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12 September 2014 Demise of implied term of mutual trust and confidence - High Court decision

By Richard Ottley, Partner


In Brief

The legal fraternity has been eagerly awaiting the decision of the High Court in the case of Commonwealth Bank of Australia v Barker [2014] HCA 32 (10 September 2014). The issue for consideration involves whether in employment contracts, the common law of Australia implies a term of mutual trust and confidence

The High Court has now settled the question and decided that no such duty should be implied by law.  For employers this may come as something of a relief.  For employees especially those with current claims before the courts asserting this right, it may come as something of a disappointment.


FACTS

Mr Stephen Barker (the Respondent in the High Court proceedings) was employed by the Commonwealth Bank (the Appellant in the High Court proceedings).  He commenced employment in 1981 and was terminated by reason of redundancy in April 2009.  His employment contract contained various provisions including provisions relating to exhausting redeployment opportunities in circumstances where his position was to be terminated in the context of a redundancy. 

It would seem that the process provided for under his contract for offering redeployment opportunities was carried out in a less than ideal manner, which was not helped by the Bank sending him emails when it had cut off his email access and withdrawing his mobile phone facilities. 

In any event, following termination of Mr Barker's employment, he commenced proceedings against the Bank in the Federal Court claiming, amongst other things, that the Bank had failed to conduct the termination or redundancy process in a bona fide and/or proper manner.  He also asserted the conduct of the Bank was in breach of the implied term of mutual trust and confidence and this resulted in him being denied the opportunity of redeployment and therefore the opportunity to retain his employment with the Bank.

Federal Court and Full Court decisions

The primary judge Besanko J held that there was a term of mutual trust and confidence implied into the employment contract which would be breached if a party had, without reasonable and proper cause, engaged in conduct likely to destroy or damage the relationship of trust and confidence.  He considered that the Bank's failure to take meaningful steps with respect to redeployment was a serious breach of the redeployment policy and therefore a breach of the implied term.

The Full Court of the Federal Court by a majority also held that the term of mutual trust and confidence was implied by law.  It adopted the language of the House of Lords in Malik v Bank of Credit and Commerce International SA (in compulsory liquidation) and held that the term required that "the employer will not, without reasonable cause, conduct itself in manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee".  The Full Court considered that failure by the Bank to take positive steps to consult with Mr Barker about alternative positions and give him the opportunity to apply for them constituted breach of the implied term.

Jessup J dissented, finding that the term was not to be implied and could not, amongst other things, be justified as a mutualisation of an employee's duty of fidelity or as a principled development of the implied duty at law of co-operation between parties to a contract.

high court

The primary issue before the High Court was whether the common law of Australia should recognise the so called implied term of mutual trust and confidence in employment contracts.  It decided unanimously that such a term should not be implied into employment contracts, although Kiefel J and Gageler J wrote complementary decisions in support of the majority decision of French CJ, Bell and Keane JJ.

Kiefel J traced the development of the implied duty of mutual trust and confidence in the United Kingdom and noted that it had evolved in the context of its industrial relations system.  She observed that the question of whether the term of trust and confidence should be recognised in the UK was not actually argued in Malik. Its application to employment contracts was assumed, notwithstanding that it had evolved and been given recognition before employment tribunals in connection with the area of constructive dismissals. 

She observed that following the United Kingdom decision in Johnson v Unisys, the scope of operation of the term of mutual trust and confidence appeared to be limited to claims for damages with respect to conduct prior to but not connected with termination.

Turning to Australia, she noted Commonwealth and State legislation had for some years provided a regime for unfair dismissal and the test of unfairness had for some time been whether the dismissal was "harsh, unjust or unreasonable". In this context, she considered that the area left for the operation of the term was with respect to trust destroying conduct which does not have the consequence of ending an employment relationship.

A key question for determination was whether the employment contract between Mr Barker and the Bank required for its efficacy, the implication of a term of trust and confidence. Kiefel J determined that it did not require the implication of such term as the actual terms of the contract were quite clear as to the obligations of the Bank and needed no additional term to be implied in order to be given effect.  She further held that contracts of employment in general do not require the implication of a term of trust and confidence for their effective operation.

The majority noted that employment contracts have attracted a number of implied terms in the course of the evolution of the employment relationship including: the implied duty to provide a safe system of work, the obligation to give reasonable notice of termination other than for breach, and the implied duty of fidelity by an employee not to engage in conduct destructive of the necessary confidence between employer and employee. Also, in common with contracts generally, employment contracts attract a duty to cooperate. 

The majority also noted that a key focus in the submissions of the court was whether the proposed implied duty of mutual trust and confidence was necessary in the sense that without it the rights conferred by the employment contract would be seriously undermined or rendered nugatory. It also considered that the duty of mutual trust and confidence proposed, imposed mutual obligations wider than those essential for the contract to be efficacious. It contrasted this with the duty to co-operate which was necessary for enjoyment of rights conferred by a contract.

Furthermore, it considered that the proposed implied duty of mutual trust and confidence was directed to the relationship between employee and employer as distinct from the contract between them and should not be accepted as applicable in Australia or in its words:-

"Importantly, the implied duty of trust and confidence as propounded in Malik is directed, in broad terms, to the relationship between employer and employee rather than to performance of the contract.  It depends upon a view of social conditions and desirable social policy that informs a transformative approach to the contract of employment in law.  It should not be accepted as applicable, by the judicial branch of government to employment contracts in Australia"

The majority decision was keen to emphasise that this conclusion should not be taken as reflecting upon the question of whether there is a general obligation to act in good faith in the performance of contracts. 

To conclude, the court considered that the complex policy consideration, around the question of whether such a duty of mutual trust and confidence should exist, is something which should be left to the legislature to decide rather than the courts.  Therefore, there is currently no such implied duty under the common law of Australia.

For further information, please contact:

Richard Ottley, Partner  |  Phone: +61 2 9233 5544  |  Email: rbo@swaab.com.au

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This article is not legal advice and the views and comments are of a general nature only. This article is not to be relied upon in substitution for detailed legal advice.

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