Commonwealth Bank of Australia v Barker

[2014] HCA 32 10 September 2014

This week, in perhaps the most anticipated employment law case of recent years, five judges of the High Court unanimously ruled that there is no implied term of ‘mutual trust and confidence’ in employment contracts in Australia. In this blog post, we explain what this means and why it is so important.

The history

For some years, Australian courts have debated whether the law ‘implied‘ a term into all Australian employment contracts that neither employer nor employee may, without reasonable cause, act in a manner likely to destroy or seriously damage the relationship of trust and confidence between them (implied term of mutual trust). In judgments at lower levels supporting the existence of the implied term in Australia, reliance was placed on UK case law. In these judgments, the term was recognised and used to protect employees against actions by their employers including:

  • failure of the employer to observe its rehabilitation obligations under health and safety legislation;
  • breach of the employer’s maternity leave policy by placing an employee returning from maternity leave in a position of significantly lower status; and
  • an unjustified accusation made by the employer that the employee was a thief.

The uncertainty surrounding the existence and boundaries of the implied term of mutual trust has led to many speculative claims, and to employers (sometimes nervously) altering their procedures and contracts of employment to try to reduce the risks posed by the term.

Now, however, thanks to the Barker decision, we know that – attractive though the term is for those who view the employment relationship through an idealistic lens of cooperation and trust – there is no such implied term in Australia. Accordingly, employees in these types of circumstances must look to other legal remedies to protect them.

Barker: the facts

Mr Barker commenced employment with the Commonwealth Bank in November 1981. After progressing through various roles over a long career to Executive Manager, he was advised on 2 March 2009 that his position was being made redundant and that his employment would terminate about a month later if he was not able to be redeployed under the Bank’s redeployment policy. On leaving work that day, Mr Barker was required to hand in his Bank mobile phone and his access to Bank systems was terminated. He did not return to the workplace after that day.

Unfortunately, Bank staff members responsible for the redeployment process were apparently not aware that they would not be able to contact him through his work phone or email, and they tried several times to reach him through these means. There was some belated and limited contact with Mr Barker through his personal email account to explore one possible role (one for which the relevant manager considered he was not suited), but Mr Barker was ultimately dismissed by reason of redundancy on 9 April 2009.

Progress through the courts

Mr Barker commenced action in the Federal Court alleging, amongst other things, breach of the implied term of mutual trust by the Bank on the basis that the Bank had denied him the opportunity of redeployment.

At first instance, Justice Besanko recognised the implied term of mutual trust as existing in Australian law. He then determined that the Bank had breached the term. He found that while the Bank’s redeployment policy had not been incorporated into Mr Barker’s employment contract, the Bank’s failure to take timely and meaningful steps to comply with this policy was a breach of the implied term. Mr Barker was awarded damages of $317,500.

On appeal by the Bank to the Full Federal Court, Justices Jacobson and Lander (the majority) agreed with Justice Besanko that the implied term of mutual trust existed in Australian common law. However, instead of finding that the Bank’s failure to follow its redeployment policy amounted to breach of the implied term, they held that the breach lay in Bank’s failure to ‘take positive steps to consult with Mr Barker about alternative positions and to give him the opportunity to apply for them‘. The damages awarded to Mr Barker were increased by about $18,000 as a consequence of a reassessment of his past economic loss.

In a dissenting judgment, Justice Jessup extensively analysed both UK and Australian cases on the implied term of mutual trust and concluded that it should not be implied by law into Australian employment contracts because of the lack of necessity for such a term.

High Court’s judgment

Barker was the first time that the implied term of mutual trust had been directly considered by the High Court. The opening paragraph of the joint judgment of Chief Justice French and Justices Bell and Keane clearly sets the scene for the rest of the decision, stating that the implication of the term into Australian law:

… is a step beyond the legitimate law-making functions of the court. It should not be taken.

In discussing the circumstances in which a term will be implied by law (as opposed to implied by fact) and the caution with which courts should approach such a task, the joint judgment noted that courts are required:

… to determine whether the proposed implication is ‘necessary’ in the sense that would justify the exercise of the judicial power in a way that may have a significant impact upon employment relationships and the law of contract of employment in this country.

The factors leading to the development of the implied term of mutual trust in the UK were found to be not relevant to Australia, particularly considering the different systems of regulating the employment relationship in the two countries.

The joint judgment acknowledged that a ‘duty to cooperate‘ (under which a party is obliged to do all things necessary in order to enable the other party to have the benefit of the contract) is an implied term in Australian employment contracts – because that duty satisfies the criterion of necessity. By contrast, the implied term of mutual trust ‘…imposes mutual obligations wider than those which are ‘necessary” – partly because it is directed more to the maintenance of the employment relationship rather than the performance of the employment contract.

The joint judgment concluded by suggesting that while the recognition of the implied term of mutual trust in Australia was ‘close to the boundary between judicial law-making and that which is within the provision of the legislature‘, whether it should be part of Australian law was a matter more appropriately determined by legislation than by judges.

In separate judgments, Justices Kiefel and Gageler also found against recognition of the implied term of mutual trust in Australian common law. Justice Gageler approvingly referred to Justice Jessup’s comment in his dissenting judgment in the Full Federal Court about the potential of the implied term (if recognised) to act as a ‘Trojan horse in the sense of revealing only after the event the specific prohibitions which it imports in the contract‘.

The decision has a number of implications

One immediate implication is that current cases or disputes where the employee, or more likely the former employee, has made a claim for damages based on the implied term of mutual trust, may now be resolved, probably in the employer’s favour.

Another implication is that employers who had modified their approach to introducing changes or instituting decisions to dismiss will no longer have to take account of the risk of the implied term of mutual trust. This is particularly relevant in relation to senior employees who are not covered by unfair dismissal protections under the Fair Work Act 2009 (Cth).

Organisations that had included provisions attempting to exclude the implied term of mutual trust from their contract of employments may now wish to revise those contracts.

Finally, there is likely to be a shift back toward more traditional remedies in termination cases, such as unfair dismissal, reasonable notice and discrimination/adverse action claims.