Clifford Gouldson Lawyers

High Court Barker Decision - No implied mutual trust and confidence terms

Print Version

22/09/2014

The enforceability of implied terms in employment contracts has always been a hotly debated topic in the employment sector.  The existence of the implied term of mutual trust and confidence even more so, until now.   

The High Court has unanimously quashed any inference that the implied term of mutual trust and confidence exists in Australian employment contracts in the ground-breaking decision of Commonwealth Bank of Australia v Barker [2014] HCA 32.

Background

Mr Barker’s executive manager position with the Commonwealth Bank of Australia (CBA) was made redundant in 2009.  The organisation’s redundancy policy clearly required CBA to attempt to redeploy Mr Barker to a more suitable position prior to terminating his employment in its entirety.  

Mr Barker was never redeployed within the organisation.

CBA argued that his employment was terminated on the basis that human resources failed to successfully contact Mr Barker via both his work email and work mobile with redeployment options.  However, when made redundant, Mr Barker was required to empty his office and return all office property to CBA and not return to work.  Email and other internal facility access was also immediately terminated.

Not surprisingly, Mr Barker never received any communications sent by CBA following his redundancy let alone any offers for redeployment.  

In the first instance, the Federal Court held that CBA breached an implied duty of mutual trust and confidence by failing to adhere to their own redundancy policies.  On appeal, the Full Court upheld the decision on the basis that CBA failed to take positive steps to consult with Mr Barker prior to terminating his employment and consequently breached the implied term of mutual trust and confidence.

The High Court
 
On appeal, all  five High Court Justices unanimously rejected the Federal Court’s decision, stating that the implied term of mutual trust and confidence “should not be accepted as applicable...to employment contracts in Australia”. 

Justice Kiefel believed that the implication was not necessary in Australian employment contracts because “contracts of employment do not require such an implication for their effective operation” and that such an implication would go beyond the proper function of the courts.   

It is important to note that the High Court refrained from commenting on the obligation to act in good faith in the performance of employment contracts, or whether contractual powers and discretions may be limited by good faith and rationality principles in the realm of public law.  Three Justices noted “those questions were not before the Court in this appeal” and therefore remain unresolved.   
 
Where to from here?

This decision now stands as a timely reminder for employers to review their employment contracts and determine which terms they merely imply and whether or not such an implication is enough in light of the High Court’s decision.   

Although the decision has been hailed as a necessary step towards reducing the risk of litigation by disgruntled ex-employees, it is likely that the notions of good faith and fairness will continue to be examined as such claims have gained considerable traction in the past year including one such claim that successfully extended the boundaries of flawed or unlawful management action to include hurt and humiliation.  See Richardson v Oracle Corporation Australia [2014] FCAFC 82.

It goes without saying that employers are still under the obligation to treat employees fairly and adhere to the notions of good faith and fairness when dismissing employees, however the landscape of implied terms and implied duties is seemingly on the verge of experiencing a historical shift.

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