High Court Rules on Implied Term of Mutual Trust and Confidence

Commonwealth Bank of Australia v Barker [2014] HCA 32. 

On Wednesday, 10 September, in an eagerly awaited decision the High Court delivered judgment in Commonwealth Bank of Australia v Barker.  The Court unanimously found that employment contracts in Australia do not contain – as a matter of law – an implied term of mutual trust and confidence.   The case has major significance for employment law in Australia.

The Facts

Mr Barker had been employed by the Commonwealth Bank of Australia (CBA) for 27 years, latterly as the Executive Manager of Adelaide Corporate Banking, Institutional and Business Services.  On 2 March 2009 he was advised that his position was redundant and that, if he was not redeployed to a different position within the next 4 weeks,  which was the Bank’s preference,  his employment would be terminated on 8 April 2009.

Mr Barker’s written contract of employment provided for termination with four weeks’ notice or payment in lieu, in addition to payment of a severance payment upon redundancy.  The CBA also had a redundancy policy (which was not incorporated into the contract of employment) which required that certain redeployment opportunities and support be made available to employees whose position had become redundant.

Mr Barker was directed to cease work on 2 March 2009, and his access to his work email account, voicemail and intranet was terminated immediately.   Over the following weeks CBA personnel – who were apparently unaware that his work email account had been closed – attempted to contact Mr Barker on his work email address to advise of potential redeployment opportunities.  Because his email account had been closed Mr Barker did not become aware of these potential opportunities in sufficient time to explore them, and his employment was subsequently terminated.

Before the Federal Court, and subsequently the Full Federal Court on appeal, Mr Barker argued that:

  • as a matter of law a term of “mutual trust and confidence” was implied into his (and every) contract of employment”;
  • that implied term meant that the CBA had an obligation to maintain trust and confidence with Mr Barker, and not to do anything that was likely to destroy or damage the relationship of trust and confidence between itself and Mr Barker; and
  • the CBA had breached that obligation because of the way in which it had effected the redundancy.

At first instance and on Appeal, the Federal Court and Full Federal Court (by majority) accepted Mr Barker’s argument, holding that the law implied a term of mutual trust and confidence in all contracts of employment in Australia, and that the CBA had breached this term by the way it effected the redundancy. (At first instance Justice Besanko held that the implied term was breached because the CBA’s actions were contrary to its own redundancy policy.  On Appeal, a majority of the Full Federal Court held that the implied term was breached because the CBA’s actions were in breach of the contract of employment.)

Mr Barker was awarded damages in excess of $330,000.00 – in addition to the severance payment he had already received.

The High Court Appeal

The CBA appealed to the High Court which has now, unanimously, rejected Mr Barker’s argument, and concluded that in Australia – unlike England – the law does not imply a term of mutual trust and confidence in every contract of employment.

Courts will only imply terms into contracts as a matter of law if it is necessary to do so to ensure that the contract is effective – to ensure the “business efficacy” of the contract.  The High Court found that a term of mutual trust and confidence was not necessary to ensure the efficacy of employment contracts in Australia, particularly considering the statutory protections against unfair dismissal contained in Australian law.

The decision does not mean that in any particular case a Court could not find that a term of mutual trust and confidence was implied as a matter of fact.  It is possible that such an argument might be made out in different factual circumstances   However, such a finding would be limited to the specific case in question. Had Mr Barker’s position prevailed, every Australian employment contract would have contained the implied term of mutual trust and confidence, unless an express provision of the contract provided otherwise.

Significance for Employers

This is an important decision for employers.  Although the proposed implied term was for MUTUAL trust and confidence between employees and employers, in reality, such a contractual provision would have been used predominantly by employees in legal claims against their employer. A finding that such a term was legally implied into contracts of employment had the potential to significantly widen the causes of action available to employees against their employers.

For more information, please contact:
Ben Duggan

Ben Duggan
Director
p.  +61 8 8124 1881
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this article, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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