The Supreme Court of South Australia recently became the first court in Australia to award damages for the breach of an implied term of trust and confidence in an employment contract.
The Court awarded $392,850 plus costs in favour of an employee who made a claim for breach of contract at common law.
McDonald v State of South Australia1
Mr McDonald was a high school teacher employed by the South Australian Department of Education and Children Services ('DECS'). From the time he commenced employment in 1996, he was asked by his school principal to look after the school's computers and networks in addition to undertaking a full-time teaching load. Mr McDonald agreed to the request despite having no formal qualifications in IT.
The extra workload caused Mr McDonald to suffer health problems and he sought and obtained a transfer to another school. At the new school he was again asked to assist with the computers because there was no one else at the school who could do it. Despite his previous experience, he agreed and often undertook the extra duties at night and on weekends when the computers were not being used by staff and students.
Mr McDonald's health continued to deteriorate. He eventually resigned alleging that he had no other option. He commenced proceedings against DECS in the Supreme Court of South Australia.
His claim included that conduct by his employer destroyed or damaged the relationship of mutual trust and confidence and this was in breach of an implied term of his employment contact.
Decision by Supreme Court of SA
Justice Anderson found that Mr McDonald had clearly been working under pressure yet neither the schools nor DECS attempted to manage the risks regarding his health and welfare.
Justice Anderson found that a term of mutual trust and confidence had been regularly implied into employment contracts in the United Kingdom and referred to the case of Malik v Bank of Credit and Commerce International SA2 where the House of Lords declared that the law imposed:
An obligation on an employer not to, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee.
His Honour also found that the decision of the Industrial Relations Court of Australia in Burazin v Blacktown City Guardian3 supported that the implied term of mutual trust and confidence formed part of Australian law.
Justice Anderson concluded:
It is my view that such a term is part of Australian law in relation to the contract of employment and should be implied. ...There are so many examples in the workplace where, without such an implied term, an employer could capriciously and unreasonably prejudice an employee in the workplace without any sanctions.
...Looking at the conduct of DECS as a whole, the combined effect is such that Mr McDonald cannot have been expected to put up with it. It is for these reasons that it is in my view that DECS was in breach of the implied term of mutual trust and confidence.
Having found that the implied term existed and had been breached by DECS, Anderson J awarded Mr McDonald $392,850 in damages plus costs. This included an award for loss of future earnings.
McDonald v State of South Australia is the first Australian decision in which damages have been awarded for a breach of the implied term of trust and confidence in an employment contract.
NSW Supreme Court's view
Until recently, the NSW Supreme Court had taken a different approach to whether an implied term of trust and confidence existed under Australian law and whether general damages could be awarded for its breach.
In the 2002 case of NSW v Paige4 Chief Justice Spigelman noted the traditional view in Addis v Gramophone5 that general damages cannot be recovered at common law for the manner of dismissal and commented:
In recent years the authority of Addis v Gramophone has been challenged, but not undermined, by creative views of implied terms, notably the obligation of mutual trust and confidence.
Similarly in the 2005 case of Heptonstall v Gaskin6, Justice Hoeben found that Burazin had left open the question of the existence of the implied term of trust and confidence:
The implication of such a term in employment contracts in Australia remains controversial and awaits clarification by an appellate court.
A change of approach occurred in February 2007 in the case of Russell v The Trustees of the Roman Catholic Church7. In that case, Justice Rothman of the NSW Supreme Court held that the implied term of trust and confidence does exist in Australian law.
Despite making this finding, however, the plaintiff in Russell was unable to prove any loss and damages were not awarded.
Federal Court's view
The Federal Court considered the question of the existence of the implied term of trust and confidence in December 2007 in the case of McDonald v Parnell Laboratories8.
Justice Buchanan disagreed with Rothman J in Russell, preferring the views of Spigelman CJ and Hoeben J in Paige and Heptonstall respectively, that the issue of whether such an implied term existed under Australian law remains undecided. Buchanan J, nevertheless, expressed doubt about whether such a term would meet with the generally accepted principles for implying a term into a contract.
The debate concerning the existence of, and consequences of breaching, an implied term of trust and confidence is likely to continue until the question is determined by an appellate court or the High Court.
Nevertheless, the decision by the SA Supreme Court provides further support for those employees seeking to claim damages at common law for breach of contract and is likely to encourage further claims.
Not that much encouragement was needed. One of the consequences of the WorkChoices reforms, which limited access to unfair dismissal remedies, has been an increase in common law breach of contract claims being filed in various courts.
1 McDonald v State of South Australia (2008) SASC 134
2 Malik v Bank of Credit and Commerce International SA  AC 20
3 Burazin v Blacktown City Guardian  142 ALR 144
4 State of NSW v Paige (2002) 60 NSWLR 371
5 Addis v Gramophone Co. Ltd  AC 488
6 Heptonstall v Gaskin (2005) 138 IR 103
7 Russell v The Trustees of the Roman Catholic Church  NSWSC 104
8 McDonald-v-Parnell Laboratories (Aust)  FCA 1903
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