Australia: Federal Court finds implied contractual term of mutual trust and confidence

In the decision of Barker v Commonwealth Bank of Australia [2012] FCA 942 (Barker) Mr Barker made a number of claims against his former employer, the Commonwealth Bank of Australia (CBA) based on its selection of him for redundancy and its failure to redeploy him.


Mr Barker was an employee of the CBA for 27 years. At the time of termination of his employment he was an Executive Manager and had signed a new employment agreement in mid-2004 (the Agreement).

The Agreement provided that the parties could terminate the Agreement at any time on 4 weeks' notice and made no provision for redundancy procedures. Redundancies and redeployment were provided for in a separate document, one of CBA's policies (the Redundancy Policy), which specifically stated that it did not form any part of an employee's contract of employment.

Following a decision to restructure Mr Barker's position became redundant. The selection of Mr Barker was based on the fact that although his performance was satisfactory, he was not performing as well as others in the same position.

Mr Barker was advised that his position was redundant and there was a "possibility" he would be retrenched at a meeting on 2 March 2009. At this time Mr Barker was told CBA's preference was to redeploy him and he was advised he would remain on paid leave during the "redeployment period". Mr Barker left the workplace on this day and did not return, CBA property was provided back to CBA and Mr Barker's email and intranet access ceased.

On 9 April 2009 Mr Barker received a letter from CBA stating that his employment was terminated due to redundancy. In this letter CBA asserted that Mr Barker had been provided with notice of termination at the 2 March 2009 meeting.

During the period 2 March to 9 April 2009 CBA did very little to attempt to redeploy Mr Barker, which was further hindered by internal emails regarding positions available continuing to be sent to Mr Barker's then inactive CBA email account.


The Federal Court found that CBA repudiated the contract on 9 April 2009, by terminating the Agreement without notice – as at the 2 March 2009 meeting it was only the "possibility" of retrenchment that was raised.

The Federal Court also found there was "almost total inactivity within a reasonable period" by CBA in attempts to redeploy Mr Barker. This failure of the CBA was found to be a serious breach of its Redundancy Policy.

Although the Redundancy Policy was expressed to be not part of Mr Barker's Agreement, the Court held the Agreement included an implied term of mutual trust and confidence, whereby CBA "must not without reasonable or proper cause conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee."

By failing to make reasonable attempts as required by the Redundancy Policy, the Court held CBA had seriously breached its policy which in turn was a breach of the implied term of mutual trust and confidence.

It is not clear from the Federal Court's judgment how a breach of a policy, expressly not part of the Agreement, can amount to a breach of any term of the Agreement, whether implied or not. On this basis it has been suggested by a number of commentators that this finding is likely to be appealed.

The Court rejected Mr Barker's contention regarding his selection for redundancy, as to do so would go beyond the scope of the implied term of mutual trust and confidence and would be contrary to the express contractual term that CBA could terminate the Agreement at any time (with notice).


Mr Barker was awarded $110,000 for past earnings and $317,000 for future earnings. This was based on the fact that Justice Besanko found that if proper attempts of redeployment had been made there was only a 25% chance that Mr Barker would have successfully been redeployed. Therefore Besanko J awarded 25% of the estimate of future earnings of Mr Barker, had Mr Barker remained at CBA until retirement age.


The importance of carefully drafted polices: even where policies are specifically stated not to form part of the employment agreement, policies need to be drafted in such a way as to allow employer flexibility – as there will be times when an employer may, for whatever reason, need to deviate from its own procedures.

Know the redundancy procedures: employers need to know the various components to effecting retrenchments. It is best practice to seek legal advice once any decision is made that may result in redundancies.

Amend employment agreements: Besanko J noted that the implied term of mutual trust and confidence is implied by law and may be excluded by the express terms of a contract.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Kemp Strang has received acknowledgements for the quality of our work in the most recent editions of Chambers & Partners, Best Lawyers and IFLR1000.

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