Employers around Australia can breathe a collective sigh of relief after the High Court allowed the Commonwealth Bank’s (Bank) appeal in its decision of 10 September 2014 in the matter of Commonwealth Bank of Australia v Barker  HCA 32. The High Court unanimously decided that an implied term of mutual trust and confidence does not exist in Australian employment contracts.
For more than three decades, the United Kingdom has recognised that an implied term of mutual trust and confidence exists at common law, in that an employer will not, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of confidence and trust between employer and employee. However, the High Court found that the development of the implied term had evolved specifically from the United Kingdom’s industrial relations system and could not simply be transferred and applied to Australian circumstances.
The case arose after the Bank terminated Mr Barker’s employment by way of redundancy in April 2009. At a meeting on 2 March 2009, Mr Barker had been advised that his current position was to be eliminated and if Mr Barker could not be redeployed elsewhere within the Bank, he would be made redundant. At the conclusion of the meeting, Mr Barker was required to return his company phone and his access to the Bank’s internet and email system was terminated. The Bank attempted to notify Mr Barker of potential redeployment opportunities via the email address which Mr Barker no longer had access to.
When no alternative position could be found for Mr Barker, he was made redundant on 9 April 2009.
Mr Barker initiated proceedings in the Federal Court, alleging, amongst other things, that the Bank had breached its duty of mutual trust and confidence by denying him the opportunity of redeployment within the Bank. At first instance, the Federal Court held that the implied term existed and that the Bank had breached it by failing to take positive steps to consult with him about redeployment opportunities.
The decision was appealed by the Bank to the Full Court of the Federal Court, which confirmed by majority, that an implied term of mutual trust and confidence existed in the employment contract and that the Bank had breached that term by failing to adequately consult with Mr Barker.
However, the High Court ultimately ruled in favour of the Bank for a number of reasons. First and foremost, it distinguished the development of the term under the United Kingdom system. Secondly, the imposition of the term was not deemed “necessary” because the employment contract was effective without it. And thirdly, to imply such a term would introduce a common law policy choice of broad and uncertain scope into an area of frequent, detailed and often contentious legislative activity. That is, if such a term is intended to be incorporated into employment contracts, then the Commonwealth Government should pass legislation to this effect.
Lavan Legal comment
While it is clear that a term of mutual trust and confidence will not be implied into employment contracts, employers are still required to act in good faith. In this regard, best practice dictates that employers should ensure that they act in accordance with their policies and procedures at all times.