The High Court of Australia (High Court) has handed down a much
anticipated decision in Commonwealth Bank of Australia v Barker
 HCA32 (10 September 2014) with respect to the implied
term of mutual trust and confidence in employment contracts.
The Federal Court had previously held that employment contracts
contain an implied term of mutual trust and confidence. As a
consequence, employers (and probably employees) were subject to
what amounted to a general obligation to treat the other party to
the contract fairly or reasonably. That obligation was uncertain in
its scope and extended the operation of the employers' (and
probably employees') express contractual obligations.
The key issue which arose on appeal is whether Mr. Barker's
employment contract contained an implied term of mutual trust and
The High Court has overturned the earlier decisions of both the
Federal Court (3 September 2012) and Full Court of the Federal
Court (6 August 2013) by concluding that under the common law of
Australia, employment contracts do not contain an implied term of
mutual trust and confidence.
The Federal Court's finding in September 2012 that
employment contracts contain an implied term of mutual trust and
confidence, and the Full Court of the Federal Court's
confirmation of that decision in August 2013, albeit adopting a
different approach, was the first time that a superior Court in
Australia had made such a finding. The immediate result was a
significant number of claims being made by employees alleging a
breach of the mutual trust and confidence term, often in
conjunction with another cause of action. The Commonwealth
Bank's (CBA) appeal provided the High Court with an opportunity
to settle this very contentious issue and it has done so by
allowing CBA's appeal.
Mr. Barker was a long serving employee of the CBA. His
employment contract stated that he would be provided with a
redundancy payment if he could not be redeployed. He was dismissed
on the basis of redundancy. Mr. Barker contended that CBA did not
make a sufficient effort to redeploy him and that its conduct
constituted a breach of the implied term of mutual trust and
The High Court held that employment contracts do not contain a
term that neither the employer nor the employee will, without
reasonable cause, conduct itself in a manner likely to destroy or
seriously damage the relationship of trust and confidence between
them. The High Court held that the term was not implied in law in
employment contracts generally.
Central to the High Court's decision was the view that the
implication of the term into employment contracts is not
'necessary', in the sense that would justify the exercise
of the Court's judicial power in a way that may have a
significant impact upon employment relationships, and the law of
contract of employment in Australia. The High Court elaborated on
the concept of 'necessity' by referring to terms that an
employment contract implicitly requires to operate. The Court held
that the concept of 'necessity' is not satisfied by
demonstrating the reasonableness of the implied term.
In making its decision, the High Court concluded that it was not
appropriate for it to follow the approach taken by the Courts in
the United Kingdom, which have found that the implied term does
exist in employment contracts. In that regard, the High Court
concluded that it must be cautious to observe the dividing line
between judicial and legislative powers in Australia. It concluded
that importing a term of mutual trust and confidence into
employment contracts would trespass into the province of
legislative action in the Australian context, which is not
appropriate for the judicial branch of Government.
Significance for Employers
The decision is of great significance to employers as they are
no longer exposed to uncertain and ill defined potential claims
arising out of their conduct, or alleged conduct, towards
employees. Employers can now take comfort that their legal
relationship with their employees will be determined primarily by
well defined contract law principles and legislative provisions.
Employment contracts in Australia still contain numerous implied
terms, however, none of those are of such wide reaching and ill
defined scope as the purported implied term of mutual trust and
confidence. The case represents a significant win for
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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