No Change to Employer Obligations – Mutual Trust and Confidence Term Struck Down

Since our previous article “Employer Obligations – Fundamental Change Ahead?” the full bench of the High Court handed down its decision in the ground-breaking appeal of Commonwealth Bank of Australia v Barker [2014] HCA 32. The appeal primarily raised the question whether, pursuant to the common law of Australia, there is a term of mutual trust and confidence implied by law into every employment contract.

The respondent, Mr Barker, had been an employee of the Commonwealth Bank (“the CBA”) for 27 years.  On 2 March 2009, the CBA informed Mr Barker that his position was redundant.  A redeployment policy was in place within CBA at the time, and a specific clause within the contract also required the employer to take reasonable steps to redeploy Mr Barker within the organisation. A human resources officer intended on assisting Mr Barker with the redeployment process, however attempts to contact Mr Barker failed because his access to e-mail and CBA phones was cancelled on the day that he was informed of his redundancy.

Mr Barker relied on an implied term of mutual trust and confidence to say that CBA should have more effectively assisted with potential redeployment within CBA.  Mr Barker was successful at first instance and on appeal in obtaining a substantial award of damages flowing from a breach of this implied term.

On 10 September 2014, the High Court unanimously held that the implied term is not implied into all employment contracts.

The majority reasons closely examined the development of the term, particularly in the United Kingdom where it has formed part of the law since the case of Malik v Bank of Credit and Commerce International SA (In Compulsory Liquidation) [1998] AC 20. In Malik, the implied term was considered important to appropriately reflect the shift in the concept of the employment relationship – from the master-servant relationship to the more contractual relationship between employer-employee.

Although it was acknowledged that a similar shift (albeit with a much shorter history) has occurred in the Australian employment relationship, the High Court stressed that a term will not be implied by law unless it is necessary for the enjoyment of the rights associated with the contract. A term of a contract is not considered necessary if it is merely reasonable.

The implied term of mutual trust and confidence was not deemed necessary for the effective working of the employment contract.  Some of the supposed limitations that the implied term was considered ‘necessary’ to overcome may already be contemplated by the doctrine of constructive dismissal.

However, the debate may not end here. It was recognised by the High Court that whilst the implied term was not deemed necessary at common law to ensure the effective working of the employment contract – and thus should not be implied by the Courts – there is scope for the legislature to consider amendments to the statutory framework to incorporate the term at some stage in the future.

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