In a highly significant employment law decision, the High Court of Australia has unanimously overturned a decision of the Full Court of the Federal Court and found that Australian contracts of employment do not contain an implied term of mutual trust and confidence.

The decision of Commonwealth Bank of Australia v Barker [2014] HCA 32 is one of the most significant decisions for employers in recent years.

Why does this case matter?

The finding means that employers and employees are not required to comply with a new implied term in all Australian employment contracts. That term would have meant that they could not, without reasonable and proper cause, act in a way calculated or likely to destroy or seriously damage the relationship of confidence and trust between an employer and employee.

The decision of the High Court provides certainty and means employers can breathe a sigh of relief that no new obligation regulating how they may deal with employees has been created.

What was Mr Barker’s claim?

As set out in our earlier eAlerts of October 2012 and August 2013, Mr Barker claimed that the Commonwealth Bank of Australia (CBA) breached the implied term of mutual trust and confidence in its failure to redeploy him when his position was made redundant after a more than 20 year career with CBA.  Mr Barker could not access the unfair dismissal jurisdiction of the Fair Work Commission. He was, however, awarded more than $335,000 in damages by the Full Court on the basis that CBA breached the implied term because it should have done more to consult with him about redeployment and advise him of alternative positions.

The High Court's decision

Unanimously, the High Court held that there is no such implied term in Australian employment contracts. Mr Barker was therefore not entitled to damages for breach of his employment contract.

In contrast, for many years courts in the United Kingdom have accepted that contracts of employment contain an implied term of mutual trust and confidence. While Australian courts have referred to the term on occasion, whether such a term is a feature of contracts of employment in Australia has been unclear until the case of Mr Barker. The potential implication of the term would have had a significant impact on the nature of employment relationships in Australia.

The High Court held that:

  • the implication of the term was not necessary as a universal rule (necessity being a legal test as to when a term is implied in a contract)
  • it was not appropriate for the Court to imply such a term, with such action more appropriately being left to the legislature
  • the history behind the development of the implied term of mutual trust and confidence in the United Kingdom was not relevant in Australia.  

Lessons for employers

The High Court noted that there were several legal issues that remain open in this area:

  • the question of whether there is a general requirement of good faith in contractual dealings in all contracts (employment and otherwise) in Australia is unresolved
  • the implied term of mutual trust and confidence may be implied in fact in some employment contracts by the conduct of the parties. Employers are reminded of a similar issue arising from the decision of the Full Court of the Federal Court in Goldman Sachs v Nikolich [2007] FCAFC 120 where an employer's policies were incorporated into an employee's contract of employment by the wording of those policies.