In a unanimous decision, the High Court has determined an implied term of mutual trust and confidence does not apply to employment contracts in Australia.
The decision of the High Court draws to a close the ongoing case of Commonwealth Bank of Australia v Barker, where Mr Barker alleged the Commonwealth Bank had breached an implied term of mutual trust and confidence.
A brief recap…
- Mr Barker was employed by the Commonwealth Bank in 1981, working his way up to an executive management position.
- In late 2008, the bank began a restructuring process, which included the collapse of Mr Barker’s team and identifying his position as being redundant.
- On 2 March 2009, Mr Barker was advised of his redundancy, and told that the preference of the bank was to redeploy him, but if that was not successful, his employment would be terminated.
- Mr Barker was required to return his keys and mobile phone, clear his desk, and was sent home on paid leave. The bank also terminated Mr Barker’s access to work emails and the company intranet.
- The bank had an HR Reference Manual, which included a redeployment policy, and also contained an express provision that the policies did not form part of the employment contract.
- Although numerous attempts were made by the redeployment officer at the bank to contact Mr Barker, the officer was not aware that Mr Barker’s access to his work phone and email had been withdrawn, and no contact was made for almost one month.
- By the time contact was established, it was only about one week before the proposed termination date (if redeployment was not successful).
Along with failing to properly consult with Mr Barker, the bank also failed to raise or discuss the possibility of retraining, to seek advice about redeployment options and processes and no redeployment plan was developed or implemented. (The Federal Court later held that this “almost total inactivity” was a serious breach of the redeployment policy, resulting in a breach of the implied term of mutual trust and confidence.)
Initial Decisions
The primary judge held that the Commonwealth Bank did breach an implied term of mutual trust and confidence, by failing to follow its own policies, resulting in damage to Mr Barker. This decision was also upheld by the Federal Court, where Mr Barker was awarded damages in the sum of $335,623.
The High Court Appeal
On appeal, the High Court had to consider “the question whether…there is a term of mutual trust and confidence to be implied by law in all employment contracts”.
An implied term of mutual trust and confidence imposes an obligation that the “employer will not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee”.
The High Court held that implying the term of mutual trust and confidence into employment contracts in Australia was unnecessary and a step that should not be taken, as the “implication is a step beyond the legitimate law-making functions of the courts” .
The Court held that “the implied duty of trust and confidence…should not be accepted as applicable, by the judicial branch of government, to employment contracts in Australia” and that such contracts do not require an implied term of mutual trust and confidence “for their effective operation”.
The High Court set aside the decision of the Federal Court, awarding Mr Barker previously conceded damages of $11,692.31 plus interest.
A win for employers?
The Barker decision means employers are on more solid ground in knowing the employment relationship is, to a greater extent, within defined boundaries of agreed terms and law. The High Court has, however, left the door open on the issue of good faith, noting that a determination on whether a standard of good faith should apply to employment contracts has not yet been resolved.
Despite the decision bringing a greater degree of certainty, the case serves as a timely reminder to employers to be cautious about the drafting of employment contracts and human resources policies, to ensure that terms and conditions of employment are properly defined and obligations of the parties are clearly outlined.