With today's economic climate, many businesses are faced
with the need to overhaul their business in order to survive. This
often means a need to restructure their workforce and in some cases
may lead to termination of employees.
Restructuring a workforce or terminating employees raises a
myriad of issues when dealing with employees such as contractual
obligations, statutory obligations and the minefield of
implications that come from the policies and procedures put into
place by many businesses (or lack of them).
When terminating employees, a valid reason must exist for an
employer to be able to terminate them. The reason or reasons must
be based on the employee's poor performance, conduct or changes
to the operational requirements of the business resulting in a
Transitioning employees to new roles of terminating employees,
if not handled correctly, can result in a breach of contract or
The recent High Court Decision of Barker involved an
employee who was terminated by way of redundancy. The employee
argued that their employer, the Commonwealth Bank, had breached the
implied contractual term of mutual trust and confidence. The case
examined carefully the wording of employment policies of the bank
as well as the contract between the Bank and the employee. The
matter was argued all the way to the High Court. The High Court
found in favour of the employer, finding that there was no implied
obligation of mutual trust and confidence. Accordingly, the
Commonwealth Bank's termination of Mr Barker did not breach a
term of the contract.
Barker is of great significance for employers in that
they are no longer exposed to uncertain and ill-defined claims
arising out of the performance of the employment contract. Well
defined contract law principles and legislative provision can
provide some level of comfort to employers who are restructuring or
terminating an employee. However, while the decision is good news
for the employer it is not the end of the story. Many cases are now
being bought which involve other potential implies terms of the
employment contract, which may provide scope for employees to
attempt to pursue claims in which they allege breach of contract
such as the employer's obligation to act in "good
faith". We will discuss the principle of "good
faith" in further detail in our article "The Loss of
Mutual Trust and Confidence Part III"
If you are restructuring your workforce or terminating employees
for any reason you should seek legal advice to minimise the risk of
a costly and time consuming dispute.
In our next blog, The Loss of Mutual Trust and Confidence Part
II, we will discuss what the loss of mutual trust and confidence
means for your employment documents.
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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