In a much anticipated judgment, the High Court held today that there is no duty of mutual trust and confidence in Australian employment contracts.
The issue came to prominence in 2013 when, in Commonwealth Bank of Australia v Barker, The Full Federal Court of Australia found that the implied term of trust and confidence did exist in Australian employment contracts, following an existing principle in UK employment law. Accordingly, it awarded Mr Barker damages of $317,000 for a breach of this principle.
This decision was significant for all employers, as it meant they could be exposed to claims for damages for failing to act in accordance with the implied term. Employees could claim a breach of this term in a number of circumstances, such as in this case where there had been a failure to follow an internal policy or procedure.
As was expected, Commonwealth Bank appealed the decision in the High Court.
In three separate judgments today, five members of the Court found that the Federal Court majority in Commonwealth Bank v Barker was wrong to draw on UK employment law precedent to conclude that the implied term had become part of Australian law.
Mr Barker, a bank manager with the Commonwealth Bank of Australia, brought a claim against the Bank when he was made redundant in 2009, arguing that the bank’s breach of its redeployment policy in its HR Manual breached the implied term of mutual trust and confidence in his employment contract.
In the judgment handed down by the High Court today, Chief Justice Robert French and Justices Virginia Bell and Patrick Keane said in their joint ruling that the implication of the contractual term of trust and confidence was ‘a step beyond the legitimate law-making function of the courts’ which ‘should not be taken’.
The High Court has made it clear that for such a term to be implied into contracts it has to be ‘necessary’. They did not find that such a clause, which would change the face of many employment law contractual claims, could be justified in Australia.
Employers need to be aware, however, that the Court was clear to emphasise that its rejection of the implied term is not the same as saying that there is no general obligation ‘to act in good faith in the performance of contracts’. Justice Keifel said that this question has still not been resolved in Australia.