Australia: Implying trust and confidence into the employment relationship

Later this year, the High Court will determine whether a term of mutual trust and confidence is implied into every contract of employment in Australia. If the Court finds in favour of the implied term, every employer will potentially be liable for damages caused by conduct that destroys or seriously damages the relationship of trust and confidence between itself and each employee.

So what is a term of mutual trust and confidence? What kind of conduct by an employer might be considered to breach the relationship of trust and confidence?

This question will be considered by the High Court in the appeal of the full Federal Court decision, Commonwealth Bank of Australia v Barker. In that decision, the Federal Court found that the Commonwealth Bank of Australia's (CBA) failure to take meaningful steps to attempt redeployment of an employee whose position had become redundant, was a breach of the implied term of trust and confidence. The Court awarded the employee $335,623.

What is an implied term?

Every employer is in a contract of employment with each of its employees. Whether this contract is written or not, the common law implies some terms by which both the employee and employer are bound. For example:

  • an employee is obliged to comply with lawful and reasonable directions
  • an employer is obliged to provide a safe workplace, and
  • both parties are obliged to give reasonable notice when intending to terminate the contract.

An implied term of trust and confidence is expressed as a mutual duty, meaning both employers and employees would be obligated not to do anything to break the trust and confidence between the parties.

UK examples of the operation of the implied term of trust and confidence

English cases provide some insight into how an implied term of trust and confidence might operate in Australia. Since 1998 in the UK, this implied term has been found to have been breached by an employer in a wide range of circumstances, including:

  • Imposing excessive workloads and bullying employees: A senior manager repeatedly ignored reports about a secretary whose work-load was 15-20 hours per week above her paid hours. The employer also treated the secretary aggressively.
  • Poor management of grievance claims: The paternity of the child of a pregnant employee was the subject of office gossip, about which the employee made a grievance claim. The employee was not permitted an inter-office transfer. She was required to immediately return to the hostile work environment while her grievance claim was in progress.
  • False accusations of lying: An employee was wrongly accused of being a liar even after a formal disciplinary process had resolved the allegation in their favour.
  • Unreasonable relocation requests: An employee was required to relocate offices within six days. This was despite their initial request for additional notice due to personal circumstances, and a further request to use annual leave as a means of obtaining more time.
  • Carrying on business in a corrupt manner: A company was involved in corrupt conduct and this was known by the public. Former employees of the company that were not involved in the corruption had trouble obtaining new employment.

These UK examples highlight the particular risk to employers of breaching this implied term, as a result of the actions and decisions of their senior employees and managers (or others that have responsibility for carrying out the employer's legal duties).

Although an implied term of trust and confidence is expressed as a mutual duty, in practice, we anticipate the term would place far greater obligations on employers.

What could this mean for Australian employers?

If found to exist, an implied term of trust and confidence could potentially be breached by an employer in a myriad of ways. Whether or not particular conduct is in breach of this implied term will depend on the circumstances of each case.

In Mr Barker's case, CBA's obligation to take meaningful steps to facilitate Mr Barker's redeployment arose in the context of Mr Barker's long-term employment of 27 years with the bank. The significant size of the organisation, as well as idiosyncrasies in his employment contract, were also contributing factors.

The implied term may also increase the number of legal avenues available to aggrieved employees. Some circumstances that give rise to a breach of the implied term by an employer will simultaneously give rise to causes of action under other legal protections, such as anti-discrimination laws, the unfair dismissal regime and the new anti-bullying framework. This increases the potential for multiple claims.

Additionally, a claim of breach of implied trust and confidence will be able to be made by some employees who are currently excluded from alternate legal claims against their employer. This includes high-income earners (currently those that earn over $129,300) who are excluded from the protection of the unfair dismissal laws, or employees who are excluded from making a claim because they are outside the time-period required by a statutory regime.

The experience in the UK suggests that the duty imposed on employers will be relevant to all facets of the employment relationship, including managing the workplace culture, making operational decisions and terminating employment. The potential breadth of the implied term, combined with the subjectivity of its application, is likely to create further uncertainty for employers when managing HR risks.

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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