On 10 September 2014 the High Court of Australia delivered its highly anticipated judgment in Commonwealth Bank of Australia v Barker [2014] HCA 32 (10 September 2014) (Barker).
The Barker case concerned an appeal from the decision of the Full Court of the Federal Court of Australia in which it was held that Australian employment contracts included an implied term of mutual trust and confidence.
The primary question raised by the appeal to the High Court was whether, under the common law of Australia, employment contracts contain a term that neither party will, without reasonable cause, conduct itself in a manner likely to destroy or seriously damage the relationship of trust and confidence between the employer and employee (the Implied Term of Trust and Confidence).
Put simply, the facts of this matter concerned an employee whose position with the Commonwealth Bank was made redundant. The employee argued that the Bank breached his written employment agreement which resulted in him losing the opportunity to be redeployed by reference to an Implied Term of Trust and Confidence. The primary judge applied the Implied Term of Trust and Confidence and held that the Bank breached this term by failing to take steps to comply with its own redeployment policy. On appeal, the Full Court upheld the primary judge's award of damages on the basis that the implied term of Trust and Confidence required the Bank to take steps to consult with the employee and inform him of suitable employment options, and that term had been breached.
In the proceedings before the High Court, the parties focused on the issue of whether the implied term of Trust and Confidence was "necessary" in the sense that without it, the rights conferred by the employment agreement could or would be rendered worthless or seriously undermined. In this respect the employee relied substantially upon the decision of the House of Lords in the United Kingdom in Malik. Ultimately it was held by the Court (in three separate judgments) that the implied term of Trust and Confidence should not be accepted as applicable to employment contracts in Australia. The Court noted that it may be open to legislators to enshrine the implied term of Trust and Confidence in statutory form and leave it to the Courts, according to the processes of the common law, to construe and apply it.
In its decision the Court noted the inherent ambiguity associated with such a term, and suggested the implication of such a term would propose potential inconsistencies with the established statutory unfair dismissal regime.
The decision is a significant win for employers. Had the Implied Term of Trust and Confidence been recognised as applicable to Australian employment contracts, it would have enabled employees to bring an additional cause of action in relation to alleged breaches by employers of their obligations during, and on termination of, an employee's employment. For example, the failure by an employer to pay a discretionary bonus to an employee could have been argued to constitute a breach of the Implied Term of Trust and Confidence. Fortunately for organisations, that avenue has now been closed by the High Court.
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