Attempts by employees to bring back to life the implied term of trust and confidence continue to fail, with both the Queensland and NSW Courts of Appeal recently rejecting the term in employment contracts. However, the implied term of good faith dodges the same fate for now.

Each of the cases reviewed the scope of the Barker case,[1] decided by the High Court last year. The Barker case clearly decided that a term of mutual trust and confidence will not be implied as a matter of course into all employment contracts. However, despite the High Court decision, the former employees in each of these cases argued that a term of mutual trust and confidence should be implied into their contracts, together with an implied term of good faith.

Probationary employment contracts are no exception

In the case of State of New South Wales v Shaw[2], the Court of Appeal found that the probationary nature of the employment did not require, for the efficacy or worth of the contract, the implication of a term about mutual trust and confidence. The fact that employment is probationary does not provide a meaningful point of distinction from the conclusion reached in the Barker case.

The employees in Shaw tried to distinguish the concept of trust and confidence from the more elusive duty of good faith. This was no doubt due to the fact that the High Court left open the possibility that, despite its view about trust and confidence, a duty of good faith might still independently exist in relation to particular contracts.

Without needing to decide that point, the Court of Appeal still rejected the good faith argument, as the contracts still operated effectively without it.

The case concerned the dismissal of a married couple who were appointed as probationary teachers at Bourke Public School in NSW. As a result of various performance allegations, their probationary engagements were terminated. After the employees enjoyed success in the District Court, the State of NSW appealed against the finding of an implied term, and relied on the Barker case which had been decided in the meantime.

The couple then asserted on appeal that their success in the District also could be maintained on the alternate good faith ground.

In addition to rejecting an implied term of mutual trust and confidence, or of good faith, the Court of Appeal rejected that there would have been any breach of such a term. The fact that an employee is humiliated and distressed by the contents of a show cause letter, or by being handed the letter without a support person present, does not demonstrate a lack of good faith on the employer’s part. The case followed many before it, where the lack of definition around what the implied term would require, and what conduct would constitute a breach, brought the claim undone.

No implied term of good faith to exercise prudence, caution and diligence

In Gramotnev v Queensland University of Technology[3], it was argued that a particular duty of good faith was implied into the former employee’s contract, in addition to other implied terms which included the term of mutual trust and confidence. After rejecting the implied term of mutual trust and confidence in light of Barker, the Queensland Court of Appeal went on to consider whether an obligation to act in good faith was implied into the contract.

The appellant in this case, a former lecturer at QUT, claimed that the implied term of good faith required QUT to “exercise honest (sic), fairness, prudence, caution and diligence” in the performance of his employment contract. The Supreme Court rejected the formulation of an implied term of good faith in those terms. The Court was of the view that such a term took on “the language of a duty of care” which was not apt to describe the obligations of an employer in exercising contractual rights or performing contractual obligations.

While rejecting the particular implied term of good faith articulated by the appellant in that case, the Court of Appeal did not altogether rule out the existence of an implied term of good faith in employment contracts. Encouragingly, however, the Court did consider the observations of the NSW Court of Appeal in Shaw (which was decided just before judgment in this case) in determining there was no such term in the contract.

Implications for employers

These decisions build further confidence that written contracts of employment can be relied on according to their terms, without concern that there will be some unintended implication of terms based on trust and confidence or a similarly described duty of good faith. While the Courts of Appeal, like the High Court in the Barker case, did not rule out the possibility of an implied term of good faith in certain circumstances, it confirmed that the term is not a de facto unfairness assessment enlivened by the employer’s handling of performance issues and the termination of the employees’ employment.