Implied term of trust and confidence confirmed by appeal court

Introduction

In a significant recent decision, a full court of the Federal Court of Australia has determined that the implied contractual term of mutual trust and confidence between an employer and an employee has received a sufficient degree of recognition both in England and Australia so as to support its application in Australian employment contracts.

Background

Mr Barker was employed as an executive manager with the Commonwealth Bank of Australia (CBA) under a written contract of employment. Mr Barker had been employed by the CBA for 27 years.

The CBA had in place various policies relating to the bank's employment practices, including a Redundancy, Redeployment, Retrenchment and Outplacement Policy (the Policy).

On 2 March 2009, Mr Barker was provided with a letter confirming his current position was redundant and the CBA's preference was to, in consultation with him, redeploy him within another suitable position. However, if a suitable position was not found by 2 April 2009, that his employment would be terminated.

At the time of receiving the above letter confirming his current position was redundant, Mr Barker was requested to work the remainder of the day, clear out his desk, hand in his keys, mobile phone and not return to work. His access to work emails was also terminated. He was further advised that he would be on paid leave during his redeployment period. The person assigned by the CBA as responsible for assisting Mr Barker to be potentially redeployed was not advised that his access to the work email and mobile phone had terminated.

The CBA did not contact Mr Barker until 26 March 2009 when it advised him of a vacant position which would suit his skills set. Mr Barker did not apply for the position despite his termination date being extended by a week to 9 April 2009 and his employment ultimately terminated on that date.

The legal claim

Mr Barker issued proceedings against the CBA for amongst other claims, a breach of contract. In particular Mr Barker claimed that:

• the Policy was incorporated into his employment contract, which the CBA breached by selecting him for redundancy contrary to the requirements of the Policy; and
• the CBA was subject to an implied term of trust and confidence in the contract of employment which it had been breached.

Court's finding in the first instance

At the initial hearing of the matter Justice Besanko found in favour of Mr Barker and concluded that whilst the Policy document itself was not expressly or impliedly incorporated into Mr Barker's contract of employment, there was a term of mutual trust and confidence implied into Mr Barker's contract which required the CBA to conduct itself in a manner which was not likely to destroy or seriously damage the relationship of trust and confidence between them.

In particular, Justice Besanko concluded that the bank had been almost totally inactive in complying with the requirements under its own Policy to consult with Mr Barker. No discussions were had with Mr Barker regarding retraining and no redeployment plan was developed or implemented. The failure to comply with the requirements of the Policy gave rise to a breach of the implied term of mutual trust and confidence by CBA for which Mr Barker was initially awarded damages of $317,000.

Appeal

The CBA appealed Justice Besanko's decision. The majority of the full court noted that although the duties of an employer under the implied term of trust and confidence is still being developed, that "the content of the implied contractual duty must be moulded, according to the nature of the relationship and the facts of the case."

In the appeal decision Justices Jacobsen and Lander did not regard the failure to follow the Policy itself as giving rise to a breach of the implied term of mutual trust and confidence. Rather, it was the bank's failure to consult with Mr Barker in circumstances where:

• the bank was a large corporate employer; Mr Barker was a long term employee; and
• Mr Barker was a long term employee; and
• Mr Barker's contract of employment indicated that he would be made redundant if the bank was unable to place him in alternative employment.

that was considered by the court to give rise to a breach of the implied term.

In short, the majority of the full court concluded that the above factors resulted in the implied term of mutual trust and confidence imposing an obligation on the CBA to take positive steps from 2 March 2009 to consult with Mr Barker about the possibility of redeployment and to provide him with the opportunity to apply for alternative positions within the bank. Instead, the bank failed to make contact with him for a period which the primary judge found to be unreasonable.

The CBA was unable to do what was required of it because it withdrew Mr Barker's email and mobile phone facilities without telling the person charged with the responsibility of contacting Mr Barker about redeployment opportunities.

The Court further confirmed that because the breach of the implied term of mutual trust and confidence by the CBA occurred prior to and independent of termination of Mr Barker's employment, that damages may be awarded. Mr Barker was ultimately awarded damages of $335,623.

Summary

It remains to be seen if the decision will be subject to an appeal, however, the case clearly confirms the preparedness of superior courts to find that the implied term of mutual trust and confidence is a recognised part of Australian employment law and that substantial monetary damages can flow from an employer's breach of the term.

The case is a further reminder that when terminating the employment of an employee, in particular a senior executive, the employer needs to consider its exposure to a breach of the implied term of mutual trust and confidence and obtain legal advice on how to minimise any such exposure.

If you would like more information about the case, please contact National Workplace Lawyers on +61 2 9233 3989. 

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Note — this is for information purposes only and does not purport to be comprehensive or to render legal advice.