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Trust and Confidence in Employment Contracts

On 10 September 2014 the High Court handed down the decision of Commonwealth Bank of Australia v Barker [2014]HCA 32.

The decision overturned previous lower court decisions that mutual trust and confidence was an implied term in all employment contracts. This judgment means trust and confidence is not an implied term in employment contracts in Australia.

The High Court found that for a term to be implied it had to be ‘’necessary’. The Court found that Mutual Trust and Confidence created obligations on both the employer and employee that were not necessary to the operation of the contract.

In this case Mr Barker was a long standing and senior employee of the bank. His position was made redundant in 2009. The bank had a redeployment policy that was excluded by Mr Barker’s contract. Mr Barker claimed that the Bank breached an implied term of mutual trust and confidence by not attempting to redeploy him.

The Federal Court, and later, the Court of Appeal found that there was a term of Mutual Trust and Confidence implied in the employment contract and that the Bank had breached the term. The Bank was ordered to pay $317,000 in damages for breaching the term.

On appeal to the High Court, the High Court found that there was no term of Mutual Trust and Confidence as the term was not ‘necessary’ for the operation of the contract.

This Employer was no longer liable for $317,000 in damages to the Employee. This was a positive outcome for the Employer. The decision has removed much uncertainty about obligations placed on Employers beyond the contracted terms.

The only way for terms of Mutual Trust and Confidence to be incorporated into employment contracts is by legislation, contract, awards or agreement .It should be noted Employees still have implied duties to act in good faith and exercise care and skill and follow reasonable and lawful directions.

It is important that Employers enter appropriately drafted contracts and policies suitable to the business needs, to protect the business and ensure that the work is performed in the manner required. An Employer should not leave to chance the terms that could be implied into a contract.