Federal Court Finds Implied Term of Confidence and Trust in Bank’s Employment Contract
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
This is an important decision which may have interesting ramifications for future employment law cases in Australia. It is important because the full Court of the Federal Court found an implied term of confidence and trust in the employment contract. Put simply, 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. The fact that it was not expressly written into the contract did not preclude the court from relying on its existence.
Facts of the case
The employee, Mr Barker, was employed by the Commonwealth Bank of Australia (CBA) as an Executive Manager. He had been with CBA for 23 years. In 2009 he was notified that he was to be made 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. CBA was held to have breached this duty when it failed to consider redeployment options within CBA for Mr Barker, prior to his dismissal. The employee was awarded over $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 were such to create 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. CBA’s failure to consider redeployment options amounted to a breach of their duty not to damage the relationship of confidence between the parties.
One of the three judges dissented, holding that Australian law does not include this implied term. Given the importance of the decision and its ramifications for future cases it is reasonable to expect the decision may be appealed to the High Court to settle the matter conclusively. 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 employers
Employment contracts represent and govern the relationship between an employer and an employee. Most people understand this with reference to the actual terms as they are set out in the contract. 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, both parties were held to be bound by an implied term of mutual trust and confidence. Exactly what this means in practice will depend on the facts of each situation. Distilled to its basics, however, it captures the idea that both parties will exercise a reasonable degree of trust and respect for each other in their dealings, and will not deliberately engage in behaviour which damages this relationship.
Sarah Waterhouse, Solicitor, BlandsLaw
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.