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High Court closes the door on the

High Court closes the door on the “invisible” “trust” and “confidence” term

Published on September 30, 2014 by Peter PunchPeter Punch

Anyone who took the time to read the transcript of the hearing of Commonwealth Bank of Australia v Barker in May 2014 would not (could not possibly) have been surprised that in its 10 September 2014 decision the Court unanimously rejected the contention that all employment contracts in Australia have or should have implied into them by law a term that neither party would do anything to destroy or seriously damage the necessary “trust and confidence” that should exist between employer and employee (Commonwealth Bank of Australia v Barker [2014] HCA 32).

The response from the legal fraternity has been starkly divided – at one extreme the decision was decried as being “the effective death of employment contract law” (Workforce, 19315, 12 September 2014); at the other extreme the Court was undoubtedly right to reject a so called “invisible term” into the employment contract, for if it had not the result in employment law would be equivalent to enshrining communism – ie the same terms for everyone whether a mere worker or a senior executive (see Australian Financial Review  Friday 19 September 2014).

I respectfully suggest that everyone who has been stirred up by the High Court’s decision (at either end of the spectrum or anywhere in between) needs to get a grip. I would like to make the following observations from my relatively privileged perspective of having been on either side of the “mutual trust and confidence” argument innumerable times in the fifteen years since  the House of Lords decision in Malik v Bank of Credit & Commerce International SA (In Liq) [1998] AC 20  (Malik’s case).

First, the High Court demonstrated that the House of Lords’ decision in Malik’s case was a significant extension to existing United Kingdom authorities and was not well supported by the previous case law.  A good point no doubt – but, so what? The House’s 1932  decision in Donohue v Stevenson, introducing the “neighbour principle” into tort law, was not exactly a classic example of incremental development in the common law either.  The decision of the High Court in Mabo v The Queen (No 2) (1992) 175 CLR 1 in fact totally rejected a long line of common law authority that Australia was “terra nullius” when the British arrived. We all coped with that. So, the fact that the House of Lord’s decision in Malik’s case was “a bit out there” does not in itself mean that Australia should not follow it.

Second, the seeds of the High Court’s decision in Barker’s case  were well and truly sown by its 1995 decision in Byrne & Frew v Australian Airlines (1995) 185 CLR 410 (a decision with which the writer is only too painfully familiar), in that the test that the Court there applied to determining whether a proposed term ought to be implied into a contract of employment is whether it was “necessary”, and that means necessary in the sense propounded in Liverpool City Council v Irwin [1977] AC 239 – namely that “the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, be seriously undermined” or “the contract would be deprived of its substance, seriously undermined or drastically devalued” unless the proposed term was implied. Utilising those narrow concepts of “necessity” it was pretty much inevitable that the implied term of “trust and confidence” would be rejected by the Court.

Thirdly, it is relatively clear that the Court rather considered that the employment contract has been so highly affected by statutory intervention in Australia over the last 100 years or so that the Court should not be tempted to engage in anything that might look like judicial law making in this area (see paragraphs 16 and 17 of the majority judgment, and paragraph 118 in the judgment of Gageler J). I think that is a legitimate approach, although some (although not me of course) might call it timid (sotto voce no doubt).  Generally speaking, this approach is a mark of the Court’s approach to the development or the adaptability of the common law, bearing in mind its need to work in a coherent way with the surrounding legislative environment (see for example SGIO v Trigwell (1979) 142 CLR 617 at 633, and Brodie v Singleton Shire Council (20010 206 CLR 512 at 532; see also State of New South Wales v Paige (2002) NSWLR 371 at 400). It is nothing remarkably new.

Fourthly, what is this alleged creature called “the invisible term”?  I am surprised that lawyers would use such an expression, clearly in a pejorative sense, to criticise the (now rejected) implied term of “trust and confidence”. There are lots of such terms – eg the duty of good faith and fidelity, the right to notice of termination of employment, the right to wages in return for work or being ready willing and able to work. The “trust and confidence” term was in the same camp, although clearly its vice was that it was just a bit too flexible for many people’s taste.

Fifthly, the conjuring up of the “communist bogey” to criticise the term seems a little overblown, in my respectful opinion.  All of the established “implied terms” apply to all employees, whether high or low, so are they all communistic provisions too?

Sixthly, in my (pretty extensive) experience, the world as we know it was not falling apart because lawyers (like me and others) were mounting arguments or cases for senior executive employees on the basis of alleged breach of the “trust and confidence” implied term.  The point is that “the horse has bolted” for all employers –  employees (whether senior or not) are now much more pro active in investigating and/or asserting their alleged rights or making claims, and this is a societal thing.  It will not change. Causes of action (whether statutory or common law) may be cut off or curtailed, but the “mind set“ to claim is just totally entrenched. For example, how will the decision in Barker’s case stop “bullying” claims, or sexual harassment claims or other discrimination claims (of course it will not)? In my experience, if employers take the appropriate precautions (eg have properly drafted  and signed contracts in place to start off with, use probationary periods to cull out likely poor performers, record counselling sessions and do not let problem situations “drift”) they would have nothing to fear from the implied term.  And of course, there will always be the small percentage of employees who will be “the employee from hell” – the decision in Barker’s case will have no effect on such individuals.

Seventhly, the High Court left open the door for the adoption of another, and possibly more suitable implied term into all contracts – namely the duty of “good faith” (see the majority judgment at paragraph 42 of it, and paragraphs 104 to 107 of the judgment of Keifel J). The High Court had previously identified the notion of an implied term of “good faith and fair dealing”, as one that would ultimately require  its authoritative ruling in relation to its part (if any) in the contract law of  Australia – see Royal Botanical Gardens and Domain Trust v South Sydney Council (2002) 240 CLR 45 at 63 and 94. While the issue was not before the Court in Barker’s case, there was nothing said by it, in mentioning this issue, that would suggest the proposition has “no prospects” of ultimate success. Maybe therefore, the rejection of the implied term of “trust and confidence” might well be a benefit in disguise for all parties to contracts (including employment contracts) who might regard themselves as being in an inferior bargaining position.  With the debate over “trust and confidence” out of the way, the “good faith” principle may now flourish. We can expect to see an increased reliance on the notion of “good faith” in employment and other contractual disputes in the near future.

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