In brief

  • The High Court has unanimously held there is not an implied term of mutual trust and confidence in Australian employment contracts.
  • The High Court’s decision in Commonwealth Bank of Australia v Barker [2014] HCA 32 overturns the decisions of the Full Federal Court (Jacobson and Lander JJ, Jessup J dissenting) and the Trial Judge.
  • Given the previous level of uncertainty in Australian law in relation to the existence and extent of such an implied term, this clear High Court authority on point is of great utility to employers.
  • The High Court was careful to note that its judgment should not be taken as reflecting upon the question of whether there is a general obligation to act in good faith in the performance of contracts.
  • See our previous updates on the decision1 and the decision.2

Background

The case involved an employee, Mr Barker, who had commenced working at Commonwealth Bank of Australia (the Bank) in 1981. In 2009, Mr Barker was informed that his position (as Executive Manager) had been made redundant. He was then put on paid leave and later advised that his employment would be terminated.

The Bank’s redeployment policy provided that the Bank was to take certain steps to attempt to facilitate the redeployment of employees to be made redundant. However the redeployment policy was explicitly excluded from Mr Barker’s contract of employment.

Mr Barker brought proceedings in the Federal Court alleging that the Bank had breached the implied term of mutual trust and confidence (Implied Term) of his contract of employment by failing to make proper efforts to redeploy Mr Barker elsewhere within the Bank.

At first instance, Besanko J found the Bank had breached the Implied Term which formed part of the contract of employment between the Bank and Mr Barker. The majority of the Full Federal Court upheld this decision, in finding that the Bank had breached the Implied Term for failing to take positive steps to consult with Mr Barker about the possibility of redeployment and for failing to provide Mr Barker with the opportunity for redeployment.

Appeal to the High Court

The appeal to the High Court raised the question of whether, under the common law of Australia, there is a term of mutual trust and confidence to be implied by law in all Australian employment contracts.

The High Court has held that such an implication would be a step beyond the legitimate law-making function of the courts and should not be taken.

The majority of the High Court made the following key findings:

  • the existence of an implied term must be determined with reference to whether the proposed implication is 'necessary', in that it is implicitly required by the nature of the contract itself – it is not determined by the reasonableness of the implication,
  • the Implied Term did not answer the criterion of necessity required to support its implication in law in Australian employment contracts generally,
  • the history of the development of the Implied Term in the United Kingdom is not applicable to Australia,
  • the Implied Term is a matter more appropriate for the legislature than for the courts to determine, though it would be open to the legislature to enshrine the Implied Term in statutory form and leave it to the courts to construe and apply it.

The High Court was careful to note that its judgment should not be taken as reflecting upon the question of whether there is a general obligation to act in good faith in the performance of contracts, nor does it reflect upon the related question of whether contractual powers and discretions may be limited by good faith and rationality requirements.