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IMPLIED TERM OF MUTUAL TRUST AND CONFIDENCE

OVERVIEW

The majority of the Full Federal Court has upheld the finding that the Commonwealth Bank (CBA) has breached the implied term of mutual trust and confidence within an employment contract (Commonwealth Bank of Australia v Barker (2013) FCAFC 83).

The decision was not however, based on the Trial Judge’s finding that the breach of the Implied Term arose from a serious breach of company policy. The majority’s reasoning was based on the finding that the breach arose from the length of Mr Barker’s employment and a clause in his employment contract that contemplated redeployment. The Court found that Mr Barker had a legitimate expectation that the CBA would notify him of other employment opportunities, and its failure amounted to a breach of the Implied Term.

BACKGROUND

 Mr Barker started working at the CBA in 1981. In 2009, his position as Executive Manager, pursuant to a written employment contract, was made redundant and his employment was subsequently terminated. CBA’s redeployment policy provided that it would take positive steps to redeploy any employee whose position was made redundant. This policy was specifically excluded from Mr Barker’s employment contract. Mr Barker claimed that CBA had breached the Implied Term of his contract by failing to make proper efforts to redeploy him to another position within the Bank.

At first instance, the trial judge held that the Implied Term did indeed form part of his contract and a breach of the policy amounted to a breach of the contract. He was awarded over $300,000.00 in damages, despite the policy being expressly excluded from the contract.

THE IMPLIED TERM

To date, there has been no definitive authority confirming that the Implied Term is recognised in Australian law. In this case, the majority agreed that the Implied Term had obtained the necessary level of recognition in Australia and should be accepted. This was rejected in the dissenting judgement.

The decision found that even a serious breach of the redeployment policy was not relevant to whether the Implied Term had been breached. It was relevant, however, to consider the obligation of the employer to not, without reasonable cause, conduct itself such that it would be likely to destroy or seriously damage the trust and confidence between employee and employer. This relationship forms the basis of the Implied Term.

The majority’s decision rested on the position that the CBA had breached the Implied Term by not taking positive steps to consult with Mr Barker and allow him the opportunity to apply for other positions within the bank. This position was based on the existence of three facts: Mr Barker was a long term employee; CBA is a large body corporate; and his contract contemplated redeployment if his position was to be made redundant.

The majority confirmed that breach of the Implied Term gives rise to damages for breach of contract only in cases where the breach occurred prior to, and is independent from, termination. Damages will not be available for hurt and distress as a result of termination.

SUMMARY

The breach of the Implied Term arose from CBA’s failure to consult with the employee about possible redeployment and its failure to provide opportunity for redeployment.

This is the first binding decision of the Full Federal Court that has found that, in the absence of express exclusion, implied into every Australian employment contract as a matter of law is the implied term of mutual trust and confidence. The scope of the Implied Term in this matter was dependent on a number of factors including, the nature of the employment relationship and employment contract itself.

What does this mean for you?

Employees: This decision allows access to Executives and senior employees who are ineligible for unfair dismissal protections to commence claims alleging breach of the Implied Term and seeking damages for termination of employment.

Employers: The decision has clarified previous uncertainty that serious breaches of company policy will not amount to a breach of the Implied Term. It has created further uncertainty as to the specific circumstances that will amount to a breach. CBA will request leave to appeal this decision to the High Court – employers, watch this space.

In light on this decision, employers should consider seeking legal advice to minimise the risks of breaching the Implied Term and the onerous obligations that follow. Camatta Lempens will be able to assist you in drafting employment contracts and policies to assist you in appropriately managing disputes, redundancy provisions within employment contracts and terminations in the workplace.

By: EMMA RIGGS