In one of the most significant employment law decisions in decades, the High Court of Australia has today decided that a term of mutual trust and confidence should not be implied into all employment contracts in Australia.

Background

Stephen Barker was made redundant by the Commonwealth Bank in 2009. Unfortunately, his redeployment process miscarried. He sued the Bank. He argued that the Bank's failure to comply with its redeployment policy caused him to lose an opportunity to be redeployed. His claim was successful and he was awarded damages of AUD317,500.

At trial, the Federal Court held that the Bank's failure to comply with its redeployment policy breached an implied term that parties will not, without reasonable cause, engage in conduct likely to destroy the relationship of trust and confidence that must exist between an employer and employee.

On appeal, a majority of a Full Court of the Federal Court (Jacobsen and Lander JJ, Jessup J dissenting) agreed that a term of mutual trust and confidence was implied by law into Mr Barker's contract. However, that term was not breached by the Bank's non-compliance with its redundancy policy. Instead, it was breached by the Bank not taking positive steps to consult with Mr Barker about alternative positions and not giving him an opportunity to apply for those positions.

High Court's decision

In a unanimous decision (French CJ, Kiefel, Bell, Gageler and Keanne JJ), the High Court of Australia upheld the Bank's appeal. The Court found that the implication of the term was "a step beyond the legitimate law-making function of the courts" and "should not be taken". The Court (in three separate judgments) considered the different bases on which terms can be implied in the contracts. All Justices agreed that it was not necessary to imply a term of mutual trust and confidence into Australian employment contracts.

All Justices adopted a cautious approach to the implication of terms and, when doing so, shied away from "complex policy considerations" Their Honours felt these considerations made the possible implication of such a term a matter more appropriate for the Parliament, rather than courts, to determine.

Implications

Employees, particularly those that do not have access to the unfair dismissal regime, will feel aggrieved. They may well ask - is it fair that we are subject to a "duty of good faith" to our employers, but they are not subject to a reciprocal duty towards us?

The answer to this question may well be - it's not fair, but that does not make implication of the term a necessity. On that point, Mr Barker's landmark case failed. Consequently, most employers will breath a sigh of relief.