Mar 6

High Court of Australia: No Implied Term of Mutual Trust and Confidence in Employment Contracts

In the recent case of Commonwealth Bank of Australia v Barker [2014] HCA 32 the High Court unanimously overturned the Full Court of the Federal Court, ruling Australian employment contracts do not provide for an implied mutual term of trust and confidence. This decision was a clear divergence from the current UK position.

What is an Implied Term of Mutual Trust and Confidence?
An implied term is one which the law will imply into a contract despite the parties not having referred to it or having considered its effect. A trust and confidence term is one that requires employee and employer alike to avoid engaging in conduct that may damage or destroy the employment relationship.

Specific examples of damaging or destructive conduct include those which are designed to force an employee to resign or are discriminatory in nature. The implied term however is very broad and as such has lead to confusion on several occasions.

The Facts
Mr. Barker held an executive position at Commonwealth Bank Australia when he was made redundant due to a corporate restructure. His employment contract contained a clause providing a redundancy payment if CBA’s effort to redeploy him within the company failed. Mr. Barker argued that CBA failed to make an adequate attempt to redeploy him, thus breaching an implied term of mutual trust and confidence between the parties.

The High Court’s Decision
The issue to be considered by the High Court was whether the relevant employment contract did in fact comprise an implied term of mutual trust and confidence between CBA and Mr Barker.

In a unanimous decision, the High Court reasoned that employment contracts do not impliedly require either employers or employees to conduct themselves in a manner unlikely to destroy or seriously damage the relationship of trust and confidence between them.

What does this mean for Employers?
The High Court’s decision in this case is considered a ‘win’ for employers and means employers are not subject to this additional implied duty.
Employers may rest assured that any employee or ex-employee will not be able to claim damages for an employer’s alleged breach of an implied duty of trust and confidence.

Nevertheless, employers should seek legal advice in regard to employment agreements, subcontractor engagement, workplace policies, employment claims, and in the appropriate handling of WH&S risks. Many of these employment-related obligations expose both the employer entity and, if the employer is a company, also directors personally to liability.

For further information about this decision or to check that your employment contracts are in line with legal obligations, please contact:

Ben Warren – Director
M: 0402 003 364

Richard Ellem – Director
M: 0403 464 875

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