Australia: HOT OFF THE PRESS - There is no implied term of mutual trust and confidence in Australian employment contracts, and other cases

Workplace Insights 2(3) September 2014

Commonwealth Bank of Australia v Barker [2014] HCA 32

Is there an implied term of mutual trust and confidence in Australian employment contracts? This has been a hotly contested question for the last 15 years. As we reported in our September 2013 issue, a Full Court of the Federal Court considered this question in a matter involving the Commonwealth Bank (CBA) and the majority decision was yes, there is an implied term of mutual trust and confidence in all Australian employment contracts.

CBA appealed the decision and it went to the High Court for determination. The highly anticipated High Court judgment was released on 10 September 2014 in which it found that the Full Court of the Federal Court was wrong.

What is the implied term of mutual trust and confidence?

The implied term requires that an employer will not, without reasonable and proper cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee. Damages can be awarded for a breach of the implied term.

Facts of CBA v Barker

Barker's position of Executive Manager at CBA was made redundant in March 2009. CBA notified Barker via letter that his employment would automatically terminate in 4 weeks if suitable redeployment could not be provided. Importantly, Barker's

employment contract required that the CBA consider redeployment opportunities prior to termination. The CBA did not consider any redeployment opportunities and, additionally, they withdrew his email and phone facilities without notifying the redeployment officer. The redeployment officer had made a number of unsuccessful attempts to contact Barker by those means. This meant that Barker's employment terminated four weeks later.


At first instance, Besanko J of the Federal Court found that the implied term of mutual trust existed and had been breached by CBA as a result of it failing to attempt to redeploy Barker. Barker was awarded damages of $317,500.

CBA appealed Besanko J's decision. The majority decision of the Full Federal Court stated that the implied term of mutual trust and confidence will ordinarily be implied into Australian employment contracts, unless expressly excluded. Barker was awarded damages of $335,623.

CBA appealed the Full Court of the Federal Court's decision. The High Court found that the Full Court of the Federal Court's conclusion that the implied term had become part of Australian law was wrong. On this basis, the High Court overturned the damages awarded to Barker.


  • Caution advised for HR Managers involved in business decisions
  • Dismissal for public urination found to be unfair
  • Employee Support Person and maintaining confidentiality

What does this mean for you?

The good news is that there is now certainty around the proposition that the (onerous for employers) term of mutual trust and confidence is not implied in Australian employment contracts.

Caution advised for HR Managers involved in business decisions

If you are a human resources manager or a company advisor, a recent report released by Melbourne University's Centre for Employment and Labour Relations Law (CELRL) is likely to have broad implications for you.

The CELRL report reviews the activities of the Fair Work Ombudsman (FWO) and its predecessor, the Workplace Ombudsman, between 2006 and 2012. Notably, the report urges the FWO to target HR Managers and company advisors (including accountants and legal advisors) under section 550 of the Fair Work Act 2009 (Act) (often referred to as the accessorial liability provisions of the Act).

Section 550 allows for any person who is involved in a contravention of a civil remedy provision of the Act to be taken to have actually contravened that provision. 'Involved in' is defined very broadly and includes being in 'any way, by act or omission, directly or indirectly, knowingly concerned in or party to the contravention'.

The FWO has traditionally focussed on exercising the accessorial liability with regard to company directors (although the provisions have been previously exercised in relation to a human resources manager for being involved in sham contracting - the HR Manager received a $4,000 penalty and was publicly named and shamed). Following the release of the CELRL report, this is likely to change.

The monetary maximum penalty that can be imposed against an individual under section 550 of the Act is $10,200. However, the CELRL report also encourages the FWO to seek compensation against accessories and not just penalties. So the amount of money that an accessory is ordered to pay could very well increase substantially.

Given the above, HR Managers and company advisors must be cautious when making, or advising on, business decisions. It is important to note that ignorance that a particular matter is in breach of the Act is not a defence to accessorial liability. In this case therefore, the old adage certainly isn't true – ignorance is most definitely not bliss.

Dismissal for public urination found to be unfair

In a recent unfair dismissal case, a lack of procedural fairness has led to the Commission determining that a dismissal was unfair despite the fact that the employee did engage in conduct in breach of the employer's policies.

The Applicant was employed by Sargeant Transport Pty Ltd (Sargeant) as a delivery truck driver and his employment was terminated for his conduct in urinating outside the entrance to a Woolworths warehouse when making a delivery.

Commissioner Bissett conceded that the Applicant's conduct and failure to appropriately explain his actions to Sargeant constituted a valid reason for dismissal. However, she held that there was a lack of procedural fairness by the employer which rendered the dismissal unfair. The procedural flaws in the case included that Sargeant did not:

  • adequately put the allegations to the Applicant nor make him aware of the evidence against him;
  • provide him with sufficient opportunity to respond;
  • make him aware of the potential ramifications of his conduct (that is, failed to explain to him that the outcome of the matter could be that his employment would be terminated); nor
  • take into account the fact that the Applicant had a medical condition (which he had disclosed in his induction paperwork) which caused urinary urgency.

On the above basis, Commissioner Bissett ordered that Sargeant make financial compensation to the Applicant in the amount of $16,128.

This decision highlights the importance of procedural fairness in all dismissals. Employers should take note of section 387 of the Fair Work Act 2009 (Act) which sets out a range of factors that the Commission must consider when determining whether a dismissal was harsh, unjust or unreasonable, including (but not limited to):

  • whether there was a valid reason for the dismissal;
  • whether the person was notified of that reason;
  • whether the person was given an opportunity to respond; and
  • any unreasonable refusal by the employer to allow the person to have a support person present.

This is a good reminder that a failure to ensure procedural fairness may, despite the seriousness of the employee's behaviour or conduct, consequently render a dismissal unfair.

Employee Support Person and maintaining confidentiality

Most employers have reservations where an employee elects to bring another employee as a support person to a disciplinary meeting. A common concern for employers when this occurs is that the employee support person will gossip about the matters discussed in the meeting within the workplace.

For this reason, we recommend to our employer clients that they direct employee support persons to maintain the confidentiality of the meeting and the matter at hand. This enables employers to discipline the employee support person if they do not keep the matters confidential.

This approach has been supported by a recent Fair Work Commission decision, In this matter, Commissioner Gregory of the Fair Work Commission determined that MSS Strategic Medical and Rescue (MSS) had been too harsh when it issued a final written warning to an employee support person for his conduct in forwarding an email containing information about an internal investigation. Despite the fact that the employee had breached the employer's existing confidentiality policies, Commissioner Gregory stated that MSS should have specifically informed the employee in relation to the need maintain confidentiality in respect of the matter at hand.

Importantly, the employee was genuinely surprised that his email would be considered a breach of confidentiality and he told MSS that he would not have forwarded the email if he was aware it would be considered as such. Accordingly, Commissioner Gregory concluded that had MSS better informed the employee as to his confidentiality obligations around the process, he would not have engaged in the conduct the subject of the final written warning.

Whilst Commissioner Gregory determined that a final written warning was too harsh in the circumstances, ultimately he concluded that a written warning was warranted.

This confirms that employers should direct employee support persons to maintain the confidentiality of the meeting and the matter at hand and that if they do not, disciplinary action will be justified.

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. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.

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