Employment Contracts – Implied Terms of Trust and Confidence


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Employment Contracts – Implied Terms of Trust and Confidence

The High Court has recently handed down the decision of Commonwealth Bank of Australia v Barker which has overturned the decision of the Full Court of the Federal Court to imply the notion of mutual trust and confidence into employment contracts. This decision affects which terms will be implied into employment contracts and clarifies the law in Australia in respect of this distinguishing the law in this area from its United Kingdom counterpart.

The Facts

Mr Barker was employed by the Commonwealth Bank of Australia as an executive manager for 27 years before he was made redundant. He was advised by the bank that pursuant to his employment contract they would liaise with him in order to find him alternative employment within the company. Due to the cancelation of his bank email and voicemail there was a substantial delay in offering Mr Barker redeployment. Following the terms of his employment contract, due to the delay the bank eventually terminated his employment as he had not been successfully redeployed.

The Federal Court Decision

Mr Barker argued in the Federal Court that an implied duty of ‘mutual trust and confidence’ existed in his contract and that the banks failure to take positive steps to redeploy him amounted to a breach of this term. The Federal Court accepted his argument and awarded him $335,623.57 in damages.

On appeal the majority of the Full Court of the Federal Court of Australia upheld the decision of the trial judge and followed the position in the United Kingdom to imply a term of mutual trust and confidence into employment contracts in Australia.

The High Court Decision

The High Court overturned the finding of the Full Court of the Federal Court and identified the differences in the history of industrial relations in the United Kingdom and Australia. The majority noted that the decision does not prevent implied obligations to act in good faith, nor does it forbid implied obligations to cooperate. Justice Gageler emphasised that the rule was the product of statutory circumstances in the United Kingdom and for this reason it is not justifiable in Australia.

Outcome

The outcome does not prevent implied terms in employment contracts altogether; however it confirms that in Australia there is no implied duty of trust and confidence in employment contracts.

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