Australia: Duty of mutual trust and confidence not implied into Australian employment contracts - Commonwealth Bank v Barker

Last Updated: 24 September 2014
Article by Kristen Lopes and Amy Goricanec
In brief - High Court unanimously overturns decision of Full Federal Court

Employers will be relieved by the recent High Court decision that the implied term of mutual trust and confidence in employment contracts in the UK cannot be imported into Australian law.

Implied term of mutual trust and confidence in UK employment contracts

For years the courts in Australia have grappled with the question of whether Australian law recognises an implied term of mutual trust and confidence in employment contracts, which is a well established common law doctrine in the United Kingdom.

In the UK, the implied term allows terminated employees to argue that their employer breached this implied term, giving rise to a potential breach of contract and to wrongful or constructive dismissal claims.

The question of whether employment contracts contain an implied term that neither party will, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust and confidence between them, has now been determined in Australia.

First instance decision creates uncertainty for Australian employers

In August 2013 we reported that on 6 August 2013, the Full Federal Court had upheld the decision of Justice Besanko at first instance, finding for the first time in Australia that the duty of trust and confidence was an implied term of employment contracts. (Please see our earlier article Employers need to follow their redeployment procedures when making employees redundant.)

This decision created uncertainty for Australian employers in terms of the scope of duties owed in the employment relationship.

Leave to appeal the decision of the Full Federal Court to the High Court was granted on 28 January 2014.

On 10 September 2014, in Commonwealth Bank of Australia v Barker [2014] HCA 32, the High Court of Australia overturned the decision of the primary judge and the Full Court of the Federal Court in a unanimous decision, finding that the term of mutual trust and confidence is not implied into Australian employment contracts.

CBA terminates employment of executive manager due to redundancy

Mr Stephen John Barker was employed by the Commonwealth Bank of Australia (CBA) for 27 years, most recently as an executive manager. On 2 March 2013, the CBA informed Mr Barker that his position was being eliminated, that the bank would endeavour to redeploy him and that in the event that he was not re-deployed, his employment would terminated due to redundancy.

After the meeting on 2 March 2009, Mr Barker was required to hand in his mobile phone and his access to his work email account, voicemail and intranet were all terminated. In an effort to redeploy Mr Barker, the bank endeavoured to contact him regarding opportunities and informed him that if a redeployment opportunity could not be found, his effective exit date would be 30 March 2009. As Mr Barker had been deprived of access to his email account, he did not see the messages until 23 March 2009, when they were forwarded to his personal email account.

No alternative position was found for Mr Barker and on 9 April 2009 his employment was terminated.

Terminated manager brings proceedings against CBA

Mr Barker brought proceedings against CBA on a number of grounds. In particular, he asserted that the CBA had failed to take positive steps to consult with him regarding possible redeployment opportunities, which amounted to a breach of the duty of mutual trust and confidence, which he argued was implied by law into his employment contract.

The primary judge as well as the full Federal Court of Australia agreed with Mr Barker and found that a term of mutual trust and confidence was implied into Australian employment contracts.

Implied term would interfere with existing laws and could result in inconsistency

The High Court analysed the English authorities and came to the decision that the English authorities could not be imported into Australian law.

Gageler J in his reasons agreed with the dissent of Jessup J in the decision of the Full Federal Court, in that the emergence of the implied term is a product of particular statutory circumstances in the United Kingdom and as such ought to be confined to the United Kingdom.

The court made it clear that the common law must evolve within the limits of its judicial power. Affirming the existence of an implied term of mutual trust and confidence in the written employment contract was a step beyond the legitimate law making function of the court.

The court added that if such a term were to be implied into Australian employment agreements, it would interfere with current existing laws against unfair dismissal and there would be uncertainty with respect to decision making in an area of frequent and contentious legislative activity, which could result in inconsistency.

Test of necessity to determine if contract is effective without implied term

The High Court also applied the test of necessity in determining whether an implied term of mutual trust and confidence exists. Common law has established that a term cannot be said to be necessary if the contract is effective without it.

The High Court found that Mr Barker's employment contract provided for the very circumstance now sought to be made the subject of an implication and as such it could not be said to be necessary. The court further found that the implied term of mutual trust and confidence imposed obligations which went beyond what was necessary.

Employers can take comfort from Barker decision but must remain vigilant

Australian employers can breathe a sigh of relief given that the High Court has ruled that the duty of mutual trust and confidence is not implied into Australian employment contracts. Employers will not be subject to scrutiny in terms of whether they have engaged in conduct which amounts to an alleged breach of the implied duty.

That said, employers must remain vigilant in ensuring that their workplace policies are current, properly communicated and applied consistently to minimise exposure to employment disputes and litigation.

Kristen Lopes
Workplace relations
CBP Lawyers

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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Kristen Lopes
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