The Full Federal Court of Australia has handed down a landmark decision recognising the implied term of mutual trust and confidence in employment contracts in Australia. As reported in our September 2012 Update, an employee of the Commonwealth Bank successfully argued that his employer breached the implied term when it failed to adequately consider alternative employment options to redeploy him before he was dismissed after more than 20 years of employment, which was upheld on appeal to the Full Federal Court and awarded damages to the employee for $335,623. This is the first time the Full Federal Court has recognised a breach of this implied term. 

The implied term of mutual trust and confidence requires the employer to not, without reasonable cause, conduct itself in a manner "likely to destroy or seriously damage the relationship of confidence and trust" between employer and employee. In its decision, the Full Court examined the actions of the Commonwealth Bank and found that it had breached its obligations of the implied duty of mutual trust and confidence by removing the employee’s access to email and phone as well as not taking appropriate steps to notify or redeploy him. 

Even though the majority of the Full Court accepted that the employment contract did not incorporate the redeployment policy, it found that the employer should have taken the necessary steps to consult with the employee given the employment contract contemplated the possibility of redeployment or redundancy as an alternative to termination. Accordingly, the Full Court held that the employee had a legitimate expectation that the Commonwealth Bank would notify and inform him of alternative employment options and by not doing so, it had breached the implied term in this employment contract.

The Full Court also discussed whether the implied term was in force at the point of dismissal or if it was limited to situations prior to dismissal. In this case, the employer’s failure to take positive steps to follow its redeployment obligations were "separate from and anterior to" the termination of employment. The conduct occurred before the termination, rather than at the point of termination itself, so the Court held that the implied term of mutual trust and confidence applied in this circumstance.

This decision ultimately turned on the specific facts, with the Full Court taking into account the long term employment of the employee (over 20 years), the large size of the employer and the clauses in the employment contract. 

Commonwealth Bank of Australia v Barker (2013) FCAFC 83 

Reflection for Employers

As predicted in our September 2012 Update, this decision will further embolden plaintiff lawyers acting for executives and other senior employees who do not have access to the statutory unfair dismissal regime and have been increasingly commencing claims alleging a breach of the duty of mutual trust and confidence by their employer to seek redress for circumstances leading to the termination of their employment. Although it seems likely that there will be an appeal to the High Court of Australia, it is important for employers to carry on the employment relationship bearing in mind the risk of a mutual trust and confidence until such time. 

In the meantime, employers are encouraged to review existing clauses in employment contracts regarding the redeployment and redundancy as well as policies and procedures in relation to how they deal with employees in redeployment situations to avoid imposing onerous obligations that may lead to a breach of the duty mutual trust and confidence if not followed.