The Loss of Mutual Trust and Confidence Part
III – The implied term of "good faith" in
Employment Law and how this may impact your employment arrangements
In our previous blog,
The Loss of Mutual Trust and Confidence Part I- restructuring
and terminating employees, the issue was raised that the Barker
decision has led to a situation in which employees are now pursuing
claims against employers for a breach of the implied term of
"good faith" and accordingly, a breach of contract.
"Good faith" in contract law, is a general presumption
that the parties to a contract will deal with each other honestly
and fairly, so as to not destroy the right of the other party or
parties to receive the benefits of the contract.
The implied duty of good faith and its implications were
recognised in the decision of Silverbrook Research Pty Ltd v
Lindley  ("Silverbrook"). In this case, the Court
considered the obligation of the company to consider the awarding
of an annual performance bonus under the contract to its employee.
The employee's contract stated that Silverbook would assess the
employee's performance against set objectives at the end of
each quarter and if those objectives were met, the employee would
be paid a bonus. The employer failed to set objectives for the
employee for which a bonus could be awarded, which resulted in the
employee seeking a breach of contract, when no bonus was
forthcoming. The Court found in favour of the employee, who was
awarded damages based on an assessment had the employee received
In light of Silverbrook, where an employer is obligated to do
something in accordance with their duty of "good faith",
then the employer should do it. A common example is in relation to
discretionary bonuses in employment contracts. If an employer does
not properly consider whether or not to pay a bonus to an employee,
then a claim may be brought by the employee for not acting in
"good faith". Employers should be mindful of terms set
out in employment contracts and ensure that if a term exists in the
employment contract they are willing to act on it and consider it
However, whilst in Silverbrook the Court found in favour of the
employee, each case must be determined separately based on the
facts of the matter. Accordingly, the principles in Silverbrook may
be used merely to assist in the interpretation of employment
contracts where there is some ambiguity in determining
The employment contract is still an instrument that can be used
to pursue all sorts of claims and employers must be mindful of
claims that can be made against them and pursue legal advice from a
lawyer with expertise in Employment Law should an issue arise
within the employment relationship.
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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Long experience representing many of Australia's leading employers has taught us that in employment litigation the identity of an employee's representative is a major factor in how employee litigation runs.
Australian employees receive certain entitlements (such as annual leave and superannuation) where contractors do not.
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