Misplaced confidence

Background

Mr Barker was a long term employee of the Commonwealth of Australia (Bank) and commenced employment in 1981. He was promoted gradually over the term of employment culminating in the position of Executive Manager.

In March 2009, Mr Barker was advised that his position was being made redundant and a month later his employment was terminated. His employment contract contained particular provisions, including exhausting redeployment opportunities in circumstances where his position was being terminated for reason of redundancy.

Not convinced

The redeployment process provided to Mr Barker by the Bank under the terms of his contract was approached in a less than convincing manner. For example, attempts to contact Mr Barker by work email and a Bank supplied mobile phone were unsuccessful as he no longer had access to either.

Implied duty?

Mr Barker claimed in the Federal Court that the Bank had failed to conduct the termination and redundancy process adequately. He also asserted that the conduct of the Bank breached its implied duty of confidence and trust in denying him access to redeployment and to retaining a position with the Bank.

Federal Court decision

The decision in 2012 by the Federal Court confirmed that:

‘although it was not incumbent on the Bank to redeploy Mr Barker, it was incumbent on it to take timely and meaningful steps to comply with its own policy.’¹

The Bank’s inactivity within a reasonable period to redeploy Mr Barker meant the Bank had breached the term of mutual trust and confidence which was implied in his employment contract.

This decision was subsequently appealed by the Bank in the High Court.

High Court overrules

The primary question on appeal to the High Court was whether the common law in Australia should recognise the existence of an implied term of mutual trust and confidence in employment contracts.

It was decided unanimously that such a term should not be recognised or implied into employment contracts.²

The majority noted that a key to their findings was whether the proposed implied duty of mutual trust and confidence was an essential requirement conferred by the employment contract and without it, whether the contract would be seriously impeded. The High Court decided that this implied term of mutual trust and confidence, demanded mutual obligations wider than those essential for the contract to be effective.

The High Court commented that the inclusion of such a term into employment contracts would involve complexities in policy consideration, concerning the question whether a duty of trust and confidence should exist. The Court strongly emphasised that this issue should be left to the legislature to decide rather than the courts. Hence, now under the common law in Australia there is no such implied duty. This is in distinct contrast to the law in the United Kingdom where such a term is implied.

A sigh of relief for employers – or is it?

The High Court’s decision for employers should come as a relief. To many employees asserting this claim before the courts, this decision will be a disappointment. By employers not having an implied duty of mutual trust and confidence, this duty may only now be enforceable if expressly stated in the employment contract. But, while no implied term of trust and confidence exists in employment contracts, employers must be careful in that engaging in unreasonable conduct against an employee may still carry legal risk.

More than ever, this decision is a timely reminder that attention must be paid by all parties (employers and employees) to the terms of employment contracts.

¹Barker v Commonwealth Bank of Australia [2012] FCA 942
²Barker v Commonwealth Bank of Australia [2014] HCA 32 (10 September 2014)

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