A Full Court of the Federal Court of Australia has handed down a majority decision upholding the previous finding of a single judge of the Federal Court that, implied into every Australian employment contract, in the absence of express exclusion, is a term of mutual trust and confidence (Term).

The decision has resolved a long standing debate and is a first of its kind by an Australian intermediate court of appeal. While the issue has been clarified, for now, the dissenting Judge’s definitive dissent has laid grounds for the decision to be appealed to the High Court of Australia.

Background

The employee was employed by one of Australia’s four largest banks, as an executive manager pursuant to a written contract of employment.

On 9 April 2009, after 27 years’ service, the employee’s employment was terminated by reason of redundancy in light of the fact that he was not successfully redeployed to an alternate position within the employer.

Majority decision of the Full Federal Court

The majority held that:

  1. the Term was implied into every Australian employment contract by necessity having regard to the relationship between an employer and employee. However, the Term may be excluded by an express provision in an employment contract to the contrary;
  2. the Term obliges an 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;
  3. he content of the Term is an evolving one and must be moulded according to the nature of the employment relationship and facts of the case; and
  4. breach of the Term gives rise to a claim in damages for breach of contract so long as the breach is prior to, and independent of, termination. However, general damages for hurt, distress and loss of reputation are not recoverable.

In light of the principles set out above, the majority found that the employer had breached the implied Term by failing to take positive steps to consult with the employee about redeployment opportunities. In reaching this decision, the majority considered the fact that the employee was a long-term employee of a large corporate employer to be significant.

Implications for Employers

The malleable nature and scope of the Term creates a deal of uncertainty for employers. The decision emphasises the need for careful and clear drafting of employment contracts as well as due consideration, when effecting a termination, of the specific circumstances of the employee and employer.