Federal Court Ruling – Implied term of mutual trust and confidence in the employment relationship

Posted on 12 November 2012

A recent decision handed down by the Federal Court has serious implications for contractual obligations between employers and employees. In Barker v Commonwealth Bank of Australia the Federal court ruled that that an implied term of mutual trust and confidence can be read into a contract where there is a serious failure to adhere to workplace policies by an employer.

Mutual trust and confidence

Until recently, Australian Courts had been reluctant to read an implied term of mutual trust and confidence into contracts of employment. This is not the case in the United Kingdom (UK) where a term is implied into employment contracts that an employer shall not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.

In the UK, an employee is able to claim a breach of contract where an employer fails to maintain the implied term of mutual trust and confidence. Under these circumstances the employee can elect to terminate the contract of employment and seek damages for breach of the implied term of mutual trust and confidence.

Barker's case

The Barker's case related to an internal restructure at the Commonwealth Bank of Australia (CBA) in 2009, where a senior executive, Mr Barker, was made redundant. Mr Barker alleged that while the CBA expressly excluded its Human Resources manual from the employment contract, the CBA also had a redeployment policy and procedure that they failed to adhere to in regard to his redundancy.

The court found that in making Mr Barker redundant, the CBA failed to take meaningful steps to ensure compliance with their own redeployment policy. Specifically, the CBA failed to consult the employee about:

  • the possibility of redeployment;
  • discuss any opportunities available to retrain;
  • seek advice about redeployment offers; or
  • develop a redeployment plan.

As the CBA did nothing to inform the employee of any of his reemployment options, in accordance with their own policy, the Court found that they had committed a serious breach of their workplace policy and qualified as a breach of the implied contractual term of mutual trust and confidence.

Consequences for Employers

The Barker case illustrates the need for employers to execute decisions in accordance with the procedures outlined in their workplace policies. Employers must now remain mindful that compliance with workplace policies, where there is no specific reference made in the employment contract, is now essential.

The decision made in the Barker case has now been appealed to the Full Court of the Federal Court. While there is a chance that the decision may be overturned employers need comply with their workplace policies when dealing with their employees and ensure that they do not conduct themselves in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee.

Employers should continue to draft contracts that exclude workplace policies from being incorporated as express terms of a contract; however, it is not in the best interests of an employer to try and avoid the situation in Barker by expressly excluding the implied term of mutual trust and confidence as it could have the unintended consequence of permitting employees the ability to behaviour in a manner that breaches the employer’s trust without repudiating the contract, enabling the employer from summarily dismissing the employee.

The decision made in the Barker case has now been appealed to the Full Court of the Federal Court. While there is a chance that the decision may be overturned employers need comply with their workplace policies when dealing with their employees and ensure that they do not conduct themselves in a manner likely to destroy or seriously damage the relationship of confidence and trust between the employer and employee. Acceptance of the concept of the implied terms of mutual trust and confidence is gaining increasing traction in Australia and to ignore it at this stage could lead employers into hot water.

Need help?

Should you have any issue requiring assistance relating to workplace policies and employment contracts, contact Dooley and Associates and one of our legal team will be happy to discuss your matter with you. 

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