accept the High Court of Australia's assessment and the UK position and found the term of mutual trust and confidence is to be implied into Australian employment relationships.
The implied term, he said, is breached when one party to the contract does something likely to 'destroy or seriously damage the relationship of trust and confidence without proper cause'. It would have to be, he considered, a serious breach of policy to amount to a breach of mutual trust and confidence.
A serious breach of policy
Justice Besanko found there was a mutual expectation that the employer and the employee would adhere to CBA's policies. He considered that CBA's complete failure to engage in the redeployment process in this case constituted a serious breach of policy and therefore the implied term of mutual trust and confidence.
His Honour arrived at this conclusion despite the fact that Mr Barker did not actively look for redeployment and despite the fact that CBA was under no obligation to redeploy him if he had expressed an interest in available positions.
Having regard to the positions available and Mr Barker's performance, Justice Besanko considered he had a 25% chance of being redeployed if CBA had engaged in the redeployment process. He awarded $315,700 as a percentage of the losses Mr Barker claims for past earnings from the date he was retrenched and anticipated future earnings from his current age of 48 until retirement at or around the age of 60.
Unless or until the CBA seeks to appeal this decision, or further clarification on the application of this implied term is given by the Courts, employers that fail to follow policies because they believe they operate as guides only, must now be on notice.
Justice Besanko acknowledged that parties could expressly exclude the implied term of mutual trust and confidence from the contract itself, but the reality is that most employers and employees do not want to start the employment relationship doubting the other's intentions. Trust and confidence is an important element in any relationship.
The conundrum for employers is retaining a level of discretion to apply policies according to the situation at hand, without resorting either to excluding the term of mutual trust and confidence from the relationship entirely or adopting policies that are so loosely drafted that its impossible for the employer to be in breach of the policy. It is far preferable to state in the contract and in policies whether the policies apply and what level of staff, such as executive members of staff, are excluded from the policy.
Employers should review their policies and carefully consider whether they may be exposed to claims of breach of mutual trust and confidence when the policies are not followed.
Please contact us to discuss how this case affects your organisation and the application of organisation policies to its staff.
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