Implied Term Of Confidence & Trust For Employment Contracts
A recent finding in the Federal Court of Australia may have interesting consequences for employers.
Commonwealth Bank of Australia v Barker  FCAFC 83 (6 August 2013)
Why This Case Is Important for Employment Contracts
This is an important decision which may have interesting ramifications for future employment law cases in Australia. Importantly, the Full Court of the Federal Court found an implied term of confidence and trust in the employment contract. Essentially, an implied term means that the Court was prepared to read the concept – of trust and confidence – into the contract which governed the relationship between the employer and employee. Thus, that it was not expressly written into the contract did not preclude the court from relying on its existence. This decision will now govern the way the court approaches employment contracts.
Facts of the Case
The Commonwealth Bank of Australia employed Mr Barker as Executive Manager. He had been with CBA for 23 years. In 2009 they notified him that he was redundant. The terms of his employment contract stated that he could be terminated without cause with four weeks notice. In addition to his contract, various internal company policies covered issues around redeployment options in the event of redundancy.
The judge at first instance held that although the policies could not be construed as forming part of the employment contract, there is an implied term of mutual trust and confidence between the parties. The judge held CBA to have breached this duty when it failed to consider redeployment options within CBA for Mr Barker, prior to his dismissal. The court awarded the employee $300,000 in compensation.
A majority of the full court upheld the decision at first instance. The effect of this appeal is to confirm the existence of the implied term in Australia. Two of the three appeal judges held that the circumstances created an obligation on CBA to consult with, and consider, this long-term employee for alternative roles. Of significance was the size of CBA and the number of roles within its very large organisation. Furthermore, CBA’s failure to consider redeployment options amounted to a breach of their duty to not damage the parties’ relationship of confidence.
One of the three judges dissented, holding that Australian law does not include this implied term. This decision is important and has ramifications for future cases. As such, the respondent may appeal the decision to the High Court for a final decision. Until such an appeal occurs, the effect of the majority judgment is to follow the trend in English cases and to confirm an implied contractual term, which in this case created a duty on the employer to behave in a certain way.
What This Means for Parties Involved in Employment Contracts
Employment contracts represent and govern the relationship between an employer and an employee. Most people understand this with reference to the contract and its actual terms. This case opens the way for an employment contract to also include more general or foundational concepts which may not be expressly stated in the actual terms.
In this case the court bound both parties by an implied term of mutual trust and confidence. Exactly what this means in practice will depend on the facts of each situation. However, it captures the idea that both parties will exercise a reasonable degree of trust and respect for each other. As such, they should not deliberately engage in behaviour which damages this relationship. This is now the approach for employment contracts.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.