Due to a recent Federal Court decision, employers and employees will need to be careful about breaching implied terms of mutual trust and confidence.

Broadly, this occurs when the “employer or employee acts without reasonable and proper cause for their conduct, and the conduct is likely to destroy or seriously damage the relationship of confidence and trust between the employer and the employee”.

Historically, Australian courts have found it difficult to imply a term of mutual trust and confidence into the employment relationship. That position seems to be changing pursuant to the decision of Commonwealth Bank of Australia v Barker [2013] FCAFC 83, which was handed down by the Full Court of the Federal Court on 6 August 2013.

Briefly, the respondent to the appeal was employed by CBA as executive manager of Adelaide Corporate Banking, Institutional and Business Services, South Australia. In 2004, the respondent signed a new employment contract, which included terms relating to the termination of employment and redundancy. CBA also had redundancy and redeployment policies. However, these policies expressly stated that they did not form part of the employment contract.

Alleged breach of contract

On 2 March 2009, the respondent attended a group meeting and was given a letter stating that his position was being made redundant effective from close of business that day, and that it was CBA’s preference to redeploy him to a suitable position within CBA. He was made redundant on 9 April 2009.

As a result, the respondent brought proceedings against CBA alleging breach of contract by CBA for their failure to adhere to the redundancy and redeployment policies. Alternatively, the respondent claimed that CBA had breached the implied term of mutual trust and confidence by not adhering to its policies.

It was held by the court at first instance that by failing to attempt to redeploy the respondent, CBA had seriously breached the redundancy policy and therefore the implied term of mutual trust and confidence.

The court considered that the respondent had suffered loss and damage to the sum of $317,500 due to CBA’s failure to redeploy him and made an order in the respondent’s favour to that effect.

As expected, CBA appealed. Contrary to the decision at first instance, the majority found that a serious breach of the bank’s redeployment policy did not amount to a breach of the implied term. Instead, they held that CBA was obliged to take positive steps to consult with the respondent and inform him of suitable employment options.

Accordingly, the court found that CBA’s “actions on and from 2 March to 26 March 2009 were sufficient to amount to a breach of the bank’s duty not to engage in conduct likely to destroy or seriously damage the relationship of confidence that existed between the bank and Mr Barker.” This conduct was held to be sufficient to constitute the breach of the implied term.

Further, given the respondent’s length of service and the size of CBA and vast number of positions available, the court held that an implied obligation of co-operation also existed, which was breached by CBA. The majority also confirmed the primary judge’s approach where it was accepted that a breach of the implied duty gives rise to a claim for damages.

There was one dissenting judgment in this case where His Honour Christopher Jessup stated that he did not consider there was a contractual right to imply the term of mutual trust and confidence in these circumstances. Further, in this judge’s view, the failure by CBA to follow the redeployment process did not lead to any contractual consequences for the parties.

Due to these decisions, it is likely that the duty of mutual trust and confidence will now be implied into the employment relationship by the courts.

Implications to consider

• Failing to follow a workplace policy, and treating it as a guideline only, is a risk.
• Employers should apply company policies fairly and consistently.
• Employees who hold key positions, particularly where confidential and commercially valuable information is entrusted to them, may well be expected to maintain higher standards.
• Acts or omissions leading to a loss of confidence and trust in the employee holding a particular position may permit termination of employment.

Editor’s note: The controversy over whether an Australian employer owes an implied duty of mutual trust and confidence to an employee was finally settled when the case was appealed to the High Court of Australia. There it was unanimously found that such a term was not part of the common law of Australia.