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No implied duty of mutual trust and confidence in employment contracts

Published on December 4, 2014

The High Court of Australia has handed down its decision on 10 September 2014 allowing the appeal from the earlier decision of the Full Federal Court (see Commonwealth Bank of Australia v Barker [2013] FCAFC 83) to confirm that there is no common law implied duty of mutual trust and confidence in Australian employment contracts.

The case concerned the termination (by way of redundancy) by the Commonwealth Bank of Australia (“CBA”) of the employment of one of its Executive Managers, Stephen Barker, whose employment was governed by a written agreement dated 1 July 2004 (“the Agreement”).

Mr Barker was informed of his redundancy on 2 March 2009 and given 4 weeks notice (later extended until 9 April 2009) at which point, if no redeployment opportunities were found, the redundancy would take effect.

Mr Barker was directed not to return to work during the notice period and was instructed to clear out his desk, hand in his keys and work mobile phone. CBA also terminated Mr Barker’s access to the work intranet, voicemail and email account.

During the notice period, a redeployment opportunity was found and the CBA Career Support Team tried to contact Mr Barker via his work email address to inform him of this. However, as Mr Barker did not have access to his work communication channels, he was unaware of this opportunity and could not apply for it and was ultimately made redundant on 9 April 2009.

Mr Barker commenced proceedings in the Federal Court on 17 November 2010 arguing, amongst other things, that the conduct of CBA was in breach of the implied term of mutual trust and confidence and resulted in his having been denied the opportunity to retain his employment with CBA by being redeployed, thereby suffering a lost chance.

The proceedings on appeal concerned the question of whether or not the Full Federal Court was correct in finding that there was an implied duty to maintain mutual trust and confidence under the Australian law of employment.

The existence of this implied duty stems from English jurisprudence in the House of Lords decision of Malik v Bank of Credit and Commerce International SA (in liq)1 (‘Malik’) where it was held that there was an implied duty in employment contracts that the employer and employee would not, without reasonable cause, conduct themselves in a manner likely to destroy or seriously damage the relationship of confidence and trust. The existence of the same duty in Australia has, up until this decision, remained an open question.

In upholding CBA’s appeal and rejecting the Federal Court’s finding of the implied term, the High Court noted:

  • the restricted scope of Australian judicial power in implying contractual terms which must not trespass into a legislative function of creating legal principles governing the contractual relationship, as well as;
  • Drawing a distinction between the present case and the UK Malik decision.

French CJ, Bell and Keanne JJ specifically mentioned that the Malik decision belongs to a very particular context of the law of constructive dismissal whereby the employee terminates their employment by reason of the employer’s conduct which is such as to entitle the employee to treat the employment as at an end.

Their Honours pointed out therefore that the decision of Malik must be understood within this context as opposed to being a general proposition for implying the duty of mutual trust and confidence into the performance of employment contracts.

As such, their Honours concluded that:

“Importantly, the implied duty of trust and confidence as propounded in Malik is directed, in broad terms, to the relationship between employer and employee rather than to performance of the contract. It depends upon a view of social conditions and desirable social policy that informs a transformative approach to the contract of employment in law. It should not be accepted as applicable, by the judicial branch of government, to employment contracts in Australia.” [at 41]

In a separate judgment Gageler J, who also rejected the implication of the duty, added that to import the implied term of mutual trust and confidence into Australian employment law contracts would be a potential “Trojan horse” in the sense that implied duty would often only be clarified after the event.

The Commonwealth Bank was therefore successful in overturning the finding in favour of Mr Barker at the Federal Court level.

Thus, whilst Australian jurisprudence has accepted that contracts of employment involve some elements of “mutual confidence,” the High Court has confirmed that at least for now these elements do not affect the interpretation of employment contracts by imposing implied duties at common law into employment contracts in Australia after the event.

Kim Leontiev

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