Rebecca Best

Is there a duty of mutual trust and confidence?

Rebecca Best

27 September 2013

Employment Contracts

It has long been debated whether there is a duty of mutual trust and confidence under Australian employment law. In the recent decision of Commonwealth Bank of Australia v Barker [2013] FCAFC 83, a 2:1 majority of the Full Court of the Federal Court confirmed that such a duty exists, including at the time of dismissal.

In this case, Barker was made redundant and put on gardening leave, during which time his employer the Bank removed Barker’s access to his work email and mobile phone. However, the Bank then sought to advise Barker of redeployment options, as required by its Redundancy Policy, by using his work email and mobile phone. Of course, the Bank couldn’t get through to Barker.

 

Barker argued that the Bank had failed to comply with its Redundancy Policy and by doing so, engaged in a breach of contract and a breach of the duty of mutual trust and confidence.

 

The Full Court majority upheld the decision of the initial trial judge who found that:

  • the Redundancy Policy was not incorporated into the contract of employment, there was no breach of contract;
  • by failing to comply with its Redundancy Policy, the Bank had breached its duty of mutual trust and confidence to Barker.

The Full Court majority commented that the duty required the employer not to engage in conduct that was likely to destroy or seriously damage the relationship of confidence. In that case, the Bank was required by its policy to take positive steps to consult with Barker about alternative positions and to give him an opportunity to apply for those positions, which it had unreasonably failed to do in the circumstances.

 

Barker was awarded $335,623.57 in damages for loss of opportunity.

 

The Full Court did not however consider whether the duty extends to allow damages that flow from the termination, for example injury to reputation or injured feelings.

 

The NSW Court of Appeal decision in Russell v The Trustees of the Roman Catholic Church [2008] NSWCA 217 therefore remains authority for the position that damages to reputation or feelings are not recoverable through a claim for breach of the duty of mutual trust and confidence. Rather, such damages are only recoverable through statutory unfair dismissal or unlawful termination claims, if at all.

 

The Full Court also confirmed that the duty cannot conflict with the express terms of the contract of employment and may be expressly excluded by written agreement between the parties.

 

Conclusion

 

In the absence of a High Court decision regarding the duty of mutual trust and confidence, a majority of the Full Federal Court has confirmed that a duty exists in the employment relationship and that this duty continues up to the point of dismissal, including in relation to the consideration of redeployment opportunities.

 

This is a significant step in Australian employment law. Courts have been reluctant to imply a duty of trust and confidence and this decision provided great support for terminated employees.

 

Given the contentious nature of this decision and its implications, The High Court is likely to be the final decision-maker on this issue.

 

Until further clarity is provided by an appeal decision, employers should ensure that they comply with their policies and procedures and do not otherwise act in an unfair or arbitrary manner towards employees. The key obligation of an employer is not to destroy or seriously damage the relationship of trust and confidence.