Jacquie Seemann

So IS there a duty of mutual trust and confidence?

Jacquie Seemann

18 December 2013

Employment Contracts

Do Australian employment contracts impose an ‘implied’ duty of mutual trust and confidence on both employer and employee? This has been a vexed question for many years.


In a significant step in Australian employment law, the High Court has granted special leave to appeal the Federal Court’s decision in Commonwealth Bank of Australia v Barker [2013] FCAFC 83 (CBA v Barker). This appeal will enable the High Court to finally determine this question.

 

The rights and obligations of parties to an employment contract may be expressly articulated by the parties in written or oral form. However, if there is no such articulated agreement, or if there are gaps in the agreement, the courts may ‘imply’ terms (based on common law principles) to help fill those gaps and make the contract workable.

 

There are a number of fundamental implied terms in employment contracts, such as that the employer will provide work, the employee will carry out the work and the employee will be paid for performing the work. The existence of some other terms is more controversial. One of these is the much-debated ‘duty of mutual trust and confidence’.

 

Australian courts have grappled with this concept on a number of occasions and have been reluctant to imply a duty of trust and confidence into employment contracts. In CBA v Barker, the Federal Court has had to consider whether this implied duty exists. The case was discussed in more detail in a previous blog post, which can be accessed here.

 

In summary, Barker’s position was made redundant and he was put on gardening leave, during which time CBA removed Barker’s access to his work email and mobile phone. However, CBA then sought to use his work email and mobile phone to advise Barker of redeployment options, as required by its Redundancy Policy. As a result, Barker was not aware of CBA’s attempts to contact him. Barker argued that CBA had failed to comply with its Redundancy Policy and, by doing so, had breached the duty of mutual trust and confidence.

 

Both in the first instance and on appeal, the Federal Court agreed with Barker, finding that the duty of mutual trust and confidence was indeed implied into all Australian employment contracts. The Full Court of the Federal Court said that the duty requires the employer not to engage in conduct that was likely to destroy or seriously damage the relationship of confidence. Consequently, CBA was required to be fair to Barker by fully complying with its Redundancy Policy, which it unreasonably failed to do in the circumstances – and accordingly it had breached the contractual duty.

 

The current appeal will be the first time the High Court will consider the issue, and the ultimate decision may significantly affect all Australian employment contracts.

 

Until the final decision is made by the High Court, employers should ensure they comply with their policies and procedures and act fairly and reasonably towards their employees. As the law currently stands, based on the Full Court’s decision, the duty of mutual trust and confidence will be implied in an employment contract unless it has been expressly excluded or is inconsistent with the express terms of the contract.

 

We will be providing regular updates on this important and contentious issue as it is considered by the High Court. In the mean time, we are interested in hearing your thoughts on whether the duty of trust and confidence should be implied into all Australian employment contracts.