Australia: Implied term of trust and confidence is a part of Australian law – Federal Court confirms in decision on employment contracts

Last Updated: 27 August 2013
Article by Elizabeth Kidd

Most Read Contributor in Australia, September 2016


The recent decision of a majority of the Full Federal Court in Commonwealth Bank of Australia v Barker [2013] FCAFC 83 has held that a term of mutual trust and confidence is implied into contracts of employment unless it is expressly excluded.

In this case, the Commonwealth Bank of Australia (CBA) was held to have breached the implied term of mutual trust and confidence by failing to adequately implement redeployment opportunities for an executive manager shortly before terminating his employment through redundancy.


Stephen Barker was employed by CBA as an executive manager and had approximately 23 years' employment with CBA.

Mr Barker was notified that his position had become redundant (2 March 2009), effective immediately, and he was told that his employment would be terminated in one month if another position was not found within CBA to which he could be redeployed. Mr Barker was told by CBA that his redeployment was their preference and options would be considered with him.

On his notification of redundancy, Mr Barker was told to clear his desk, return his keys and phone and told that he was not to return to work. His access to CBA's email and intranet was also revoked.

The staff members responsible for assisting Mr Barker with redeployment attempted to make contact with him via his work email and phone number (Mr Barker did not have access to these at the time). It was only shortly before Mr Barker's employment was due for termination that the staff attempted to contact Mr Barker regarding a redeployment option using his personal email address.

The time for exploring redeployment options was extended by a week, following which Mr Barker was advised that his employment was terminated.

Mr Barker commenced proceedings in the Federal Court arguing that amongst other claims, CBA's actions in failing to make adequate efforts to redeploy him had breached the term of trust and confidence implied into his employment contract.

Decision at first instance

At first instance, Besanko J found that the redeployment policy did not form part of Mr Barker's employment contract.

His Honour found that CBA had been "almost totally inactive" in implementing its policy within a reasonable period of notifying Mr Barker of his redundancy. According to Besanko J, this amounted to a serious breach of the implied term of mutual trust and confidence which sounded in damages in the sum of $317,500.

Decision on appeal

In a 2 to 1 split, Jacobson and Lander JJ held that "the implied term has obtained a sufficient degree of recognition, both in England and Australia, that it ought to be accepted by an intermediate court of appeal."

The majority, referring to the House of Lords decision in Malik v Bank of Credit and Commerce International SA (in liq), stated that the content of the implied term "which has been stated in most of the authorities, is that the 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".

The majority acknowledged that the precise content of what this means in practice is "still being developed".

The majority held that CBA's conduct in the circumstances constituted a breach of the implied term. In coming to this conclusion, the majority considered that the length of Mr Barker's service (close to 29 years) and a clause in his contract relating to redeployment in the case of redundancy were enough to require CBA to take positive steps, from the time of Mr Barker's notification of his redundancy, to consult with Mr Barker regarding redeployment and provide him with the opportunity to apply for alternative positions within CBA.

It was concluded that CBA did not take adequate positive steps to make contact with Mr Barker within a period that was reasonable in the circumstances.

As a result, Mr Barker was entitled to damages of approximately $335,623.57.

Jessup J, in an extensive dissent, reviewed the history and authorities relating to the implied term but was unable to conclude that the implied term forms part of Australian law. He also held that, even if the term could be implied in Australian law, CBA's conduct had not breached the term in any event.

All of the judges agreed that the term cannot be applied at the point of dismissal, but that actions prior to dismissal may give rise to a breach of the term.

Implications for employers

  • Ensure compliance with relevant policies prior to terminating employment, especially redeployment policies.
  • Consider the inclusion in employment contracts of terms expressly excluding implied terms in certain circumstances.

There is currently no High Court authority determining whether the implied term of mutual trust and confidence applies to employment contracts. As such, it is anticipated that an application for special leave to appeal to the High Court will be made by CBA.

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.

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