The Federal Court has awarded a former Bank executive $317,500 in damages for breach of an implied term of mutual trust and confidence (Term) in his employment contract.

The Bank was found to have breached the Term by failing to follow its redeployment policy prior to retrenching the executive, even though that policy did not form part of the executive’s employment contract. The decision has been appealed.

Implications for employers

This decision:

  • is one of a number suggesting that the Term applies in Australian law. However, given there are also a number of decisions to the contrary, there remains some doubt in this regard. The appeal is anticipated to provide further clarity;
  • signals the possibility of significant damages awards for breach of the Term; and
  • suggests a serious breach of policy by an employer may constitute a breach of the Term and sound in damages, even if the policy is not part of the employee’s employment contract.

Pending the appeal decision, employers should consider mitigating risk by:

  • ensuring that they comply with their policies in practice;
  • reviewing policies — in particular those governing issues such as employee discipline, grievances and redundancy — to consider whether any promissory language can be softened;
  • ensuring employment documentation stipulates that workplace policies do not have contractual effect; and
  • inserting a clause into future employment contracts which excludes the Term.

Background

The employee, Mr Barker, commenced employment with the Bank in 1981. In 2004, he was the Executive Manager for Corporate Banking in Adelaide. He reported to a general manager based in Victoria and, through him, to an executive general manager, Mr De Luca.

In July 2006, Mr De Luca decided to appoint a new general manager in Adelaide, Mr Formichella. He advised Mr Barker of this. Mr Barker asked if his role would change as a result. Mr De Luca advised it would not. Shortly after this, and taking into account Mr De Luca’s reassurances, Mr Barker refused recruitment overtures from another bank.

However, by mid-2008 Mr Barker’s role had altered significantly. The business for which he was responsible reduced and he was not the only executive manager reporting directly to Mr Formichella, but one of four such executive managers.

The Bank restructured in late 2008-early 2009. Mr Barker’s team was disbanded and his clients reallocated. A decision was made to make one of the four executive managers redundant. In February 2009, Mr De Luca and Mr Formichella decided that that person should be Mr Barker.

Mr Barker was informed of this decision in a meeting on 2 March 2009. He was given a letter from the Bank which stated that its preference was to redeploy him to a suitable position within the Bank but, if that was not possible, he would be retrenched. A manager from human resources, Mr Davis, also stated that, failing redeployment, Mr Barker’s termination date would be 30 March 2009 or 2 April 2009. At the end of the meeting, Mr Barker was directed to clear out his desk and hand in his keys and mobile phone. His access to the Bank’s intranet and email facilities was terminated.

Between 2 March 2009 and 9 April 2009:

  • Mr Barker met on a number of occasions with an outplacement consultant whom the Bank had engaged to assist him through the redundancy process and into his next career. The consultant did not discuss redeployment with Mr Barker.
  • Mr Davis and another human resources manager, Ms Breccia, attempted to contact Mr Barker on his work phone and email address, to which Mr Barker no longer had access.
  • On 23 March 2009, Mr Davis sent an email to Mr Barker’s personal email address advising him that, if the Bank was unable to identify a suitable position for him, his effective exit date would be 30 March 2009 and that, in the interim, he should contact Ms Breccia to discuss redeployment opportunities.
  • On 26 March 2009, Ms Breccia sent an email to Mr Barker at his personal address to which she attached a career circular and a position description for the role of Executive Manager – Service Excellence. A few days later, Mr Barker’s solicitor called Ms Breccia to enquire on his behalf about this position and the Bank’s redeployment policy, but was told by Ms Breccia that she was not involved with redeployment or retrenchment issues. Ms Breccia never spoke to Mr Barker directly during the redeployment period and he did not apply for the position.

On 9 April 2009, the Bank wrote to Mr Barker advising him that his employment was to be “terminated by reason of redundancy effective from the close of business today”. He was paid severance payments and was advised that he was receiving four weeks’ notice of termination of his employment, plus “one extra week’s notice due to your being over the age of 45

Between being retrenched and commencing proceedings against the Bank in mid-2011, Mr Barker made various efforts to obtain alternate ongoing employment. He was unsuccessful.

Mr Barker’s claim

Mr Barker commenced action in the Federal Court. He claimed that:

  • the Bank had breached his contract of employment by failing to comply with its Redundancy, Redeployment, Retrenchment and Outplacement Policy (Redeployment Policy). He argued the Bank should not have selected him for redundancy and had failed to take steps to redeploy him. In consequence, he lost the opportunity to be redeployed to another position within the Bank. Mr Barker claimed this conduct was in breach of an implied term of mutual trust and confidence and also in breach of the policy, which he claimed was incorporated as a term of his contract;
  • alternatively, the Bank failed to provide him with four weeks’ written notice of termination or payment in lieu of notice, as required under his written contract of employment. Again, Mr Barker claimed that this meant that he lost the opportunity to be redeployed, at least during the period of notice; and
  • finally, that the Bank, through Mr De Luca, engaged in misleading and deceptive conduct in contravention of sections 52 and 53B of the then Trade Practices Act 1974 (Cth) (TPA) by suggesting that Mr Barker’s job would not alter. Mr Barker argued that he had relied on the representation to his detriment by not pursuing the recruitment overtures made to him.

Decision

Breach of contract claim #1

Justice Besanko found that the Redeployment Policy was not part of Mr Barker’s employment contract. This was because:

  • it was not referred to in Mr Barker’s written contract;
  • the policies stated that they did not form part of the employment contract; and
  • there was no need to imply the policy as a term, as the contract operated reasonably and effectively without it.

However, Justice Besanko found that the Term was to be implied into the contract as a matter of law. He observed that:

  • by way of general commentary on operation of the Term:
    • the parties are free to expressly exclude it;
    • the Term only operates where a party “does not have reasonable and proper cause for his or her conduct and the conduct is likely to destroy or seriously damage the relationship of confidence and trust between employer and employee”;
    • it was not necessary to decide the contentious issue of whether the Term applies at the point of dismissal (previous case law would suggest not), because the critical question in this case was whether the Bank breached the Term by failing to comply with its Redeployment Policy prior to Mr Barker’s termination on 9 April 2009; and
    • a breach of the Term can result in an award of damages;
  • in the present case, as each party expects that policies will be adhered to, a serious breach of the Redeployment Policy would give rise to a breach of the Term;
  • while the decision to make Mr Barker’s position was made in good faith, the Bank had breached its Redeployment Policy by, amongst other things, failing to consult with Mr Barker about his redeployment opportunities or to discuss retraining with him. The Bank’s “almost total inactivity” rendered the breach of policy serious and constituted a breach of the Term;
  • there was a 25% chance that Mr Barker would have been redeployed and so he was entitled to compensation by way of 25% of:
    • $110,000 for past economic loss, less the redundancy payment he received and some consultancy fees he earned post-termination; and
    • $1,160,000 for future economic loss, calculated on the basis of a retirement age of between 60 and 65 years, less 30% on account of residual earning capacity.

Mr Barker was not entitled to general damages for hurt, distress and loss of reputation and aggravated damages, as such damages are barred by a long-standing rule established in the matter of Addis v Gramophone Co Ltd [1909] AC 488.

Breach of contract claim #2

Justice Besanko was less sympathetic in relation to the alternative breach of contract argument, holding that while the Bank repudiated the contract on 9 April 2009 by purporting to terminate it other than in accordance with its provisions – that is, by giving four weeks’ written notice or payment in lieu – this did not deprive Mr Barker of the opportunity of being redeployed during the notice period as he claimed. If the Bank was obliged to take steps towards redeploying Mr Barker, that was a process to be engaged in between redundancy and notice of termination. If the Bank’s only breach had been the failure to give the requisite notice of termination to Mr Barker, his only loss was four weeks’ pay.

Misleading and deceptive conduct claims

Justice Besanko rejected Mr Barker’s claims under the TPA, essentially because:

  • with respect to the section 53B claim, that section applies to prospective employees and Mr Barker was an existing employee; and
  • with respect to the section 52 claim, Mr De Luca’s representation was not, as is required, made in “trade or commerce”.

In any event, Mr De Luca went no further than conveying the meaning that Mr Barker would remain as an executive manager in charge of a team. It did not suggest that there would be no changes in the structure around him in the future.