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HG Alert: Implied term of mutual trust and confidence held to be part of all Australian employment contracts - 3 September 2013

The Full Federal Court has recently handed down a significant decision in the case of CBA v Barker [2013] FCAFC 83. It concluded that there is an implied term of mutual trust and confidence in all Australian employment contracts. Contravention of the term will give grounds to seek damages for breach of contract.

What does an implied term of trust and confidence mean?

Put simply it means that, without being expressly stated, it is automatically implied that employers and employees will not, without reasonable cause, conduct themself in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee.

This implied term proceeds upon the basis that trust and confidence is necessary for a workable and productive employment relationship.  On the face of it, that appears to make good practicable sense. In reality, however, the breadth of its application - bearing in mind it underpins the entire employment relationship - may give rise to unforseen litigation.

CBA v Barker [2013] FCAFC 83 - the facts

Mr Barker was employed as a senior manager with Commonwealth Bank (the bank) in Adelaide.  He had enjoyed some 27 years of employment before being advised that his position was redundant. In line with the bank’s non-contractual redundancy policy, Mr Barker was informed that redeployment opportunities would be explored with him.

Mr Barker was sent home on paid leave. His work email and mobile telephone were terminated. What followed thereafter was a direct failure by the bank to make contact with Mr Barker to discuss redeployment options. It transpired that the bank initiated contact through the terminated email address and mobile telephone. It was only some three weeks later that the bank’s staff finally made contact by sending an email to Mr Barker’s personal email address. In the meantime he was effectively ‘left hanging’.

Ultimately Mr Barker was not redeployed and his employment was terminated by reason of redundancy.  Mr Barker complained that the bank’s conduct in relation to redeployment constituted a breach of an alleged implied term of mutual trust and confidence.

It was held that the bank’s actions constituted a breach of trust and confidence. The term was held to be implied in all employment contracts save when it is expressly excluded. The decision was made on the basis that Mr Barker was a long term employee of a large corporate employer.  In consideration of the fact that the bank operated a redundancy policy which provided for redeployment, it was held the bank should have taken positive steps to consult with Mr Barker and inform him of suitable redeployment options. The term of mutual trust and confidence was breached because it failed to properly contact Mr Barker within a reasonable period. Mr Barker was awarded over $300,000 in damages.

Key considerations for employers

Due to the wide scope of the term of mutual trust and confidence it is difficult to foresee all of the potential actions that could rely on this novel head of claim. To best protect your business we advise that you:

  • Ensure that you operate in accordance with contracts of employment and workplace policies;
  • Ensure that all disciplinary and grievance matters are investigated and responded to in a fair and unbiased manner with regard for natural justice;
  • Seek to achieve an open and honest employment environment where trust is emphasised as a key factor; and
  • Take legal advice when dealing with contentious employee situations.

For more information, please contact HopgoodGanim’s Industrial and Employment Law team.

With offices in Brisbane and Perth, HopgoodGanim offers commercially-focused legal advice, coupled with reliable and responsive service to clients throughout Australia and across international borders.