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Restructuring and Employment Law – Part 1

Watkins Tapsell Employment Law

The Loss of Mutual Trust and Confidence Part I

With today’s economic climate, many businesses are faced with the need to overhaul their business in order to survive. This often means a need to restructure their workforce and in some cases may lead to termination of employees.

Restructuring a workforce or terminating employees raises a myriad of issues when dealing with employees such as contractual obligations, statutory obligations and the minefield of implications that come from the policies and procedures put into place by many businesses (or lack of them).

When terminating employees, a valid reason must exist for an employer to be able to terminate them. The reason or reasons must be based on the employee’s poor performance, conduct or changes to the operational requirements of the business resulting in a genuine redundancy.

Transitioning employees to new roles of terminating employees, if not handled correctly, can result in a breach of contract or legislation.

The recent High Court Decision of Barker involved an employee who was terminated by way of redundancy. The employee argued that their employer, the Commonwealth Bank, had breached the implied contractual term of mutual trust and confidence. The case examined carefully the wording of employment policies of the bank as well as the contract between the Bank and the employee.  The matter was argued all the way to the High Court. The High Court found in favour of the employer, finding that there was no implied obligation of mutual trust and confidence. Accordingly, the Commonwealth Bank’s termination of Mr Barker did not breach a term of the contract.

Barker is of great significance for employers in that they are no longer exposed to uncertain and ill-defined claims arising out of the performance of the employment contract. Well defined contract law principles and legislative provision can provide some level of comfort to employers who are restructuring or terminating an employee. However, while the decision is good news for the employer it is not the end of the story. Many cases are now being bought which involve other potential implies terms of the employment contract, which may provide scope for employees to attempt to pursue claims in which they allege breach of contract such as the employer’s obligation to act in “good faith”. We will discuss the principle of “good faith” in further detail in our article “The Loss of Mutual Trust and Confidence Part III”

If you are restructuring your workforce or terminating employees for any reason you should seek legal advice to minimise the risk of a costly and time consuming dispute.

In our next blog, The Loss of Mutual Trust and Confidence Part II, we will discuss what the loss of mutual trust and confidence means for your employment documents.